Christie Embraces Budget Strategies He Scorned as a Candidate

The New York Times

Gov. Chris Christie on Tuesday in Moonachie, N.J., after addressing volunteer groups involved in hurricane recovery efforts.


Running for New Jersey governor in 2009, Chris Christie hammered the Democratic incumbent, Jon S. Corzine, for using “one-shot gimmicks” to balance the budget, called it “unconscionable” to take away property tax rebates and railed against issuing more debt for transportation projects, promising to “start saying no to spending.”

But in four years in office, Governor Christie, a Republican, has relied on the same kind of short-term strategies, diverting money for things like affordable housing and property tax rebates to balance the budget, and tapping funds intended for development of new sources of energy to keep the lights on in state buildings.

Mr. Christie made headlines when he declared he was canceling construction of a tunnel under the Hudson River to halt runaway costs, but he has issued more debt for transportation projects than any of his predecessors. Overall spending has risen 14 percent, and while state surpluses nationwide are growing, New Jersey’s has shrunk to its lowest percentage in a decade. The state’s bond rating is among the worst in the country.

Mr. Christie’s record is drawing scrutiny now, not only because he is emphasizing that he “restored fiscal sanity” to the state as he seeks re-election next week, but also because of his possible presidential candidacy: As a Northeastern Republican, he needs a way to connect with the party’s conservative base, and a strong message of fiscal management could help him offset skepticism about his positions on social issues.

Wall Street ratings agencies and nonpartisan commissions, however, have been sounding warnings about Mr. Christie’s financial management since early in his tenure. The governor has promoted a “Jersey Comeback,” but an analysis of budgets across the country in June rated New Jersey and Georgia as highest in “fiscal stress,” in a category called “What Recovery?”

“He’s posing as a fiscal conservative, and he’s not,” said Gordon MacInnes, a Democratic former state senator and now president of New Jersey Policy Perspective, a liberal-leaning group. “He talks about a mythical fact that he has produced four balanced budgets. Well, every governor since 1947 has done that, as the Constitution has required them. That’s not the question. The question is, do you balance current spending on current revenues? Or do you borrow against the future to pay for current services?”

Spending continues to expand. Mr. Christie’s budget for 2014, at just shy of $33 billion, will reach the second-highest amount in state history and more than Governor Corzine’s did in his last two years in office.

Mr. Christie’s critics give him credit for progress in one key area: working with the Legislature to pay more toward the state’s pension obligations. His administration argues that the state would be in catastrophic shape had he not done so. The governor and the Legislature also limited the size of arbitration awards and the amount by which towns could increase property taxes, and required public employees to contribute more toward their benefits. The administration says these measures will slow the growth of property taxes over time.

“The governor did this without a care for the political fallout from special interests that his predecessors and Democratic legislatures cowered and caved to year after year,” said Michael Drewniak, a spokesman for Mr. Christie. “That delay and lack of courage carried serious and lingering consequences, which Governor Christie addressed aggressively to date and will continue to meet head-on.”

And some of those who have watched New Jersey’s finances spin out of control over the previous decades — when governors had to raise taxes even in good economic times to satisfy budget demands — say he is moving the state in the right direction.

“You can’t deal with it all at once,” said Joseph J. Seneca, a professor of economics at Rutgers and a former chairman of the New Jersey Council of Economic Advisors. “New Jersey got itself into its fiscal problems and an underperforming economy over many years. It’s going to take some time to get back, but I think the important first steps have occurred very effectively.”

But a recurring pattern has emerged in Mr. Christie’s approach to budgeting that concerns ratings agencies: The governor bases his spending plans on robust revenue growth, despite evidence of a weak economy. And because he has pledged not to raise taxes, when those revenues fail to materialize, he is left scrambling to drain money from other accounts to balance the state budget, relying on the gimmicks he once derided Mr. Corzine for using.

During the past two years, he took $175 million from the money paid to states to settle complaints of mortgage fraud, intended to help homeowners prevent foreclosure. (Nationwide, New Jersey has the second-highest percentage of homes in foreclosure.) Last year, he planned to take $166 million that towns were supposed to spend to build affordable housing. (The towns have sued to stop him, so the governor may have to fill an even bigger hole.)

He relied on an accounting switch earlier this year, announcing that instead of sending out property tax rebates in May, as has been the custom, the state would send them out in August, pushing $400 million onto the next budget.

This year’s budget also counts on a one-time bonus of $120 million that he expects to be paid by a company hired to run the state lottery.

Mr. Christie has been especially aggressive about taking funds dedicated to energy efficiency, to developing renewable energy and to reducing costs for rate payers. He has taken roughly $700 million in so-called clean energy funds, dumping most of that into the general fund, and using a smaller percentage to pay utility bills in state buildings. The transfers began small — $42.5 million in fiscal year 2011 — then more than quadrupled over the next three budgets.

That money came mostly from a “societal benefits charge” on ratepayers’ electric and natural gas bills, and from auctioning off carbon dioxide emission allowances under the Regional Greenhouse Gas Initiative, which Mr. Christie pulled out of soon after taking office.

He has similarly drained money intended to fix the state’s aging roads, bridges and public transit system. When he was elected, the Transportation Trust Fund, which for three decades has paid for capital improvements, was depleted. Mr. Christie rejected calls to raise the gasoline tax and instead asked the Corzine administration, then in its lame-duck period, to issue debt to fill it. When that began to run out, he replenished it with money that had been intended for building the Hudson rail tunnel to connect North Jersey and Manhattan, which he had canceled.

He issued $4 billion in bonds, but said that to avoid future borrowing, he would increase the amount the state contributed toward the transportation trust fund every year. But when revenues came up shorter than his projections in 2013, he took the turnpike tolls intended for those contributions to the trust fund and used them to help balance the overall state budget. For fiscal year 2014, he again eliminated the planned payments.

In late 2012, the State Budget Crisis Task Force, a bipartisan panel led by Paul A. Volcker, a former Federal Reserve chairman, and Richard Ravitch, a former lieutenant governor of New York, warned that New Jersey’s reliance on the one-shot practice had led to “structurally unbalanced budgets.”

The report argued that the pension overhaul was in trouble: The state would have to come up with $5.5 billion a year in annual payments by 2018, and current budgets did not suggest where that money might come from. With a small surplus, then projected at $648 million, there was “little room for error” in revenue projections.

“This pushes difficult budget choices off to future years and is ultimately unsustainable,” the report said.

The projected surplus has fallen since then, to about $300 million, or less than 1 percent of the overall budget. By contrast, the national average has been higher than 6 percent since 2011. New Jersey’s rainy day fund, too, has been empty since the recession.

The report on fiscal stress last spring, by the Federal Funds Information for States, a nonpartisan group that relies on states’ own reporting of their finances, found that unlike most states that had pulled themselves out of the recession years, New Jersey was struggling more this year, given its lower-than-expected tax collections and little surplus to cushion it.

That was not the only warning sounded. In 2011, ratings agencies downgraded the state’s bond rating — it is still among the worst in the nation — out of concern about the low surplus. In recent years, they have also issued alerts that the governor’s inflated revenue predictions were threatening another downgrade.

This spring, the Christie administration acknowledged in a prospectus for potential investors that even its signature pension overhaul would present a “significant burden on all aspects of the state’s finances.”

“No assurances can be given as to the level of the state’s pension contributions in future fiscal years,” it said.

Still, Mr. Christie’s optimism abides. Next month, the state will begin allowing online gambling. The legislative budget office says that Wall Street analysts expect it to bring in $40 million in tax revenue in its first 12 months. Mr. Christie’s budget is counting on it to bring in $180 million in just seven.

The Office of Legislative Services “has been unable to identify any independent source that endorses such an estimate,” the budget office director, David Rosen, told the Legislature in May. “And despite several explicit requests, the Executive has offered no analysis to support its estimate.”

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commented 2013-12-27 11:18:09 -0800
Thank you