Corzine unveils budget with major cuts

Said his job is on the line
February 26, 2008 4:03:00 PM PST
Gov. Jon S. Corzine on Tuesday proposed major budget cuts to key New Jersey programs, including state workers, property tax rebates and aid for towns and hospitals, calling it an agonizing bid to revamp troubled state finances."Frankly, New Jersey has a government its people cannot afford," Corzine said in remarks prepared for delivery to the Legislature. "The budget I present today declares the time of living beyond our means is over."

The $33 billion budget proposes $3.2 billion in cuts as Corzine looks to right state finances plagued by annual budget deficits, high taxes and mounting debt. Corzine called his plan "cold turkey therapy for our troubled spending addiction."

"I am pained by the stress and anguish brought to our people's lives by the cuts proposed," the Democratic governor said. "We are positioned between a rock and a hard place."

Under the proposal:

  • Property tax rebates would be eliminated for households earning more than $150,000, reduced for households earning between $100,000 and $150,000 and sliced for renters.
  • State aid for hospitals, towns and cities, and colleges and would be cut.
  • State workers would be laid off and offered retirement incentives, and the agriculture, commerce and personnel departments eliminated, with the goal to cut the 80,000-member work force by 5,000 workers.
  • Motor vehicle agencies and state parks would have their hours cut.
  • A co-payment would be implemented for Medicaid services. "Failing to take on the tough choices will only force New Jersey into a deeper fiscal swamp and weigh down our taxpayers with more unbearable financial burdens," Corzine said. "That outcome is unacceptable."

    The plan needs legislative approval. The state Constitution requires a budget be adopted by July 1. State government closed for a week in 2006 when that deadline was missed amid a dispute between Corzine and lawmakers over tax increases.

    Corzine also wants to significantly increase tolls on the Garden State Parkway, New Jersey Turnpike and Atlantic City Expressway to pay at least half of $32 billion in state debt and fund transportation.

    Although that plan is separate from the budget proposal, Corzine referenced legislative opposition to it and pleaded to find a way to cut debt.

    "Fixing the budget problem without addressing debt reduction is a fiction and if we try to do that, we are misleading the public," Corzine said.

    The budget cuts were welcomed by businesses.

    "We applaud the governor for understanding the seriousness of our fiscal crisis by presenting a budget that, while tough to stomach by just about everyone in this state, will begin to repair the damage," said Joan Verplanck, New Jersey Chamber of Commerce president.

    "I see a lot of pain coming down, and that pain is coming down on poor people and middle-class people," said Sen. Ronald Rice, D-Essex.

    Carla Katz, president of the largest state workers union chapter, said the cuts would "scapegoat public workers, will hurt middle class families and fail to provide a real solution to the state's fiscal problems."

    Republicans want spending cuts but blasted plans to pare rebates.

    "What we will not do is be a party to any plan that would lower or eliminate direct property tax relief for middle-class families," said Assembly Minority Alex DeCroce, R-Morris.

    New Jersey has the nation's highest property taxes, at $6,330 per homeowner, or twice the national average. The rebates averaged $1,051 last year.

    Text From Speech

    This budget significantly reduces the size ... and cost of government.

    Spending is down in every department of the Executive Branch.

    As best we can tell, this is the first time this has ever occurred.

    In total, there are over $350 million in savings directly attributable to a smaller State government.

    Over the past two years, through attrition and an ongoing hiring freeze, we reduced the size of the State workforce by nearly 2,000 positions.

    With this budget we will have eliminated a minimum of 5,000 total government jobs, including half of all political appointees.

    We will eliminate these positions through targeted layoffs, program consolidations, continued attrition and an early retirement program.

    To ensure these reductions are permanent, we will eliminate funding for specific positions, not just leave them vacant.

    Now ... we know from past experience, early retirement actions have achieved short-term savings but at a long-term cost.

    This has occurred mostly because most positions were backfilled, thereby doubling up retirement costs for the future.

    To prevent that from happening, we will allow only 10 percent of the vacated positions to be backfilled ... and that will be written into law.

    All of the employees who will be included in the early retirement program are currently eligible ... we are simply giving those who can, an incentive to do so.

    Eliminating positions through early retirement will allow us to shrink the size of government without creating the chaos under the civil services rules that would accompany across-the-board layoffs.

    The effect of these personnel reductions will create future savings as our departments are forced to re-prioritize their programs and activities.

    They will not only have to do more with less ... they'll undoubtedly have to do less.

    Digging deeper, we will further reduce the size of government by proposing the elimination of three Cabinet departments: the Personnel Department, the Agricultural Department, and the Commerce Commission.

    The personnel and operational savings from these actions are not intended as one time sound bites.

    They are permanent. They will cut costs.

    Theses actions will be monitored for savings by the State Comptroller and the GEAR Commission.

    These proposed initiatives to cut government build on last year's historic, negotiated agreements with civilian state employees and teachers.

    These agreements achieved breakthrough long-term savings and reversed years of benefit expansion authored by Governors and Legislators of both parties.

    Consider, we raised the retirement age for new employees from 55 to 60.

    We increased pension contributions.

    We capped the defined benefit pension for new employees.

    We mandated for the first time state employees share in the cost of their health care.

    And, we kept wage increases well inside the levy cap.

    Now, we should work to apply these and additional reforms to all units of government and, we need to make certain the levy cap is considered by mediators and arbitrators in settlements imposed on local governments.

    We should also revisit some of the unfinished business from last year's special session on property tax reform such as eliminating defined benefit pensions for part time workers.

    The next broad area for savings involves painful reductions in base-budget aid and grant programs.

    This includes some property tax rebates, municipal aid, higher education, hospital assistance and Medicaid.

    Cuts in these areas will total almost $1.4 billion.

    These cuts are unavoidable as nearly 75 percent of all State spending is grant based or pass through aid.

    In terms of property tax relief programs 90 percent, repeat, 90 percent of all homeowners who received a rebate last year ... will again.

    Those earning $100,000 or less, 70 percent of all households, will receive exactly the same $1,000-plus rebate they received last year.

    Those earning between $100,000 and $150,000 will receive at least two-thirds of last year's rebate.

    We will also expand the eligibility for the senior freeze to an income level of $75,000 ... helping another 150,000-plus of senior households.

    Unfortunately, residents earning more than $150,000 will no longer be eligible for rebates.

    In addition, renter rebates will be narrowed while increases in special assistance rental vouchers partially offset this cut.

    With regard to local aid, hospitals, higher education and health care we sought to minimize, retarget and share the burdens of cuts as responsibly as possible.

    For instance, while all categories of municipal aid will be reduced, communities with populations of less than 10,000 will receive less direct support.

    However, these communities will receive priority consideration for $32 million in grants to develop shared services or consolidation agreements.

    With regard to hospitals, across the board reductions are proposed, although we focus charity care increasingly toward safety net hospitals.

    We also create a stabilization fund as recommended by the Reinhardt Commission to assist hospitals in the most distress.

    Higher education and health care - particularly Medicaid will see the smallest reductions.

    This is because we carry grave concerns about the level of potential tuition hikes and the need to maintain access to health care for our most vulnerable.

    Finally, this budget is shaped and balanced by two additional steps.

    The first is the elimination of all non-contracted inflationary growth for our various aid and grant programs.

    This will save about $800 million dollars.

    Regrettably, many of the same institutions who will experience absolute cuts will lose inflationary increases.

    Finally, we will reduce the use of accumulated surplus from the current fiscal year.

    Remember the higher-than-expected surplus was created by our ongoing managerial efficiencies and revenue growth that exceeds projections.

    Reducing the use of surplus will move us closer to the principle that current expenditures will be funded solely by current revenue.

    As a point of comparison, in fiscal '08 we used $1.6 billion of surplus to balance the budget in FY09 we will use only $500 million.

    Of the remaining Fiscal Year '08 surplus, $300 million will go to pre-fund early retirement and unfunded pension liabilities.

    And $34 million will go to fund selected capital investments.

    I expect this to be the last year we use any surplus to balance the budget.

    So that's a quick overview of a very tough budget. I don't like it. I'm sure a lot of you don't, but again it is a necessity.

    Again, the details are in the "Budget in Brief."

    Let me be clear, cutting spending is only the first step we must take to restore our fiscal health and put us in a position to be a sustainable partner in the success of our people.

    Current-year spending cuts makes balancing the budget next year and in the future easier, but it doesn't make it easy.

    The financial restructuring I put forward had four elements because it will take more than spending cuts to cure the broken finances of our State.

    First, we have to get state spending under control and today I think we're do just that.

    Second, future spending must match future recurring revenue.

    Third, out-of-control borrowing must end.

    And fourth, we must reduce our crushing debt load and fund infrastructure investments.

    Now whether or not you agree with every element of my plan, there does appear to be agreement that these reforms are priorities.

    I understand that the toll proposal is not popular, boy do I understand.

    I didn't expect it to be, but as I have repeatedly said I am open to alternatives that will reduce debt and fund transportation.

    But what is not acceptable and what we must reject is allowing the State to muddle through, with more of the same short-sighted fiscal patterns that created the mess in the first place.

    Those days are over.

    Two years ago, I started an effort to put the State on a sound fiscal footing.

    This budget is the latest and most forceful step in that direction.

    It will not be the last.

    Even with the difficult $2.7 billion in cuts in this budget, we project next fiscal year's budget to have a significant structural shortfall ... approximately $1.7 billion.

    The borrowing and benefits committed to over the past twenty years don't go away.

    They get more expensive every year.

    In fact, debt service is one of the few things that actually goes up in my proposed budget.

    And it will go up in every budget in the future unless we do something different.

    Some will argue that our debt burden isn't a problem ... that we should just deal with it some other day.

    But that's not an option. It's not a real option.

    It's clear debt service payments crowd out important priorities every year.

    We should be cutting debt service, not closing parks or raising co-pays.

    Fixing our fiscal problems without addressing debt reduction is a fiction ... and if we try to do that, we are misleading the public.

    With these thoughts in mind, I need comprehensive action by all of you to restore the state's long term fiscal health:

    First, approve a budget that stays within the strict spending limits I have proposed.

    Second, pass legislation to limit growth in spending to certifiable recurring revenue.

    Third, put on the ballot this fall the Lance-Lesniak constitutional amendment to limit state borrowing.

    And fourth, work with me to develop a plan to pay down debt and fund vital capital investments.

    I must say, it is not enough to just reject the toll proposal.

    If you don't like that alternative, give me another viable approach to significantly reduce debt and fund important, vital transportation improvements.

    Many of you have begun that process. I welcome it.

    When I was given the honor of serving as New Jersey's Governor, I made a commitment to be accountable and to be honest, not just in my actions, but in the way I approached problems.

    Our state has spent too much money.

    And we carry far too much debt.

    These twin problems are a threat to the well-being of the people we serve.

    My financial restructuring plan is part of a much larger undertaking.

    I knew it would be challenging and at times unpleasant, and it has fully lived up to my expectations.

    But it has been worth the effort.

    To see the impact of the debate, the intense level of public discussion and involvement, and the alternatives that have been offered

    We are now closer to financial stability - some might say sanity.

    Now in closing ...

    We often hear New Jersey is too expensive a place to live.

    We hear how our business climate has become uncompetitive and our residents are fleeing for greener, or at least cheaper pastures.

    At the heart of these concerns lies New Jersey's broken finances.

    Today, we can't make the investments that we all know we should make in transportation, alternative energy, mental health facilities, schools, and medical research.

    Just look at the missed opportunity in stem cell research.

    That research would not only save lives, it would have potentially driven an economic boon for the medicine chest state of the world.

    Unfortunately - our finances are so broken, the public wouldn't support that investment.

    This must change ... and this budget is a start.

    It's certainly not a budget designed to please ... I can tell from the applause lines ... but it is a prudent blueprint to meet difficult economic circumstances, correct past mistakes and it lays a foundation for a responsible future.

    It doesn't spend more than we have;

    It doesn't borrow to pay operating costs;

    It doesn't raise taxes;

    It does contain the largest increase in school aid ever;

    It does preserve property tax relief for the middle class; and it does protect the most vulnerable in our society.

    It meets the public's expectations that government live within its means.

    Make no mistake - this is a turning point ... not the end point.

    By itself, these cuts won't solve the problem. They can't.

    A long term answer requires deeper changes.

    My friends ... in the next three months, let us come together in a bi-partisan demonstration of responsible governance and find the common ground to restore our state's fiscal viability.