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Deficit threatens to rain on new governor's parade
Originally appeared in the Philadelphia Inquirer on 10/18/2001
TRENTON - When he takes office in January, the state's new governor will have little time to savor victory.
Confronting him could be a budget deficit that some analysts say could zoom into several hundred millions of dollars.
To deal with that, Democrat James E. McGreevey or Republican Bret D. Schundler might need to reduce spending on existing programs, freeze hiring, or postpone implementing campaign promises.
Each gubernatorial candidate has outlined markedly different approaches on how he would deal with any stark budget choices.
McGreevey is preaching "living within our means" and "restoring fiscal discipline" to state government. He has railed against the Republican-led administration and legislature for what he labels runaway spending and a spiraling debt.
Ahead in the polls, McGreevey has been short on providing details and dollar figures on most of his mostly modest proposals, including his plan for property-tax relief. When pressed for specifics, he said it would be foolish to make too many commitments in uncertain economic times.
"We need to review our expenditures, determine what needs to be cut and move forward, and be willing to say no, particularly with the leveling of the economy," he said in a campaign appearance. "When Gov. Whitman took office, the state budget was $16.7 billion. This year, the state budget is $23 billion."
Schundler said he would achieve across-the-board savings by doing away with costly programs. His mantra has been doing more with less. For starters, he wants to eliminate tolls on the Garden State Parkway within nine months, at a cost of $135 million to the state.
Schundler said that if the economy entered a recession, people would have to look at different ways of doing things.
"In every dark cloud, there's a silver lining," Schundler said in an interview this week. "When you really have problems, that's sometimes what it takes to get people to concentrate on fixing the underlying cause of those problems."
Spending is also affected by taxes. McGreevey has said it would be foolish to pledge not to raise taxes "in the case of an unforeseen disaster," such as the Sept. 11 terrorist attacks. Schundler has pledged to cut taxes to help stimulate the economy.
"Whoever is governor will have some difficult decisions to make and priorities to set," said Assemblyman Richard H. Bagger (R., Union), chairman of the Assembly Appropriations Committee. "Both candidates have put some spending proposals out there on the table. That is all going to have to be part of the budget that whoever wins the election will have to present to the legislature."
Recalling the turbulent choices he faced in similar circumstances during his first year in office in 1982, former Republican Gov. Tom Kean said his treasurer would walk regularly into his office and tell him how far off state revenue was during that period.
"It was a miserable year," Kean said. "You run to do things; instead, you scramble just to keep your head above water. You move the pieces around to preserve the things that are absolutely essential. You try to find money where you can.
"The state can not go into a deficit, . . . so you have to balance that budget," Kean said. "That is where the rubber meets the road."
When the new governor takes over Jan. 15, he will be dealing with the second half of acting Gov. Donald T. DiFrancesco's $23 billion budget, which charts spending until the next fiscal year starts on July 1.
Many officials expect a budget deficit, but it is difficult to gauge its size because of the nation's deteriorating economy and the uncharted course in dealing with the terrorist attacks.
The DiFrancesco administration had already begun belt-tightening by freezing $300 million in spending in July and August.
In August, Moody's Investors Services warned clients that New Jersey's income-tax estimate "could be subject to above-average forecast risk," with an income-tax revenue shortfall of $400 million.
"Certainly the economy was in the doldrums before the Sept. 11 events, and there is no reason to believe that it will be anything for the better," said Alan R. Kooney, legislative budget and finance officer in the nonpartisan Office of Legislative Services.
Three weeks ago, acting state Treasurer Peter Lawrance directed his department to determine how this fiscal year's forecast should be adjusted because of the Sept. 11 attacks.
A report released Friday found that total revenue from July to September had been $4.7 billion, or 1.1 percent below the budget forecast. September revenue from sales, corporate and income taxes was nearly $2 billion, about $80 million -- or 4 percent -- short of projections.
As a cushion, the state has a $1 billion surplus, but $720 million of that is in the Rainy Day Fund and can be used only for emergencies or extraordinary circumstances, such as a shortfall in revenue, Kooney said.
With the national economy on the brink of recession, observers say tough times are ahead.
Despite the uncertain forecasts, State Sen. Robert E. Littell (R., Sussex), chairman of the Senate Budget and Appropriations Committee, said some factors could make an economic turnaround in the state likely soon.
For example, Littell said, credit-rating houses, such as Moody's and Standard & Poors, looked at New Jersey's debt, budget and revenue stream last week and gave the state high marks.
"We have a diverse economic base," Littell said in an interview. "We have a high wealth-income level. We used to use one-shots to balance the budget. We don't do that anymore. We have an improved position from the early 1980s, when the economy was in a slump."
Former Gov. Jim Florio, a Democrat who also confronted a recessionary period, said the new governor would have an extremely difficult balancing act.
"I suspect the situation I had will almost look like sort of virtually nothing compared to the difficulties that, I think, everyone acknowledges are going to be visited upon on whoever is the next governor," he said.
In 1990, Florio pushed through a $2.8 billion increase in sales, income, tobacco, gasoline and alcohol taxes to cover a $600 million shortfall in the state budget and to comply with a state Supreme Court order to increase state spending in New Jersey's poorest schools.
"The combination of decreased revenues and extra services means budget gaps that have to be addressed in ways that are not easy," Florio said.
Kean offered cautionary advice to the gubernatorial candidates:
"First of all, don't over-promise in the campaign," he said. "Be very careful, because people do expect you to do what you say, and you can lose credibility if you don't do those things that you promised."
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