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CNBC'S SQUAWK BOX

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HOST: New Jersey Governor Chris Christie, placing him squarely in the middle of the state's budget controversy. Opponents say that his suggested changes will harm the middle class; the Governor says tough fiscal measures are the only way forward. He is here with us right now to talk about his budget plan and the fiscal state of New Jersey, Governor Chris Christie. Governor, thank you for coming in today.

GOVERNOR CHRISTIE: Good morning, thanks for having me.

HOST: Alright you dropped your budget yesterday and you said you were going to be making some waves and sure enough you are. I printed out stuff from across the state papers - tuition hikes, service cuts likely at state colleges. Budget Cuts: $828 million in state aid. We're guinea pigs in Christie's trickle down experiment. Hundreds of teachers tell you that you're no Robin Hood. And Governor Chris Christie to the suburbs: drop dead. You are making waves with this budget.

GOVERNOR CHRISTIE: Yeah things are going well.

HOST: We knew you were going to be pushing this but did you expect this much backlash?

GOVERNOR CHRISTIE: Sure, I mean if you're going to cut over $10 billion in state spending to special interests who have been used to feeding at the trough for government for years and years and years in New Jersey, of course they're going to get angry and they're going to push back but I wasn't elected by them. I was elected by people who were tired of having New Jersey being an economic laughing stock across the country and I'm going to change it. I'm going to change it over the next 4 years. And candidly, I don't care whether I get re-elected or not. I was sent here to change something and I'm going to change it.

HOST: There are - no argument that people don't want to see bloated government and waste but there's also the argument that in a situation this dire you're going to inevitably end up cutting some very valuable meat off the bone too, not just fat.

GOVERNOR CHRISTIE: Sure you are. I mean listen, you can't cut $10 billion and not cut some valuable programs but the fact is that we have the highest marginal tax rates in America, we have the second highest sales tax in America, we have the sixth highest corporate business tax rate in America, and we have the highest property taxes in America. So I think the revenue side, we've maxed out. It's time for us to start cutting back what we spend and that's what I was sent there to do.

HOST: One of these articles says that under this proposal that property taxes could go up in some of the suburban areas.

GOVERNOR CHRISTIE: Not if they pass my proposition two and a half, which would be a constitutional cap on property tax increases of no more than two and a half percent per year. I've asked the legislature to pass it statutorily until it goes on the ballot in November. And then the voters will be in control of their property taxes again because if a town wants to go over a two and a half percent increase, they have to put it on the ballot and the voters get to vote yes or no.

HOST: If I'm a household and I'm in financial distress, one option is to cut my spending and the other is to go get a part time job, right? You're argument is that we're already at 100 hours a week; we can't go out and raise more revenue.

GOVERNOR CHRISTIE: No, we can't. Again, top highest marginal rate, second highest sales tax, you know - highest property taxes, sixth highest corporate business tax. We cannot go any longer and create jobs. Think about this - in 2009 New Jersey lost 121,000 private sector jobs. Just in 2009. We added 11,300 jobs at the municipal and school board level. We can't continue that way. That curve cannot continue to be inverted in that way. If we raise taxes, they're gonna be.

HOST: You're - I think you know exactly what you're doing. You may be - people call you crazy, but it's crazy like a fox at this point. You're going to get a lot of criticism for this but you're also going to become, sort of a - by the- there's a current movement in this country that is really looking for someone. Almost a hero to step in to - as far as deficits go and as far as spending too much, and I think you're tapping into that. I think you know exactly what you're doing.

GOVERNOR CHRISTIE: Well what I'm doing is what I promised to do when I ran.

HOST: Are you worried this is going to hurt you - you know this is probably going to end up helping you. The tougher you look, the more you're going to play into this discontent that's nationwide.

GOVERNOR CHRISTIE: Well, it's not about looking tough, it's about being tough. And at the end of the day, cutting $10 billion in spending - think of this, I also froze, as you remember the last time I was here, 2.2 billion in spending for this year. So we've now cut in 8 weeks, I was Governor 8 weeks yesterday, $13 billion in state spending. That's 9 million an hour since I've been Governor. It's about being tough, not just about looking tough. And candidly, here's the thing. The voters had a choice in November. They had a liberal tax and spend, democrat as their Governor running against someone - I said I was going to cut spending, cut taxes and reign in government. The voters made a choice and it wasn't close. And so now, it's my job to do what I said I was going to do no matter what garbage I take from the folks who write the newspapers.

HOST: There's going to be a similar choice this coming November, only it's going to be nationwide.

GOVERNOR CHRISTIE: Yeah I'm not worried about that.

HOST: And I think you're tapping in to something - I mean people say they're outliers and that they're wing nuts and that, or whatever. We'll see.

HOST: Are there arenas where some of these programs, whether it be school aid, hospitals, whether it be afterschool programs. Whatever situation it may be, obviously there are a lot of state residents that are in dire straits when you look at unemployment, when you look at all these issues - are there places where you can see bringing back some of those programs.

GOVERNOR CHRISTIE: Well Becky there's some where I didn't cu the funding this time, in fact increased funding. Aid to hospitals is increased by $60 million in this budget, directly on charity care to take care of our most disadvantaged. We didn't cut that program.

HOST: Okay I thought originally it was going to be cut by 4.3 percent?

GOVERNOR CHRISTIE: Well that's what people talked about but I reversed that and said we're going to raise that by $60 million because I'm concerned about making sure that the most disadvantaged get healthcare and get access to healthcare in our state. We also didn't cut funding to food banks. You know, we're having an enormous rise in people having to access food banks because they're unemployed, and I don't want people going hungry in New Jersey. So we kept level the funding to food banks. So there are certain areas where we took priorities on those vulnerable in our society and not only didn't cut but expanded money there. It's about making priority choices. Now I don't have a lot of money to be able to do anything that I want in terms of expanding a lot but access to hospitals - you know, we need to make sure people can get access to healthcare and we raised that by $60 million.

HOST: Governor, across the country the rise in red ink is in state pension plans. How big is your problem, and how do you take that on?

GOVERNOR CHRISTIE: Our problem is about a $46 billion dollar problem right now. Here's what you have to do, and what I've suggested that we have to do. You have to bend the cost curve on these pensions, and so what we need, over the last three, we have had retirees health benefit costs go, or pension benefit cost, go up 56%. 56%! Obviously our benefits are too rich and we don't have the employee's paying into the pension system. They pay a set amount. They don't have it fluctuate, like most private pensions do, based on the performance of the market and everything else. So, yes, we have to bend that curve back on benefits.

HOST: And you go back to any people that already have this and going anything, you can't.

GOVERNOR CHRISTIE: Well, you can on future benefits, anything they vested in you can't. But on future benefits you can, but if you make some of those changes that we've talked you will bring that curve. For instance, if we brought down the cost of COLAS that are getting into pensions we could cut the $46 billion in half, to $23 billion. Like that. So you can make changes on the benefits side that will help and the state has to start contributing again to the pension which we haven't done before. But, the fact is even if completely contributed to the pension everything we were supposed to it would be funded at 74%, right now it is funded at %64. So, what you can tell is that's a 10% difference if we made ever contribute we're supposed to over the last decade. We've got to get the benefits side to.

HOST: No one will ever get a defined plan for state employees from here on out, will they?

GOVERNOR CHRISTIE: Well no, there still is a defined plan. For unionized workers.

HOST: And you can't take on those entrenched...

GOVERNOR CHRISTIE: Oh, well I am taking them on.

HOST: Can you succeed? (They have contracts right now)

GOVERNOR CHRISTIE: Sure. The contracts will be up in June of 2011. So, keep an eye on that. And we have layoffs coming in January of 2011. Now Governor Corzine tided my hands, and said I couldn't any layoffs, made a deal with them to prevent me from doing any layoffs until January of 2011. We'll do some layoffs then, and then will get ready to bargain with them, a new bargaining. We have to look at the way pensions are dealt with because for non-unionized it's over, there's no more defined benefit plan it's a defined contribution plan.

HOST: If Health Care becomes federal law, would you push for a state constitutional amendment that will allow New Jersey to opt out the way some states are moving?

GOVERNOR CHRISTIE: I concerned what the plan looks like in Washington, I really am. I got to see how it will affect New Jersey specifically. You know this plan seems, I was listen in the green room of your last interview, this baby is a moving target. They're making deals left, right, all over the place to try to get this thing done. I don't even know what it's going to look for anymore. So, I don't want to pre-judge it Carl, I don't think it's fair to pre-judge it. Let's see what the plan turns out to be, if it passes , I am not convinced it will pass yet. But if it passes, let's see what it is, how it affects New Jersey, and what ways I can maneuver our state to make sure we don't get hurt by it. So...

HOST: ...It's already been deemed passed, I'm sorry. So, Clearly you weren't listening.

GOVERNOR CHRISTIE: Listen, all I heard was somebody trying to desperately bail out water in that last segment, I mean that was a lot of bailing of water going on from Virginia.

HOST: Let me ask you about the state of New Jersey right now just in terms of the emergency weather. Still thousands of people without power, myself included, this has been going on since then. Where do things stand right now and what's going to happen just in terms of the state of emergency.

GOVERNOR CHRISTIE: Bergen county was the hardest hit in terms of the loss of power. We've been moving it in the right direction. About 2/3 of the people who loss power, have power back. I'm told by the utility companies that by Thursday we should have everybody back online. But it's been an awful time. In the eight weeks I've been here we've had two nor'easters, a flood, and two blizzards. I've declared state's of emergencies four times in eight weeks. I'm waiting for the four horsemen of the Apocalypse to come. I mean this has just, not been a great, that and cutting $13 billion. Who wanted this job in the first place? We're getting there Becky, I am going to go tour the areas of Passaic county this afternoon where there has been enormous flooding going on and I think by Thursday I told by our board of public utilities we should...

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NJ 101.5 FM'S ASK THE GOVERNOR

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GOVERNOR CHRISTIE: ....This plan requires a sacrifice by all New Jerseyans, but it is a shared sacrifice and while holding the line is difficult today, it is necessary for a better tomorrow.

ERIC SCOTT: ...Now the question is, what's next?

GOVERNOR CHRISTIE: Well, it's time for the legislature to get to work! For the last 8 weeks I've been working with the state treasurer and all of my cabinet officers and my senior staff, its extraordinarily hard to put this budget together.

ERIC SCOTT: ...That was your sharpest tone, sharpest criticism was directed at the NJEA and they of course fired back immediately with the arguments that you accurately predicted that they would. But do you not at some point have to have a working relationship with them in order to pursue an education agenda outside the fight over money.

GOVERNOR CHRISTIE: Sure, but we've got to get over the fight over money first, because we can't pursue an effective education agenda if we're bankrupt. And I cannot permit any longer, the NJEA to run the state. I was elected to run the state, along with the state legislature and it is time for us to take responsibility for what's going on here and it's time for us, you know if we're sending 8 Billion dollars a year of income tax money for school aid, we should be also reigning in how that money is being spent because let me tell you something when its being spent on family Cadillac medical benefits for teachers and their families with no co-pay at all, no contribution to premium at all by teachers, 18-25 thousands of dollars per year per policy. You know that's not money being well spent to try to help our children learn. Now I have no problem with the government's paying some portion of health benefits like they do in most businesses. But where else are you getting 100% paid health benefits not only while you're working for you and your family from the day you're hired until the day you die. We just can't afford it anymore so I will develop a working relationship with them but only if they are willing to concede to the fact that we spend too much money on education, we are not getting the results in many places that we need to get, and he fact of the matter is we can't afford it anymore, we cannot afford their gold plated benefits, we can't afford the fact that they are getting 5% salary increases while inflation is at zero and you have 10% unemployment and people losing their homes because they can't pay their property taxes because its funding that type of excess.

SOURCE: GOVERNOR'S OFFICE