New Jersey Moves to the Front of the Draconian Budget Parade

New Jersey Gov. Chris Christie, a tough-talking former U.S. Attorney, swept into office last year by beating out former Wall Street wizard Jon Corzine. And the new governor minced no words today about the state's dire financial situation in his first budget address to the legislature.

Christie's $28.3 billion spending plan slashes outlays by 9%, suspends property tax rebates and calls for 1,300 layoffs as the state tries to close an $11 billion budget shortfall. In addition, aid to local school districts would be cut by $800 million. And he's calling for a constitutional amendment to cap state and local government spending and property tax increases at 2.5%.

"Today, we are fulfilling the promise of a smaller government that lives within its means," he told a packed statehouse in Trenton. "So, today, we stop sweeping problems under the rug. We will not hide our problems until another day. And we are certainly not increasing the tax burden we place upon our people."

Ugly All Over

New Jersey is hardly alone in its fiscal misery. As The Wall Street Journalnotes today, cash-strapped states are facing $180 billion in deficits the next fiscal year -- and are hitting the federal government for help. New York is grappling with an $8.2 billion deficit caused in part by a decline in Wall Street earnings. And California's monstrous gap is expected to top $20 billion.

In response, states are being forced to take drastic action. Schools in Hawaii closed for 17 days to reduce costs, and the Aloha State, along with many others, delayed issuing tax refunds. In Arizona, officials are selling and leasing back most of the office space that houses the government.

The picture shows no signs of improvement as state tax revenues continue to decline, according to the Pew Center on the States. "It will take years for states to return to normal, whatever the new normal will be," Pew says in a recent report. "In many states, the recession reduced the base for future revenue even as pressure to increase spending grew."

"A Disaster"

The fight over Christie's budget in New Jersey is gearing up to be vicious, even considering the rough-and-tumble nature of Jersey politics. The New Jersey Education Association, the state's largest teacher's union, calls the spending plan a "disaster." The New Jersey AFL-CIO called on Christie not to cut unemployment benefits.

State Senate President Stephen Sweeney, a Democrat, told the Star-Ledger of Newark that the budget was unfair. "The wealthy people in New Jersey got a tax cut," he says. "The middle class and the poor are going to get a tax increase. It's that simple."

Christie argues that extreme moves are needed and that the state would no longer use one-time fiscal gimmicks to bolster its balance sheet. Spending rose by 59% between the 2001 and 2008 fiscal years, a pace that Christie says in unsustainable. New Jersey's total revenues for fiscal 2011 are expected to be $28.3 billion, or $490 million less than forecast in the original fiscal 2010 budget.

While that's true, Mary E. Forsberg, interim president of the liberal think tank New Jersey Policy Perspective, says Christie, too, is relying on fiscal slight of hand, including skipping the state's $3 billion contribution to its pension plan this year.

America's Highest Property Taxes

New Jersey also is unusually dependent on property taxes because local governments have no other source of revenue. The Star-Ledger recently reported that the state's property taxes have climbed 70% over the past 11 years. They're the highest in the U.S. and are constant source of argument in the state.

New Jersey isn't the most screwed-up state financially (see: California), but righting the fiscal ship there will be especially difficult. Welcome to the hot seat, Gov. Christie.