Philadelphia Inquirer

Christie's Budget Plan: How Painful?

The Philadelphia Inquirer — Sunday, February 20, 2011

By Maya Rao, Inquirer Trenton Bureau

TRENTON — Gov. Christie has said time and again that restoring fiscal sanity to the Garden State will require sacrifices. Residents are about to learn who will share in that burden and just how painful it will be.

The state budget that Christie is set to introduce Tuesday will be a road map for how he intends to fix the finances of a state mired in debt, soaring pension and health-benefit obligations, and the highest property taxes in the nation.

In promising to balance the budget without raising state taxes, he has signaled that he will look to control health-care costs, examine the amount of aid the state sends to schools and towns, and fund only what is absolutely needed to run state government.

"I am not proposing to cut spending just for cutting's sake," Christie said in his State of the State address last month. "I am fighting this fight because we have to be truthful about what we can't afford."

Christie won national praise from conservatives by slashing programs to close an $11 billion deficit inherited from Gov. Jon S. Corzine and refusing to extend a millionaire's tax sought by Democrats to offset some of those cuts.

Yet his reductions of municipal and school aid helped lead to local property-tax hikes, and critics argued that cuts in health-care and social-safety-net programs disproportionately hurt the poor.

The new budget presents fresh challenges, both political and financial.

With Corzine out of the picture for more than a year now, Christie will claim far more ownership over this budget — and possibly face more heat if citizens decide they don't like two consecutive years of painful cuts. In one recent poll, residents said they would blame him over their lawmakers or local officials if property taxes did not fall in the next few years.

The Republican governor, who got nearly everything he wanted in last year's $29 billion budget, will have to push his plan through a Democratic-controlled Legislature in a year when all 120 seats are up for election. How Democrats deal with Christie in budget negotiations — whether they fight back or acquiesce — will be relevant to legislative campaigns.

Aid to towns and schools is the biggest chunk of the budget, and perhaps the most politically sensitive.

Christie slashed $1.2 billion in municipal and school aid from the budget last year, and a state official sent out a memo last month warning school districts to prepare for reductions this year as well.

But local governments will have less room to offset state cuts. Last summer, Christie signed a law that cut the cap on property-tax increases in half, to 2 percent. Some fear that layoffs and drastic cuts in services will be needed to comply.

"Last year, the people were not particularly happy with the cuts [Christie] made in education funding, but they decided to live with it in the hopes that down the line it would lead to property-tax relief," said Patrick Murray, director of the Monmouth University Polling Institute. "We're seeing now that there's a concern that he might hit the schools again, and that could be a problem for the governor in that . . . are people willing to take the hit a second time?"

And budget observers will be watching closely to see what Christie does with homestead property-tax rebates, which were suspended for 2010. The current budget allows for homeowners making $75,000 or less, or seniors or disabled citizens earning $150,000 or less, to get 25 percent of the rebate they received in 2009 as a credit on their property-tax bills this spring. Further funding would have to come from the future budget.

Senate President Stephen Sweeney (D., Gloucester) said that unlike last year, Christie had not shared with Democrats any details of his budget address.

Democrats will be concerned about middle-income people during the budget process, Sweeney said, especially maintaining the social safety net.

That priority is already being challenged. Following the lead of other governors around the country, Christie has signaled that he will trim Medicaid, a federal-state program that provides health care for 1.3 million disabled and low-income residents in New Jersey.

Potential cuts concern some advocates who say the program is a lifeline to people in tough economic times.

"With so many people finding themselves out of work and making less than they did before, Medicaid is basically doing its job and people are able to have this lifeline of health insurance," said Crystal Snedden, health-care campaign coordinator for New Jersey Citizen Action. "We really think there are other options to maybe improve the program but not make any cuts to essential services."

People without medical insurance will be forced into community health centers and hospitals, Snedden said, costing more in "charity care," or reimbursements the state gives hospitals that provide care for low-income people who don't qualify for Medicaid.

As the economy soured, Medicaid enrollment in the state swelled 27 percent in the last four years. Federal stimulus aid has helped support the program recently, but the state will have to come up with $1 billion for the program after losing that federal money for the fiscal year starting in July.

Including federal funding, the program is on track to cost $10.7 billion this year. The state's portion is $4.6 billion, or about 16 percent of the budget.

Democrats opposed a state move last year to drop thousands of low-income immigrants from FamilyCare, and say they will fight further cuts to health care in the budget.

One area in which they may find more agreement with Christie is scaling back health benefits for public employees.

Sweeney last week proposed having government workers eventually pay between 12 and 30 percent of their health-care premiums, and wants to adopt the change before the July 1 budget deadline. The broad outline of his plan, if not necessarily all the details, has Christie's support.

Health-benefit changes are being debated as four-year union agreements covering more than 50,000 state employees expire in June. Those contracts provided 13 percent raises over that period, but Christie is promising tough contract negotiations and could use budget constraints as a hammer to wrest the concessions he wants from public workers.

Health benefits for current and retired public employees eat up about 9 percent of the state budget, or $2.5 billion.

Christie also could further trim government operations — a relatively smaller portion of the budget — but the number of state workers already had been declining. The nonpartisan Office of Legislative Services says there are 2,300 fewer state workers this year than last year, a 3 percent decrease. The state payroll has shrunk about 10 percent during the last five years.

And Christie will have another new obligation this year. After skipping a $3.1 billion pension payment last year, he will be required to contribute about $500 million to the fund in this year's budget.

That mandate was part of a law signed within months of his taking office last year, calling for the state to pay one-seventh of the recommended contribution to the pension system in the next fiscal year. Gradually higher contributions would be phased in over seven years.

New Jersey's pension system is underfunded by $54 billion, and has come under strain because the state has skipped contributions for years. Legislative leaders and Christie have announced competing proposals on how to restore the system, and those are likely to play a large part in budget talks.

Despite these challenges, Christie has said he wants to roll back income and corporate tax rates in the budget. Democrats could put the so-called millionaire's tax back on the table, but that decision has yet to be made.

Deborah Howlett, president of the New Jersey Policy Perspective, questioned how Christie could adopt those tax cuts without cutting aid to schools and towns, Medicaid, and social-safety-net programs.

"You end up in a cycle we are now in, of cut the budget, cut the budget, cut the budget, and kicking stuff down the road. There's no end to it. . . . I don't think that provides the kind of government that New Jerseyans want," said Howlett, a former communications director for Corzine.

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