New N.J. Gov. Phil Murphy faces monumental budget problems, including `a dagger to the heart' tax issue

There is an old saying: "Be careful what you wish for, you just may get it." Now that the new governor of New Jersey, Phil Murphy, got his wish, he may be sorry he did, given the huge challenges he faces.

After eight turbulent years, Chris Christie left Gov. Murphy with a slew of major issues. They range from a lagging economy to a structurally out-of-whack budget, a vastly underfunded pension plan, massive school spending that doesn't fully fund the aid formula, and critical infrastructure needs that may be unattainable.

And then there are the federal tax law changes. The state and local tax deduction limitation was a dagger to the heart of the New Jersey real estate sector and economy in general.

Otherwise, the new governor should have smooth sailing.

Take the economy, please! Since the end of the Great Recession, New Jersey's gross state product has expanded at about half the pace as the nation's. Employment growth has lagged for almost eight years. Its unemployment rate has been above the nation's for much of the last seven years and has increased for the last six months, even as the nation's has declined. Housing prices are up, but by much less than in most states.

On just about any measure, New Jersey's economy is underperforming the nation's. And there is little reason to believe conditions will change soon.

Given the mediocre economic growth, it is no wonder the state's budget is a mess. Understand, the structural deficit, which is estimated to be between $1.5 billion and $2 billion, has persisted for nearly 30 years. During that period, every governor was complicit in making New Jersey's fiscal situation one of the worst in the nation.

The extended budget crisis has created major problems and put the state in a spending straitjacket.

With the budget always in deficit, politicians had to make a decision where to cut. They could have reduced programs or cut state employee salaries. They could have raided trust funds, though Gov. Christie Whitman emptied those.

They did none of those. Instead, they opted not to make the required pension payments, thereby underfunding the state's pension program. The estimates of the shortfall range up to $50 billion.

Basically, the state used moneys that were supposed to go to pensions in order to pay for other spending, limit tax increases, or even fund tax reductions.

The use of pension funds for non-pension purposes has come at a great cost. During the Christie administration, the state's debt rating was downgraded 11 times and the pension crisis was a major factor in those downgrades.

The diversion of funds was only a Band-Aid. For example, the education budget, which makes up more than 30 percent of state spending, still did not fully fund the school aid formula. The disparities across expanding and declining districts, as well as rich and poor ones, have been widening.

Meanwhile, New Jersey's economy needs a jump-start and it is not clear how much the state can assist in that process.

New Jersey's advantage in the global, high-tech economy, is its location and its highly educated populace.

To leverage its world-class ports, airports, rail, and highway systems that put the state at the forefront of the goods delivery economy, it must improve the transportation infrastructure. That requires money.

The increased gasoline tax was a start, but it was too little to start with. Political compromises, which this was, rarely solve economic problems. The state government needs additional funds for infrastructure improvements and it will not get them by wishing and hoping.

New Jersey's public education system is one of the best in the nation. Yes, it is expensive. But as every businessperson knows, you don't remain at the top by doing things cheaply.

To be successful in the global economy, highly skilled workers are needed. Where the state will get the money to sustain and improve worker skills is unclear.

And then there is the recently passed federal tax legislation. It could savage the state.

Instead of paying for the corporate tax cuts by reducing corporate tax loopholes, Congress raised revenues by closing personal tax benefits.

The limitation on the deductibility of state and local taxes effectively raised the cost of living in New Jersey. That will harm the real estate sector, hurting construction and reducing the state's attractiveness.

Gov. Murphy takes over a state with a sluggish economy, lagging revenue growth, a perpetually out-of-balance budget, a pension system in dire need of funds, significant school funding issues, and an antagonistic federal government.

Good luck.