If we have learned anything in the last 20 years in New Jersey, it should be to beware of governors bearing gifts.
In the early 1990s, first-term Governor Christie Whitman promised to “pay for” her tax cuts with heroic returns from the stock market. According to her rosy scenario, the state’s pension funds would not only be fully funded, they would throw off so much extra money that the tax cuts would not mean reductions in either state aid or services. In fact, the Whitman administration even counted on the stock market returns to more than pay for a multibillion dollar state bond issue. It was the proverbial “free lunch.”
Here’s how it worked out in practice. Whitman started the first phase of her tax cuts during her first year in office. At the same time, she altered the pension laws to push pension appropriations into the future. But when the “future” came, she couldn’t even find the revenues to make the reduced pension appropriations. Instead the state sold bonds to pay for them.As the fine print reminds us, Whitman learned that past returns are no guarantee of future performance. Her dream unraveled with consequences that are still with us. The state’s pension funds are underwater by tens of billions. The state’s credit rating has been downgraded and a string of governors have patched budget holes with gimmicks and “one shot” revenues. Basically, in order to cut taxes, Whitman set up a state budget that could not afford pension appropriations then and ever since.
Unfortunately Governor Chris Christie’s proposed budget will just be more of the same. One parallel to Whitman is the commitment to a major tax cut in stages. The first phase involves some, but not massive disruption; but there is no certainty that future phases will not add to New Jersey’s fiscal imbalance. In addition the Governor’s budget scarcely addresses the state’s infrastructure needs. Its small increases in education funding merely scratch the surface of the budget crunch at the local level and at the colleges. Among the needs he ignores is basic living quality in N.J. cities which can't afford police, fire protection, libraries, etc. These should be the first things restored with rising revenues. Instead, he proposes to cut them further and give tax cuts.