Christie budget suspends N.J. tax rebates

TRENTON -- Gov. Christie proposed suspending property tax rebates for 2010 and drastically cutting aid to towns and schools today as he introduced his first state budget, a plan which he said would chart "a completely new course" on state finances.

The plan, which Christie said would restore balance to the budget and make New Jersey a leader in job creation, aims to reduce state spending and control property taxes with a 2.5 percent annual cap on increases, but also includes reductions that will affect homeowners, the poor, public schools and colleges.

"Today we are fulfilling the promise of a smaller government that lives within its means," Christie said in a speech to the Legislature. "Today, we begin doing what we promised to do."

The $29.3 billion budget eliminates property tax rebates for this year, saving nearly $850 million but reversing ground on Christie's campaign pledge to protect the checks. The rebates went out to roughly 1 million homeowners last year, averaging between $670 and $1,300.

The relief would return in May 2011 in the form of quarterly credits on homeowners' property tax bills. Those who were eligible for 2009 rebates will get the new credits, according to Christie aides. But the May payment would equal just 25 percent of the amounts given out last year. The remaining installments would have to be paid for in future spending plans.

The rebate cut is by far the largest of the $1.9 billion in spending reductions Christie proposed.

Christie characterized the change as the end of a political "gimmick," noting that it cost $10 million a year in interest to borrow the money needed to send the rebates out early in the fiscal year, just before Election Day.

"The first credits will appear in May 2011, in recognition of the shared sacrifice we must all make," Christie's prepared remarks read.

In addition, the "senior freeze" program that controls property taxes for senior citizens will not accept any new enrollment.

The rebate suspension carries with it political risk: Christie and fellow Republicans had hammered Gov. Corzine for reducing the checks last year. Average property taxes in the state are now $7,300 a year, and are consistently ranked as voters' number one concern.

The budget and most of the associated plans require approval from the Democratically-controlled Legislature.

With rebates gone and state aid cuts putting more fiscal pressure on towns and school boards, though, Christie offered steps to help control the local levies. He proposed a Constitutional amendment to place a 2.5 percent cap on annual property tax increases, down from 4 percent, and vowed to give towns and schools reform "tools" that will help them control local labor costs.

"In the task of getting control of our finances and turning New Jersey around, we cannot do it alone . . . local governments and school districts must be our partners in this shared sacrifice," Christie said.

His proposals include cutting pension benefits for current state employees and re-writing the rules for settling local labor disputes, giving more leverage to mayors and school boards facing off with police, firefighters, teachers and other employees.

Christie chose deep budget cuts over major tax increases. He declined to renew an income tax increase on filers earning $400,000. He also allowed a 4 percent tax surcharge on businesses to expire.

Instead, Christie slashed some state programs.

Along with rebate recipients, the budget will hit low-income residents hard. A tax credit for the working poor will be reduced to save the state $45 million. Welfare for "able-bodied" residents will be eliminated, saving $23.4 million. Child care programs will be reduced by $20 million. A $310 deductible will be instituted for Medicaid and the popular Pharmaceutical Assistance to the Aged and Disabled prescription drug program, and co-pays for brand name drugs will rise to $15, from $7. Those changes save $93 million.

Christie would pay nothing of the state's $3 billion pension obligation, digging a deeper hole for the already ailing retirement system.

"Our pension system must be reformed before we can or should fund a broken, out of control system," Christie said.

The proposed budget would spend $29.3 billion of state money and federal stimulus funds.

The proposed 2.5 percent property tax cap follows an example set in Massachusetts. Waivers and exceptions that allow governments to exceed the current 4 percent cap would be eliminated.

Christie aides said the Massachusetts plan brought that state's property taxes down from tops in the nation to the bottom half among states.

Christie called for imposing the cap by law for 2010, and through a Constitutional amendment for 2011 and beyond. Voters would decide on the amendment in November.

State government would also face a 2.5 percent cap on increases in the cost of overhead.

The local caps would put added pressure on towns and schools that are losing significant amounts of aid.

Schools would see an $819 million, or 7.4 percent, drop in state support, largely due to the loss of $1.1 billion of stimulus money. Municipal governments will lose $446 million in aid, a 23 percent decrease.

To help mayors and school boards cope with the lost aid, municipal arbitration rules would change to bar arbitrators from awarding contracts that top the 2.5 percent levy cap. The cost of public employee salaries and benefits would have to fall under the cap.

Boards of education would regain the power to use the "last best offer," a bargaining chit that can force teachers to accept a district's final proposal when all other legal steps in negotiations have been exhausted.

Teacher salaries and benefits would also have to stay under levy cap.

To cut benefit costs, Christie called for trimming pension calculations for all credits state workers earn in future years. Unlike many changes proposed in the past, this cut would impact existing employees. Old pension credits would be untouched.

Hospitals will face new charges in the budget. The facilities will pay $45 million more in provider taxes, helping bring in an additional $45 million in matching federal funds. All $90 million will be returned to the facilities, though some will likely pay out more than they get back.

The special municipal aid program, which provides significant assistance to Camden and other struggling cities, will be modified. That funding, long criticized by Republicans as a source of no-questions-asked support to Democratically controlled cities, will be part of a new "Transitional Aid" program with different application requirements.

"No longer will we reward cities and towns who irresponsibly spend," Christie's remarks read. "The message is simple: we are ending this aid, and soon, so get your act together now."

The budget counts on about $600 million in new revenue: Christie expects $30 million more from the lottery; $20 million from a new assessment on some insurance companies and an additional $18 million from taxing diesel motor fuel distributors.

Christie has blamed Corzine for creating much of the current budget's woes. The 2010-2011 budget includes a $314 million spending increase to pay for two 3.5 percent raises Corzine promised public employees. Christie said he could not get out of that contract, but he is counting on slicing 1,300 state jobs to save $8.8 million.

He also expects to save $50 million by privatizing some state functions, though a task force is still studying the idea. Administration officials would not say which areas might be privatized, though Christie did say that the public New Jersey Network should be converted to an independent non-profit entity.

Christie's budget also uses $1 billion of soon-to-expire stimulus funds. When that aid expires next year it will leave a hole in the 2011-2012 budget. Christie had hammered Corzine for relying on so-called "one-shot" revenues last year, saying such maneuvers made the current deficit far worse. Corzine used $2.3 billion of stimulus aid.