N.J. budget woes going down to the wire

Posted: June 16, 2014

New Jersey lawmakers have a little more than two weeks to devise a budget that fills a $1.7 billion revenue hole expected next year - while also confronting the possibility that a court could scuttle a plan to plug a $1 billion shortfall in the fiscal year that ends June 30.

Their deliberations may hinge on a hearing five days before the budget deadline, when a state judge will hear a challenge by public-sector unions to Gov. Christie's proposal to address shortfalls this year and next by slashing payments to the pension system.

But the court might not rule on the legality of the Republican governor's proposal for next year, presenting Democrats in control of the Legislature with difficult choices - and the opportunity for political gamesmanship.

If Democrats, who have attacked the governor's plan, include a full pension payment in next year's budget, they will have to make deep cuts to compensate - or propose tax increases.

But Christie has said he will veto any hike that gets to his desk, making it unlikely lawmakers could rely on raising taxes on the wealthy to help pay for the pension payment.

Unions have been ramping up their calls for funding the pension system. On Thursday, several hundred members of the Communications Workers of America gathered outside the Statehouse to protest Christie's pension cuts and refusal to consider a so-called millionaire's tax, chanting, "Tax millionaires, fund the pension."

Facing an end-of-year $1 billion shortfall after revenue missed administration projections, Christie announced in May that he planned to cut the pension payments, which had been scheduled at $1.58 billion this year and $2.25 billion next year.

The payments resulted from an agreement reached by Christie and Democrats in a landmark pension-reform deal during the governor's first term. In exchange for having public workers paying more toward their pensions and health benefits, the state agreed to make escalating payments to the system, which has long been underfunded.

Christie issued an executive order to cut this year's payment to $696 million and has proposed a $681 million payment in next year's budget.

That spurred more than a dozen unions to join in filing lawsuits.

On June 25, a state court judge will hear the case.

"I'm hoping that the courts are going to indicate where they're going on the 25th," said Sen. Paul Sarlo (D., Bergen), chairman of the Senate Budget Committee. "The problem is, we don't know if they're going to rule or not."

A legal opinion from the Office of Legislative Services reviewed by The Inquirer said Christie's decision to cut the pension payment in the current year "may be warranted by necessity." The New Jersey Constitution requires the state to have balanced budgets.

But for fiscal year 2015, the opinion from the Office of Legislative Services said, Christie likely does not have the authority to make the payment cut.

How the state could afford a $2.25 billion payment under Christie's $32.7 billion plan for next year is the question.

A proposal introduced last week by Sen. Ray Lesniak (D., Union) would add a top tax bracket for millionaires, raise the rate for people making between $500,000 and $1 million, and add a bracket for people with incomes between $350,000 and $500,000.

In a nod to Republicans, Lesniak's proposal also would repeal the estate tax - a more important factor than a millionaire's tax in driving the wealthy out of state, he said.

"To me, it's a win-win situation," Lesniak said.

Michael Drewniak, a spokesman for Christie, said the governor "will not raise taxes on already overburdened New Jersey taxpayers."

Lesniak's plan "is a nonstarter, and the numbers don't work to fix a problem of such magnitude," Drewniak said.

Lesniak said his proposal would net $850 million a year, compared with the projected budget hole next year of $1.7 billion.

At an event Monday in Camden, Christie said the pension cuts were the only option to deal with the shortfall. "I don't have a Plan B, and neither does anyone else," he said. "I have not heard one other idea of how to raise approximately $1.7 to $1.8 billion from anyone in a position of responsibility throughout the state."

This shortfall - which Christie's treasurer attributed to underestimating the effects of a federal tax policy change - isn't the first under Christie, whose rosy revenue estimates forced a delay in property-tax rebates last year.

Democrats say Christie has not presented a credible plan. "The governor's not offering any solutions at all, except going back on his commitment to fund the pension," Senate President Stephen Sweeney (D., Gloucester) said.

He accused Christie of failing to take responsibility for the budget troubles and state's lagging economy. "When you blame the other guy for all the woes, and you've been there for five years now . . . this is yours," Sweeney said.

Sweeney did not present specific solutions, saying only that "there are options out there."

Sweeney, who drew the ire of unions when he partnered with Christie on the 2011 pension deal, now faces pressure to preserve the state's pension payments.

Christie could still shoot down a proposal that includes the payment. In that scenario, Democrats could claim they fought for the payment and blame Christie for nixing it, leaving the ultimate decision to the court.

Of the challenges confronting lawmakers, most immediate is the uncertainty over the pension payment for the fiscal year ending June 30, said Assemblyman John Burzichelli (D., Gloucester), vice chair of the Assembly Budget Committee.

Though the budget for the fiscal year beginning July 1 is "very close, that's at a distance at the moment," Burzichelli said. If a court orders a full payment to be made now, lawmakers would likely have to shift the payment into the early days of the new fiscal year - straining next year's budget, Burzichelli said.

As for the 2015 budget, "we have an obligation to make this payment," Burzichelli said. "So we have to figure out how to do it."



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