New Jersey's budget has been built on illusion for a long time. This year, reality intruded.
If you were to compile a list of the financial gimmicks that have gotten states into trouble in recent years, you'd find New Jersey has tried almost all of them. That's why, at a moment when other states are suddenly flush with cash after a period of deficits, New Jersey's government was forced to shut down for the first time ever last month. "It's almost like every financial practice you shouldn't follow in running a state, they did," says Jon Shure, of New Jersey Policy Perspective, a think tank.
The litany is familiar. The cost of tax cuts was blurred by one-time fixes, such as selling off roads, that didn't address long-term structural shortfalls. Pension and school-construction expenses were met by issuing bonds, but then not enough money was appropriated to cover the debt. It got so bad that in 2004 the state Supreme Court ruled that bonding couldn't be used anymore to pay for operating costs. That opened up an even bigger fiscal hole.
In the 2005 campaign for governor, both candidates agreed that the state had run out of easy fixes. Jon Corzine, the Democrat who prevailed in that contest, proposed a budget earlier this year that sought to end more than a decade of financial mismanagement. From now on, Corzine vowed, recurring costs would be met with recurring and sustainable revenues. The first move would be a one-cent increase in the state sales tax.
The Democrats who control the legislature didn't go for that idea. The party lost power following major tax increases in 1990 and then watched Governor Christine Todd Whitman become a national Republican star by cutting taxes. As the state Democratic Party rebuilt in the past few years, its base grew more suburban--meaning lots of legislators represent constituents skeptical of raising additional tax money that they believe will go mostly to inner cities. In the end, Corzine got his tax increase by playing hardball. Refusing to accept any budget that didn't include his revenue changes, he forced the government to shut down on July 1 when the fiscal year started with no budget enacted. The compromise that was struck was a victory for the governor, one which gave legislators a bit of political cover by dedicating a large portion of the new money to property-tax relief. But the stark truth is that New Jersey politicians had blundered into a chaotic situation by making promises for 15 years without the political will to pay for them. "They're having more problems than they ought to have," says David Wyss, chief economist for Standard & Poor's. "This is 90 percent politics and 10 percent economics."