Assembly Budget Panel to Explore Projected $10.5B FY 2012 Deficit

NJ 101.5
Kevin McArdle
August 2, 2010

Two weeks ago, the research arm of the New Jersey Legislature predicted the state will face a $10.5 billion deficit for next year's budget. That's roughly the same size gap that Governor Chris Christie closed in the just-completed budget, which slashed aid to schools and municipalities, suspended property tax rebates and skipped a $3 billion payment to employee pension funds.

The memo by the nonpartisan Office of Legislative Services (OLS) points out that many big-ticket items that contributed to the current year deficit still will be around next year. They include $3.5 billion for pensions, $2.3 billion to fully fund schools and $2.1 billion for rebates, but the deficit estimate will be revised throughout the year to reflect changes in tax collections and spending.

Assembly Budget Chairman Lou Greenwald on Tuesday announced he has called an August 5 hearing into the projected $10.5 billion budget deficit for next fiscal year. The nonpartisan Office of Legislative Service estimates a $10.5 billion deficit for the fiscal year that starts July 1, 2011.

"This is obviously a big concern that needs to be addressed," says Greenwald. "We cannot continue to rely on moves such as failing to make pension payments and slashing property tax relief. Real change and plans to stimulate our economy, create jobs and put people back to work are what's needed. We cannot continue to do the same the old things."

Greenwald says, "I think it's (the deficit) a sign that if the State continues to fail to meet its obligations like funding the pension, you're deficits are going to continue to grow. You can try to solve that problem by avoiding the payments, but that's like a family saying, 'We're going to tighten our belts and we're going to live within our means, but one of the ways they do that is by not making a credit card payment. That's not solving your long-term problems. The State can't continue to function that way."

Greenwald says he expects to hear from OLS officials on Thursday and then hear from administration officials at a subsequent hearing.

State Senator Paul Sarlo, chairman of the Senate budget panel says he will also hold early hearings. He explains, "Sometime in the fall we'll turn our attention to the deficit since we've already gotten to work on some of the reform measures (in Christie's property tax-cutting 'tool kit').

Structural deficits are nothing new in New Jersey in fact they are chronic, but the Democrat-controlled legislature never held early hearings on a structural deficit before. They're planning hearings now and a Republican is in the Governor's office. Coincidence?

"We did discuss this through the Corzine administration," says Sarlo. "Perhaps, we didn't have hearings that were purely designated to the deficit throughout the year, but we did discuss it."

He concedes that the deficit is a moving target, but Sarlo adds, "It is concerning to all of us. You've got to remember this Governor in this year's budget, he kicked down the road pension payments (and) fully funding the school funding formula……This Governor came to Trenton promising he was going to deal with the structural deficit. Year-one we did not touch the structural deficit. We've kicked it to year-two."

Christie is sharply criticizing predictions that the state will face a $10.5 billion deficit for next year's budget. He says that the projection was invalid because the OLS counted all mandatory increases in state funding and mistakenly assumed all programs now in the budget would be included next year.

"The ($10.5 billion) number is completely fake, and doesn't understand the new reality, which is I'm not going to approve spending that goes over that," says Christie. "The new bar is set. The place to reduce from is where we are now….We're going to have a budget situation to deal with if the economy doesn't pick up more, of course we are. But it's not going to be as severe as the one we had to deal with last year."