Ryan Budget Cuts Would Crush New Jersey’s Anemic Recovery

August 8th, 2012  |  by  |  Published in Budget and Tax Policy, NJPP Blog: As a Matter of Fact ...

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The House of Representatives has decided that there is only one way to deal with the nation’s looming deficit problem: slash all domestic federal programs except Social Security and Medicare and hand the problem off to the states. For New Jersey this means that its already-bad budget problems just worsened by about $760 million.

In a report detailing the state impact of the House-approved budget authored by Congressman Paul Ryan, the Center on Budget and Policy Priorities (CBPP) illustrates how a significant reduction in federal support beginning next fall would batter an already-beleaguered state budget. The Ryan plan assumes that the nation can get by with less investment in education, environmental protection, clean water, and law enforcement. It continues the dangerous assumption that there is no reason for this generation to pay taxes for the services it demands.

CBPP, a non-partisan policy research organization based in Washington, D.C., estimates that New Jersey would lose 22% – or $757 million – in federal funding for special education, clean water, law enforcement, and other state and local services in 2014 alone. Ryan’s plan also would shift other very large costs to states by reducing federal funding for Medicaid by more than one-third (in addition to repealing the health reform law), and likely by cutting deeply funding for highway construction and other transportation projects.

“The Great Recession has states panting for oxygen, particularly New Jersey,” said Gordon MacInnes, President of New Jersey Policy Perspective. “Now the House with its cuts-only policy kicks us in the stomach when a hand up is what we need.”

Given that New Jersey was only able to balance its budget this year by borrowing and relying on one-time revenue sources, the prospects for next year (fiscal year 2014) are grim. Pension and retiree benefits will require an additional $1 billion over this year’s funding level, debt service will cost $200 million more, and another $300 million is needed for the transportation trust fund. These obligations, when combined with the cuts in federal support contemplated by the Ryan plan mean New Jersey’s financial hole at the state and local levels next year would be well over $2 billion, $760 million deeper than last year.

The Ryan Plan would also repeal the Affordable Care Act, with its expansion of Medicaid coverage and subsidized health insurance for working families not eligible for Medicaid. This deals another financial blow to New Jersey, as the law requires the federal government to pay 100 percent of the Medicaid expansion costs in the first three years. With more insured patients, this would permit New Jersey to reduce substantially its current payments of almost $1 billion annually to hospitals for charity care and graduate medical education. With ACA’s repeal, New Jersey would lose out on at least $400 million in savings and about 800,000 New Jerseyans would be deprived of affordable health insurance.

The cuts to state and local governments, including school districts, under the Ryan budget would far exceed the automatic cuts scheduled to begin in January (called “sequestration” inside the Beltway) if no budget deal is reached. In 2014, the Ryan budget cuts would be three times as deep, inflicting far more damage than sequestration. In later years, as the sequestration cuts diminish but the Ryan cuts do not, the difference would be even larger.

In combination with lower tax collections, higher joblessness, and rising bills for pensions and debt payments, the Ryan Plan should end the talk by the governor and others about depleting the treasury even more with a tax cut. In June, the state legislature wisely postponed a tax cut in this year’s budget unless the very aggressive forecasts for tax collections by the Christie administration are realized.

“With his state struggling with the fourth highest jobless rate and fourth lowest rate of economic activity, Governor Christie should use his considerable influence to pressure Congress to abandon the cuts-only approach of the Ryan budget,” said MacInnes.

CBPP’s full report can be found at: http://www.cbpp.org/cms/index.cfm?fa=view&id=3816


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