Further Down the Spiral

We're finally going to see Gov. Corzine's budget plan in its totality later today. It's not going to be pretty.

But we've already got one bit of bad news - the legislature rubber stamped Corzine's plan to refinance the transportation trust fund. Forget about doing the fiscally prudent step of properly funding the fund. The Governor and Legislature determined that raising the 10.5 cent per gallon tax was too unpalatable, so they decided that refinancing the fund was the better way to go.

Never mind the fact that it will cost even more in the long run - $17 billion over the next 30 years. What a bargain. [That's sarcasm for those whose sarcasm detectors aren't functioning properly.]

Critics of the measure said that the plan was an extension of the kind of practices that had put the fund in jeopardy to begin with as it faced insolvency after years of borrowing against it.

"It seems to me that there could have been an alternative that is more fiscally responsible," State Senator Leonard Lance, a Republican from Hunterdon County, said during a debate on the measure moments before the vote was taken. "This is a continuation down the road that we have traveled for at least half a decade, and even before that, of overreliance on debt."

State Senator Anthony R. Bucco, a Republican from Morris County, put it more plainly. "Our grandchildren will be paying for repairs to roads that we will be doing next year," he said.

Supporters of the plan said that while imperfect, the refinancing of the fund's debt was essential to keep the fund running. If the fund ran out of money, as expected on June 30, the state could have lost millions of dollars in federal matching funds.

So, they've resorted to a one-shot, which doesn't actually fix anything but extends the problem for years into the future - making it someone else's problem.

Meanwhile, Enlighten NJ wonders how a 49% increase in school aid can be considered a freeze. Only in New Jersey. Only in New Jersey.

And forget about controlling spending. Spending in the budget is going up 10.4%. That's nearly three times the rate of inflation.

He [Corzine] will ask the Legislature to spend $1.2 billion on property tax rebates, which are mailed in the fall, according to an outline of his budget proposal released Monday.

Mailed out just in time to avoid completely pissing off taxpayers and likely voters. Getting a rebate check in the fall might remove some of the sting of the higher taxes, but it shouldn't. Corzine is playing the Trenton shell game on taxing and spending instead of taking fiscally prudent steps to control costs first and foremost.

To cover the rebates and rising state expenses, the Corzine administration says it needed to raise taxes and fees by $1.8 billion and cut $2 billion from state spending.

Corzine's biggest spending decisions, however, reverse years of shaky financial practices by his predecessors.

He wants to pay $735 million into the state's debt-plagued public employee pension system, the largest payment by any governor in years. Corzine also plans to repay $300 million to the Unemployment Insurance Fund, money that had been raided to balance earlier budgets and put the state in danger of being forced to raise payroll taxes.

Corzine will propose increasing the state sales tax from 6 percent to 7 percent in order to bring in another $1.1 billion. He also will ask the Legislature to add sales taxes to some goods and services now exempt, such as tanning salon treatments and limousine rides.

And then there's the cigarette tax, which would jump another 60 cents to $3 a pack of 20 cigarettes. Of course, sin tax increases are more palatable because not everyone gets soaked on them. Except, of course, those who smoke, drink, or utilize any of the goods or services that will be taxed.

The governor wants to raise taxes on alcoholic beverages and cigarettes. He's calling for a new tax on household water use, and he says people who buy cars with list prices over $45,000 also should pay a new tax.

Lawmakers must approve the fiscal year 2006-07 budget and all of Corzine's tax proposals before July 1.

Despite a growing state economy, Corzine's hands were largely tied because of budget deals made by governors over the years and growing expenses for state services, his top advisers said. "What's staggering about this budget is the amount of [spending] growth we have," Treasurer Bradley Abelow said Monday in briefing reporters.

It's not like Corzine is actually controlling spending here either. He's passing the buck just as all those other governors did, and he's blaming earlier administrations for his fiscal problems (where have we heard that before as well).

Controlling spending would be a good place to start with fixing New Jersey's fiscal woes, but that isn't going to happen this year either. And the budget doesn't even begin to scratch the surface of controlling costs like Medicaid or addressing debt payments, which we already know doesn't matter because Trenton will just refinance and hope the problem goes away with longer amortization of the debt.

So what do these tax increases mean for the average taxpayer? Well, here's some idea:

A family of four would pay about $1,500 a year in sales tax, about $260 more. The new water tax, which would be 4 cents per 1,000 gallons, would cost each household about $3 to $4 a year. Officials said the money would pay for new water system equipment and "infrastructure improvements.''

Others aren't so optimistic.

"This could mean $1,000 in new taxes per person this year," said state Sen. Tom Kean Jr., R-Union, who is running for U.S. Senate. "And that is on top of a 10 percent increase in spending."

Robert Pinard, president of the Beer Wholesalers Association of New Jersey, noted that the proposed tax would hit beer proportionately more than wine and spirits. A 10-cent increase would be a 42 percent tax hike on beer, but 14 percent on wine and less than 1 percent on spirits.

Pinard said the 3-cent tax on a six-pack would likely rise to 10 cents by the time it was passed on to the consumer, due to additional administration costs.

Trenton hopes that the sales tax increases and sin tax increases wont affect too many people because they might actually form a group large enough to affect the November elections. Yet, some of these taxes will many people in New Jersey. And businesses will suffer as well, as they'll be pressured to keep prices down to avoid losing customers.

It's business as usual in Trenton, and that might make for an uncomfortable November for New Jersey legislators up for reelection.

UPDATE:
Corzine gave his budget address and it was as advertised:

Corzine's 31-minute address was so sober it was interrupted by applause only three times - including when the governor admitted a "Freudian slip" after saying "tax cuts are a last resort" when he meant to say "tax increases are a last resort."

The governor called for an increase in the sales tax - from 6 to 7 percent - and other tax increases on alcohol, water, luxury cars and cigarettes. Corzine said he decided against an income tax increase over concerns about how it would affect the state's economy.

He also called for $2 billion in restrictions on spending, including elimination of 1,000 state jobs and 75 programs.

"To those who thought my financial background would mean I had some magic bullet in my holster to balance the budget, I am sorry to disappoint you," Corzine said. "My answer is as simple as old-fashioned arithmetic. We can't keep spending more then we take in."

Corzine acknowledged that the proposed $30.9 billion budget increases spending by $2.6 billion over last year, but said the increase "reflects already legislated, mandated, negotiated and inflated costs."

He challenged critics to identify their own spending cuts and said he would not accept more tax increases or one-shot gimmicks, which he said have already brought the state to a "day of reckoning."

Here's a spending cut that would address the problems. As Brian noted in the comments, eliminate the so called property tax rebate program increase and apply the money to pay down the debt. That works towards solves two problems - profligate spending and the ongoing structural deficit.