Tuesday, March 10, 2009

New Jersey's 2010 Budget Revealed

Here it is, in all of its glory.

Much will be made of the claim that Democrat Jon Corzine has put together a budget that is less than the one he first proposed in 2006. It's a smoke screen because the Legislature has added billions to Corzine's proposal to pass the budgets each year, and this year will be no different.

There isn't any fiscal austerity in this budget. It's a call to increase taxes and fees to maintain the status quo.

Corzine's budget claims that $15.5 billion goes to property tax relief, and of that amount $1.1 billion goes to homestead property tax relief. I find all of this hard to swallow given the fact that the property tax bill in New Jersey is the highest in the nation and Corzine has done nothing to contain, let alone reduce, those costs.

Corporate income tax revenues are expected to drop $320 million (13.6%) under the revised projections, but the actual decrease was double - $640 million (a 27.4% drop). Taxes other than the sales and use and gross income (personal income) tax are also expected to drop. To make up for the shortfall, taxes will have to rise.

Here's what the budget shows for the shortfall between revenues and expected expenditures (all figures in thousands):
FY 2009 Adjusted Appropriation $33,244,317
FY 2010 Growth Net 2,467,288
FY 2010 Total Projected Model 35,711,605
FY 2010 Base Revenue 28,560,514
FY 2010 Projected Structural Gap $7,151,091
Reductions to Base Budget $2,516,089
Pensions 895,306
Homeowner and Tenant Rebates 517,100
Debt Restructuring 361,000
Operating Budget and Interdepartmental 184,485
Furlough and Other Employee Actions 156,600
Medicaid/PAAD 85,847
NJ Transit 62,000
Municipal and County Aid 50,545
Higher Education 22,199
Hospitals 20,800
Other 160,207
Elimination or Reduction of Projected Growth $1,108,976
Limit School Aid Increases 306,575
Salary Freezes for Public Employees Including Colleges 261,939
No Inflationary Increase for Municipal Aid 103,841
Offset FamilyCare Inflation with Federal SCHIP Funding 85,000
No Inflationary Increase for Rebates 77,700
No Rate Inflation for Nursing Homes 50,030
No Inflationary Increase for Higher Education 30,183
Other 193,708
Federal Fiscal Stimulus $2,220,892
Enhanced Medicaid Funding 1,065,392
Fiscal Stabilization 1,091,000
NJ Transit 59,100
Other 5,400
Revenue Solutions $1,080,783
Revenue Adjustment Policy 916,500
Other Revenue Actions 164,283
Added Reductions in FY 2009 to Generate
Excess Surplus $199,460
Growth Offset by Other Sources $24,891
So, the actual budget figure is really $33 billion ($35+ billion minus $2.5 billion reduction). That puts this budget right alongside prior budgets for spending.

The financial wizard's solution includes counting the billions from the federal stimulus package, hiking taxes and fees to the tune of nearly $2 billion (that's what revenue solutions and revenue adjustment policies and other revenue actions really means), and deferring pension payments.

Here's a sampling of the tax increases (revenues hoped to be generated in thouands):
One-year tax rate increase for incomes over $500,000 - 380
One-year suspension of Property Tax Deduction for Non-Seniors - 400
Tax Lottery winnings > $10k - 8
Corporation Business Tax - extend 4% surcharge that was to expire - 80
Cigarette Tax - increase of 12.5 cents to $2.70/pack - 26
Alcohol Tax - 25% increase excluding beer - 22
Don't expect that hike on income taxes to be a one-year deal. Just like the original personal income tax, this tax will stick around long after envisioned.

Corzine claims that the new higher income tax rates will affect only 44,000 filers. Of course, those are the same taxpayers in a position best to avoid paying the taxes by fleeing the state and moving to lower tax burden jurisdictions.

The property tax relief doesn't extend to non-seniors whose income exceeds $75,000. In other words, it is a stealth tax hike on all taxpayers making over $75,000 - because they'll see their tax bill jump by hundreds of dollars due to the loss of the offsets. Those people who still qualify for the property tax relief will see a reduced offset, meaning that their taxes too will increase.

Corzine also will further destabilize the state's pension system, by reducing payments into the state's pension programs for teachers. He's going to balance that portion of the budget by cutting nearly $560 million in payments, while increasing actual aid to localities by $340 million. Never mind that much of the money will end up being sucked into the maw of the unions and not reach the classrooms and students, but this only further complicates the structural deficits for the state.

In higher education, Corzine increases spending for UMDNJ by $30 million, while cutting education spending for Rutgers by $15.5 million and 10 private institutions by an average of more than $1 million each. The net effect is a minor decrease in spending for higher education of $1.3 million.

The problem is that the legislature will not resolve these matters, but further complicate them. They will increase spending and restore some of the cuts, all while increasing spending.

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