Thursday, May 24, 2012

Gov. Christie Wont Scale Back Tax Cuts Even As Deficit Mounts

The New Jersey budget is required to be balanced pursuant to the State Constitution. How it gets to that point is up to the Governor and the legislature.

Gov. Chris Christie is determined to make good on his plan to cut income taxes, even though the latest budget projections are showing a much larger deficit than anyone had expected. It's now up to $668 million, which would normally call for a cutback on tax cuts so as to maintain the current level of spending.

Instead, Gov. Christie is looking to use transportation and clean energy funds to cover the shortfall all while maintaining the size and scope of the tax cuts.
That shortfall was announced by the Christie administration during an Assembly Budget and Appropriations Committee meeting Wednesday, with the state treasurer acknowledging to lawmakers that the Republican governor’s spending plans must be revised because Christie overestimated the scale of the state’s economic recovery.

The governor’s earlier estimates predicted a state economy that would outpace any other state in the country and be enough for tax cuts and increased spending.

Yet even as Treasurer Andrew Sidamon-Eristoff politely downplayed the difference between the administration’s revised estimates and a new forecast put forward Wednesday by a non-partisan legislative budget analyst, Christie attacked the analyst personally.

“Why would anybody with a functioning brain believe this guy,” he said during a speech to transportation contractors in Trenton. “How often do you have to be wrong to be dismissed?”

Back at the committee meeting, Christie’s treasurer, however, told lawmakers that change needed to come.

“Although our revenue base is growing, the rate of growth for fiscal 2012 so far has not met the expectations we set, as of either the fiscal 2012 Appropriations Act last June or the governor’s fiscal 2013 budget message in February,” Sidamon-Eristoff said.

Democrats immediately criticized part of the governor’s plans to handle the shortfall.

They said a raid of the transportation fund — which will bring on new borrowing — means taxpayers will now have to pay interest to fund a budget that includes the income tax cut Christie has been touting since January at events from Garfield to California as his name has been floated as a possible running mate for presumptive Republican GOP presidential nominee Mitt Romney.
Borrowing against the transportation fund robs it of both current and future funds. It means that the state's interest obligations rise and deprives future years of spending that would have otherwise been possible.

New Jersey can ill afford to cut its transportation budget. With far too many bridges, roads, and other infrastructure that is obsolete or in need of replacement/repair, the transportation budget is far too small as it is. Cutting it further will only put transportation officials even further behind on trying to keep up with current work.

Christie's move might make sense if the budget situation was a neutral to slight deficit, but it is fiscally irresponsible to make such a move when you're talking more than a half a billion dollar shortfall.

As I've been saying for quite some time now, the Governor's budget projections have been overly optimistic and it's running into a brick wall of reality. The state economy hasn't rebounded anywhere near as much as the governor forecast (it hasn't even made it as well as the OLS forecast). A far more conservative forecast would have prevented the state's budget from being that far off - and had the budget situation improved, it would have left the state in the position of having a surplus that could be used to fund pension obligations, a rainy day fund, and to eliminate debt.

Instead, we're seeing Christie falling into the same trap as previous governors - using fiscal gimmicks to balance the budget and raiding state trust funds to cover current year obligations rather than taking the hard steps of balancing revenues with obligations.

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