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From CQ Weekly, PETER HARKNESS Governor: Heal Thy State After breaking 15 bones and spending eight days on a ventilator, Jon Corzine is recovering slowly from the horrendous car accident that nearly killed him. Now the governor of New Jersey’s most pressing problems aren’t physical, they’re fiscal — because, if there’s a financial metaphor among all the states for a car wreck, it is his own state. New Jersey’s finances are a disaster, the end result of decades of financial and political irresponsibility by governors of both parties as well as the legislature under both Republican and Democratic control. 
The immediate problem is a crushing amount of debt and unfunded pension obligations. At the end of last year, New Jersey’s total debt was $33 billion, about the same amount as an entire fiscal year’s worth of state spending. And it isn’t just the total that is worrisome, it’s the fact that it has more than doubled in the past five years and that about a quarter of the total amount borrowed was to cover operating costs when revenues fell short. But that isn’t the worst of it. This spring, it was revealed that the state had been underfunding its pension system — the ninth largest in the nation — by $56 billion, or three times the previous estimate. With winks and nods, governors and legislators over the past 15 years have been using a variety of financial gimmicks to mask the fact that the state had made either no contributions to the fund — or much smaller ones than reported. It’s enough to make an Enron accountant blush.
And it isn’t just pensions. It turns out the projections for post-retirement medical care costs for state employees and teachers have been only a quarter of the real figure, which now is estimated at $78 billion, or about $8,500 for every state resident. To reduce the outstanding deficit in benefits, the state would have to dedicate almost a quarter of its annual budget, which is not feasible. There’s more. Perhaps no state is as reliant on transportation infrastructure as New Jersey, which is in essence a giant suburb knitting Philadelphia to New York. The trust fund the state has relied on for decades to pay the bills is now almost $8 billion in debt, much of it incurred to cover operating costs in areas having little or nothing to do with transportation. As with most states, the tax on gasoline no longer is keeping up with the need, and because New Jersey’s tax is one of the lowest among the states, the gap is even wider. To keep the fund from slipping into bankruptcy, the state has had to continually refinance debt to free up money for interest payments and immediate maintenance needs. So that’s what Corzine faces as he mends his body. Fortunately, his state has a lot of things going for it: a robust and diverse economy, very high personal income and low unemployment. Also fortunately, there’s probably no governor better equipped to confront this fiscal mess than Corzine, a former co-chairman of Goldman Sachs who spent $103 million of his own money to get elected to the U.S. Senate in 2000 and then the governorship in 2005. From the moment he took the oath of office in Trenton, he’s been forcefully candid about the state’s imminent financial disaster. DEBT AND OBLIGATION The dilemma he faces is not the annual budget. In these comparatively good times for the states, New Jersey has been able to book almost $2 billion, or 6 percent of the general fund, in additional, unanticipated revenue this year. Corzine and legislative leaders recently made an early deal on a new budget seeking no new taxes — in stark contrast to last year, when the state government and as a result even the state-regulated Atlantic City casinos were shut down for a week. Sales taxes were increased last year, but the new budget will offer significant relief from what are currently the highest property taxes in the nation. Not surprisingly, the tax cut is well-timed for the upcoming election this fall. The real problem is the overhanging debt and the pension and benefit obligations. And it’s something more: a long tradition of allowing almost inexcusable fragmentation, redundancy and inefficiency in local government. The state’s economy until just recently has been sluggish in producing new private-sector jobs, but an amazing portion of the new jobs has been in local government, even though there is little population growth. Not surprisingly Corzine has been looking for the kind of fiscal fix you’d expect from a financial Master of the Universe. He has worked on an idea for privatizing large chunks of the state’s transportation infrastructure, as has been done in Indiana and Chicago, and using the proceeds to pay down the debt. But that clearly wasn’t going to fly with the legislature. So now he’s working on a plan to create a new public corporation that would take the added revenues from increases in tolls on turnpikes and issue bonds backed by the new money. Whether Corzine has not only the financial but also the political skills to find a way out for the Garden State remains to be seen. But for sure officials at the federal level had better take note, because the mess we see in Trenton pales in comparison with what they’ll inevitably have to face in Washington. Previous columns: © 2007, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
THE STATES AND LOCALITIES