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Good Omens Come With Warnings for New Jersey's Next Governor
Originally appeared in the New York Times on 10/15/01 TRENTON, Oct. 14 — The companies that rate New Jersey's state bonds gave the state's creditworthiness another good grade last week, with a warning: a tidal wave of new debt in the offing could still swamp the state. In a sense, the same ambiguity hangs over almost every aspect of the state as it prepares to elect a new governor.
The next governor will take over the richest state in the union, one that bustles with high-wage, high-technology jobs and investment, yet he will immediately face a budget deficit that legislative experts say could reach $1 billion — an immense gap that has barely been mentioned in the current campaign.
He will take over a state with some of the highest-scoring students in the country, taught by the best-paid teachers. But those costs also saddle the state with the highest property taxes in the country, while years of litigation and wrangling have failed to solve the problem of inequality between city and suburban schools.
He will inherit one of the most powerful governor's offices in the country. But much of his success in office will depend on how well the state's crazy quilt of 566 municipalities and 611 school districts, often rife with inefficiency and patronage, manage their own problems.
The new governor will take over a state in which sprawl has become cemented into the daily experience of millions of drivers on clogged highways, as the very prosperity that has lifted New Jersey beyond its neighbors in wealth produces more growth, more traffic and less open space. With 1,100 people per square mile, New Jersey is already more crowded than India or Japan.
Above all, the winner will become governor of a state that has been in recession since February, when an extraordinary period of economic growth ended after nearly a decade, said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers, and the state's leading economic forecaster.
"It's likely that January will be the trough of the downturn," Dr. Hughes said, "so the next governor is taking office at the worst possible time, and most likely there will be short-term budgetary crises to grapple with. However, the economic situation could turn around dramatically as 2002 unfolds."
The candidates, Bret D. Schundler, the Republican, and James E. McGreevey, the Democrat, have been talking about some of the major policy challenges that await the winner on Jan. 15, inauguration day. For example, Mr. Schundler says he would goad public schools into working harder by increasing public financing for private and charter schools to compete with them, while Mr. McGreevey says he wants to hold students and teachers to stricter standards.
Mr. Schundler says he would combat sprawl by directing growth back to the cities. Mr. McGreevey says he endorses the state plan — a set of guidelines for controlled growth — which was adopted 20 years ago to high praise but has yet to stop many old farms from sprouting condos and office parks.
Mr. Schundler has acknowledged that a recession could grip the state, and has said it would provide an opportunity to force spending cuts that would otherwise be politically impossible to pass. And he has said that a continued downturn could force him to postpone giving the elderly $800 million in property tax relief. At the same time, he has stood by his promise to remove the tolls from the Garden State Parkway; the state would take over the roadway's $130 million a year in operating costs and $650 million in debts.
Mr. McGreevey has acknowledged the likelihood of difficulties ahead by saying that it would be irresponsible to promise not to raise taxes. But the closest he came to discussing economic issues in Wednesday's televised debate was to joke that his mother was saying the rosary for a strong economy.
The state Constitution requires the next governor to present a new 2002- 2003 budget almost as soon as he takes office, and it will not be an easy task, said Alan R. Kooney, legislative budget and finance officer in the Office of Legislative Services, the Legislature's nonpartisan administrative and research staff.
"Whoever gets elected will walk in and face a situation that will probably not be dissimilar to the situation that Jim Florio faced in 1990, and he got hit just at the end of an incredible boom that had suddenly halted," Mr. Kooney said.
"I don't know how many hundreds of millions or billions in deficits that we're talking about," he went on, "but it will be an extraordinarily difficult budget."
In 1990, Mr. Florio rammed through $2.8 billion in higher taxes to fill a budget deficit. In the ensuing antitax furor, Republicans won both the governorship and control of both houses of the Legislature for the rest of the decade, and a pervasive culture of tax-loathing was born.
But experts like Dr. Hughes and Mr. Kooney emphasize the prospects for a strong eventual recovery. There is no real estate bubble to burst this time, like the one that deepened the recession of the early 1990's, they say. The economists add that the state's industries are strong, and that the destruction of the World Trade Center by terrorists may even produce more investment and still more jobs for the state.
"We're a very wealthy state," Mr. Kooney said. "But you can be O.K. in the long run but still have a budget process where the year-to-year fluctuations give you agita, and year to year is where politicians live."
The latest census reported that New Jersey passed Connecticut as the richest state in household income, with an median income of $54,226 a year, compared with $53,106 for Connecticut, which ranked first in 1990.
It was the high wealth of New Jersey that prompted the bond rating companies to continue to give New Jersey's public debt high ratings, despite a huge increase in debt over the decade. In 1990, New Jersey owed $4 billion, and it will soon be closer to $20 billion when new borrowing already approved goes on the books, Dr. Hughes said.
But while New Jersey can afford its current debts, the rating firms said in reports last week, extensive new borrowing could jeopardize the state's ability to pay in later years.
Still more worrisome to economists is the likelihood that the high salaries and bonuses paid by Wall Street will dry up and severely hurt state revenues. Last year, nearly 73 percent of all income taxes were paid by taxpayers making more than $100,000, and nearly 46 percent was from those earning more than $250,000. Any decline in those high- end salaries, Mr. Kooney said, would affect state revenues immediately.
New Jersey is under court order to correct the imbalance between rich and poor school districts, yet the state's deeply balkanized system of independent districts has made it hard and expensive to meet the court's demand. For example, the school construction figure is so high, in part, because once the state agreed to build new schools for the inner cities, representatives from even the wealthiest suburbs refused to vote for the funds until schools in their districts got a share.
Leo F. Klagholz, the former state commissioner of education, said in an interview that fragmentation was the defining characteristic of New Jersey's school problems, along with a powerful teachers' union, the New Jersey Education Association, which guards members' rights jealously.
And with responsibility divided among hundreds of districts, local school officials often feel protected from state pressure to improve efficiency.
Similarly, a multiplicity of school districts tends to drive up salaries, since the latest settlement tends to become the benchmark for all other district contracts, said Henry A. Coleman, a professor in public policy at Rutgers. New Jersey already spends nearly $10,000 a year per pupil in public education, far more than any other state, and 60 percent of that is paid for by the highest property taxes in the country, with the rest coming from the state.
Not surprisingly, high property taxes continue to be a volatile political issue at election time, yet the candidates have tended to approach the issue around its edges, with proposals for changing the system of rebates from the state. Mr. Schundler would compensate the elderly for their property taxes. Mr. McGreevey has promised to freeze property taxes and limit the New Jersey Saver tax rebate program to taxpayers earning less than $200,000, which amounts to a tax increase on the wealthy.
But then, however much they may complain, the voters have so far neither managed to hold the line on teacher salaries, the largest component in school costs, nor pressed hard to have the state assume a larger proportion of education costs. Instead, each spring, they continue to vote for the most lavish school programs in the country.
None of this surprises Dr. Coleman. "New Jersey is a rich state," he said, "and buying expensive educations for their children is something rich people like to do."
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