Christie nixes tax hikes, offers bigger tax credit

TRENTON - Gov. Christie on Friday signed a $33.8 billion budget for the fiscal year that begins Wednesday, vetoing tax increases passed by the Legislature to fund the pension system but extending an olive branch to Democrats by proposing an increase in a tax credit for the working poor.

Christie used his line-item veto authority to nix measures passed by the Democratic-controlled Legislature to raise taxes on income exceeding $1 million and on corporations, which Democrats said would have generated more than $1 billion in revenue.

His office said New Jersey would begin the fiscal year Wednesday with a $700 million surplus, more than doubling the opening balance from last July.

His actions came a day after the Legislature passed a $35.3 billion budget, along party lines, that Democrats said called for a full contribution to the pension system.

"The Legislature continues to be deaf and blind as to taxes," Christie said at a Statehouse news conference Friday, citing the departure of businesses such as Mercedes-Benz to other states.

He added, "Now is not the time to drive jobs out of New Jersey. Now is the time to create jobs in New Jersey."

The governor, who is expected to announce next week that he will run for president, vetoed a companion Democratic measure that would have increased the corporation business tax from 9 percent to 10.5 percent for one year.

Christie also conditionally vetoed a bill passed by the Legislature that would have raised the top rate on income above $1 million from 8.97 percent to 10.75 percent for four years.

He sent that bill back to the Legislature with a different proposal: to increase the state's earned income tax credit from 20 percent to 30 percent of the federal credit.

The maximum federal credit in 2015 for a tax filer with two qualifying children was $5,548. Under current state policy, New Jersey filers with two children could earn an additional 20 percent of that credit, or $1,109.

Under Christie's proposal, that would increase 50 percent to $1,664.

"This is something those families need now more than ever," Christie said. "They need more money in their own pocket and less in the pockets of politicians for them to spend on their special-interest friends here in Trenton."

Christie had cut the credit from 25 percent to 20 percent of the federal level in 2010 amid a budget shortfall. Since then, he has proposed restoring the credit and enacting across-the-board tax cuts for all residents.

Democrats had proposed increasing the credit to 25 percent without additional tax cuts or other strings attached.

Increasing the credit could help 524,000 households in the Garden State, according to New Jersey Policy Perspective, a left-leaning research group that typically opposes Christie's policies.

"It is beyond high time for New Jersey to reverse the de facto tax hike given to half a million working families in 2010," Jon Whiten, the group's deputy director, said Friday.

There are a number of eligibility requirements to qualify for the credit. For a married couple with two children, for example, earned income and adjusted gross income cannot exceed $49,186, according to the IRS.

Democratic leaders on Friday said they would support the governor's proposal.

"Better late than never is not optimal when you delay financial relief for working families in the process, but at this point we'll take it," Assembly Speaker Vincent Prieto (D., Hudson) said in a statement. "I expect the Assembly to concur with his amendments."

Senate President Stephen Sweeney (D., Gloucester) said he expected his chamber also to approve the proposal.

Although Democrats appear to have found common ground with Christie on the tax credit, they criticized the governor as again underfunding the pension system.

Their budget included $2.8 billion for the pension system plus $300 million based on projected revenue growth this fiscal year that exceeds Christie's expectations.

Under a 2011 bipartisan law that required public workers and the state to contribute more toward the pension system, New Jersey was supposed to contribute $3.1 billion in fiscal 2016.

But the state Supreme Court this month ruled that public workers lack a contractual right to pension funding, so the state is not required to comply with the 2011 funding commitments.

The pension system for nearly 800,000 active and retired public employees has an unfunded liability of $40 billion, according to state figures.

Despite the court's decision, Democrats said they had an obligation to make the full contribution, given that workers were contributing more toward their pensions.

Christie's vetoes trimmed the pension contribution to $1.3 billion, the amount he proposed in his February budget address.

"No one should be surprised today," said Hetty Rosenstein, state director of the Communications Workers of America. "Whenever given a choice, Chris Christie stands squarely with millionaires and corporations over working people every single time."

Democrats wanted to commit the $300 million to the pension system now, rather than at the end of the next fiscal year, so it could begin to accrue interest toward the pension fund immediately.

Christie said the Democrats had overestimated revenue growth, and called their plan "fiscal gimmickry of the first order."

He vetoed language in the budget that would have required the state to make quarterly pension payments, instead of a lump sum at the end of the fiscal year; a provision that would have limited how much money obtained through environmental legal settlements can be deposited in the general fund; and $20 million for a medical school at Seton Hall University.

Christie did sign legislation that adds $212 million to the pension system for the current fiscal year, on top of the $681 million he had committed in the 2015 budget.

Christie did not achieve his chief policy goal this year: overhauling public employees' pension and health benefit systems.

He impaneled a commission to study the matter, and for a while it held talks with the state's largest teachers' union.

But when Christie unveiled his plan in February to pare back public employee health costs to help pay down the pension system's unfunded liability, the union retreated, accusing Christie of using it for political gain.

At a news conference Thursday, labor leaders said they would not cooperate with Christie unless he funded the pension system fully.

"I stand ready to go back to the negotiating table at any time with the unions in this state to fix this system," Christie said Friday. "If they refuse to do so, they will be stewards of the bankrupt system."