TRENTON - For the better part of the past decade New Jersey has followed fiscal policies dangerous to the state's economic health, according to a new report from New Jersey Policy Perspective based on extensive research into state spending, taxing and borrowing trends.

According to the report, the state can expect to pay a price for policies that included:

• Rapidly increasing debt
• Paying current bills with funds set aside for future needs
• Introducing billions of dollars in new programs with no way to pay future costs
• Manipulating pension funds to produce quick "savings" while exponentially increasing future liabilities

"It is all too evident that most of the last decade was a time of squandering prosperity in favor of the political advantages of appearing to spare people hard decisions," the report says. "That is likely to create a situation that makes the early part of this decade look all too much like the early 1990s."

Take the Money and Run: How Fiscal Practices from the '90s to Now Threaten New Jersey's Future, by Judith C. Cambria, is the most thorough examination done of the state's fiscal practices from the early 1990s to the present time. Its aims are to increase awareness of fiscal dangers that lie ahead and promote discussion of necessary changes in tax, spending and borrowing policies during this crucial election year. Ms. Cambria is an expert in state finance issues who serves as fiscal policy and education specialist for the

League of Women Voters of New Jersey. She examined more than 30 years of historical fiscal data as well as estimates for future spending and borrowing.

The result is a sobering assessment of where the state stands today and the serious problems likely to emerge in the not-too-distant future. "The inescapable conclusion," according to the report, "is that policies largely designed to accommodate tax cuts undermine the state's long-term financial strength and state government's ability to pay for basic services, especially in an economic slowdown." Even if the economy were to remain strong, New Jersey faces tough decisions because it routinely spends more each year than it takes in, the report found. And a slowdown or recession would raise serious doubts as to whether the state could maintain current levels of municipal and school aid, property tax relief for individuals, and grants-in-aid that support vast numbers of community, social, medical and other programs.

Jon Shure, president of NJPP, said of the report's findings: "What has to be done might not be conducive to political popularity. But it must be done for New Jersey to move forward, maximize its advantages and keep its promises. It isn't too late to fix this, but the longer we wait the harder it gets."

The report found that since 1992 tax cuts have reduced state revenue by $18 billion. This came from a deeper income tax cut than in other states, reducing the sales tax and more than 40 other tax cuts. Between 1990 and 2001 the state budget grew by $9.2 billion, with more than half of that growth-$4.8 billion-coming in the past three years.

How could it happen? "The spending, borrowing and tax-cutting of the 1990s were underwritten by the unprecedented economic conditions of the latter part of the decade," the report says. Indeed, over three years leading up to 2001, state income tax revenues rose by $2.2 billion, and the sales tax was close behind with $1.16 billion growth. But, as the report warns, "it is a high-wire act bound to fail when the growth of tax revenue declines to more normal levels... the state's fiscal practices over the past decade have made it so that a continuation of these billion-dollar or better annual increases in tax revenue is essential for the state to avoid serious financial difficulties."

In the end, it is clear that, as the report says, for the better part of a decade policymakers were "gambling with New Jersey's future." They made large cuts in revenue while making large increases in spending, which meant: "Politicians get instant political gratification while leaving the difficult and unpopular job of raising taxes to pay for their spending to their successors and creating an onerous burden on future taxpayers."

"It is simple math that anyone who has ever balanced a family budget can understand," the report says. "Reduce your income, increase your spending, increase debt payments on increased borrowing, and you are in deep trouble. The state of New Jersey has ignored this simple reality for years."

NJPP is a nonpartisan, nonprofit organization that conducts research on state issues.

TAX REFORM

WORK & WAGES

BUDGET & FISCAL POLICY

TRANSIT ISSUES

ECONOMIC DEVELOPMENT

VOTING & GOVT REFORM

© 2008 New Jersey Policy Perspective