Failing State Budget Finance 101

This is what happens when you rely on debt financing and refinancing instead of eliminating state debt where there is a constitutional requirement for a balanced budget at the end of each fiscal year.

New Jersey taxpayers this year are on the hook for a record payment -- nearly $2.8 billion -- just to cover the cost of borrowing money.

That's 3½ times as much as it cost 10 years ago. Paying off borrowed money will account for around 8 percent of the total budget Governor Corzine is expected to introduce Thursday, eating up money that could go to cutting property taxes, defraying rising school costs or paying aid to hospitals that treat the poor.

The $2.8 billion due in the coming fiscal year is more than what the state will spend on the new 20 percent property tax credit for most homeowners passed by the Legislature earlier this month. It could just cover the cost of salaries and operating expenses for most of state government.

Cancel that $2.8 billion payment and the state could double every dollar it now gives to public colleges, universities and community colleges with enough left over to double financial aid to low-income students.

Investors will receive more than $1 billion more than New Jersey's towns get in municipal aid -- money used to keep property taxes in check.

That annual, non-negotiable debt payment will continue to grow. State treasury officials estimate that it will exceed $3 billion by 2010.

Raising taxes year in and year out have forced people to move to better tax climates (and better weather climates at that).

This fiscal situation comes at a time when most states have been experiencing improved state revenue pictures. New Jersey is at the opposite end of the spectrum. Spending is out of control, and raising taxes has not brought in the kind of revenue needed to cover costs. One shots and debt financing and refinancing have been the only option that Trenton will consider other than raising taxes.

It is time that Trenton start considering limiting spending instead of spending more than the state brings in. Cutting spending is the only way that getting the debt financing picture in order and to restore fiscal sanity to the state budget.

UPDATE:
This isn't going to make Trenton's job any easier. Casinos are expecting to see lower revenues this year compared to last year. If the casinos see lower revenues, that means that the taxes on casinos are going to bring in less money.