|
Financial picture in the state gets 'ugly'
Originally appeared in the Star Ledger on 10/12/01
There are signs that New Jersey may soon join a growing list of states facing large budget shortfalls in an economy that has been staggered since the terrorist attacks of Sept. 11, officials with knowledge of the state finances said.
Tax revenue figures slumped dramatically in September -- more than $75 million below projections, the sources said -- raising concerns that a budget crisis may be awaiting the winner of this year's gubernatorial election.
One legislative source called the emerging fiscal picture "ugly."
In Wednesday's gubernatorial debate, Republican Bret Schundler vowed he would not raise taxes if elected. McGreevey, however, said it would be "irresponsible" to make that pledge in light of the terrorism attacks.
"Should there be any downturn in the economy, or even a downturn as a result of the Sept. 11 tragedy, we'll be well-prepared with the state budget," said Treasury Department spokeswoman Mary Lou Murphy. "We've taken other steps to ensure that the budget is a sound budget."
Lower-than-expected numbers in New Jersey would be consistent with national trends.
On Tuesday, New York state officials unveiled a report predicting that revenues will be off up to $3 billion in the budget year that ends April 30. Yesterday, Connecticut Gov. John Rowland called for a special session of the Legislature to confront an unexpected $300 million shortfall.
Indiana Gov. Frank O'Bannon two weeks ago froze the salaries of 36,000 state workers and sought other cuts to help cope with a projected shortfall of up to $600 million. Large shortfalls have been identified in Florida and Washington as well.
Former Gov. Jim Florio told The Star-Ledger yesterday that he has been informed privately by state treasury officials that the state could be facing a budget shortfall of up to $1.5 billion by June 30 -- more than enough to wipe out the state's $1 billion-plus surplus.
"They are indicating the numbers at this point are precipitously declining," Florio said. Another source with close ties to the department said he has heard similar numbers.
"We don't have a looming deficit figure estimate," said Murphy. "We have a $1 billion surplus."
Former state Treasurer Roland Machold, who left office earlier this year, said Florio's information is plausible. "I don't know what the answer is. Obviously, you have to cut expenditures or you have to raise revenues," he said.
The gloomy predictions, and how to deal with them, are starting to play a key role in the final stages of the gubernatorial race.
It did not quell the appetite for tax cuts in the Schundler camp, which seized the opportunity to steer the campaign dialogue toward taxes.
Bill Pascoe, Schundler's campaign manager, said McGreevey's refusal to promise no tax hikes in Wednesday's debate was a "turning point" in the race. He likened McGreevey to Walter Mondale, who told voters he would raise taxes in 1984, and then suffered a landslide loss to President Ronald Reagan.
Republican State Chairman Joseph Kyrillos also ripped into McGreevey, saying it was "fiscally irresponsible" for him to "even consider raising taxes." Kyrillos said Florio's $2.8 billion tax increase during the recession of the early 1990s -- for which McGreevey voted -- sent the state into an "economic tailspin."
And Schundler himself said yesterday that the sagging revenue numbers would prompt him to cut taxes and "really ramp down on spending," though he has yet to offer specific spending cuts. He also joined the assault on McGreevey, saying, "You can't find an economist who can tell you the right thing to do in a recession is to raise taxes, but that's what Jim McGreevey wants to do."
McGreevey countered yesterday that the Republican's claims were "nonsense." He said he would seek to ensure that "government lives within its means." During the debate, he said Schundler's fiscal plans were unrealistic and amounted to $3 billion of promises.
Meanwhile, Schundler held a news conference at the Trenton War Memorial to announce his plan to provide a $250 property-tax credit to the state's 150,000 noncombat veterans. Combat veterans are already eligible for the credit, and Schundler said expanding the program would cost the state about $25 million per year.
The proposal joins other big-ticket promises Schundler has made, such as abolishing tolls on the Garden State Parkway and providing scholarships for children who attend private schools. His aides estimate that the tax cuts would total nearly $1.4 billion per year when fully phased in. The McGreevey campaign, meanwhile, asserts that Schundler's mix of tax cuts and new spending would cost the treasury more than $3 billion per year.
Meanwhile, state officials are faced with dealing with a rapidly deteriorating here and now.
September's $75 million shortfall shows a dramatic departure from the previous two months. July and August figures combined were $32 million above projections. September's shortfall was the result primarily from sagging sales and corporate taxes, sources said. Income taxes were holding steady for the time being.
Long before the Sept. 11 attack and the subsequent economic slump, legislative budget analysts in May predicted the state might be facing a shortfall of about $1.5 billion. Treasury officials in June did not concede their estimates were off that much but did revise current year projections down by $513 million.
Treasury officials in July froze about $370 million in discretionary spending, about 2 percent of the $22.9 billion budget, as an extra buffer against an economic downturn -- something not done the previous two years when revenues were soaring.
Murphy said department officials have "taken other steps to ensure the budget is a sound budget" but she refused to elaborate. One high-placed source said it is likely there will be additional spending freezes put in place. The source also said the state will likely cut down on future hires.
If a shortfall does materialize, state officials constitutionally are required to close it because New Jersey cannot operate with a deficit.
Assemblyman Joseph Suliga (D-Union), who is treasurer of Linden and a member of the Assembly Appropriations Committee, said he is convinced a budget shortfall is looming. "Of course you are going to run a deficit. The big question is how much?"
"There's going to have to be some pain. And everyone's going to have to share in the pain," said Suliga, who has been mentioned as a possible candidate for the state treasurer's post. He believes Democrats learned their lesson when they were lost control of the Statehouse because of unpopular tax increases they enacted in 1990.
"I hope they did. I think they did. That's why the solution isn't to raise taxes. The solution is to cut expenses," he said.
|
