Decisions by Both Political Parties Created New Jersey’s Growing Budget Shortfall

Fiscal Cliff fear, Superstorm Sandy, the hangover from the Great Recession and election uncertainty all contributed to New Jersey’s fragile economy and, thus, its currently unbalanced budget. But none was the major factor that’s brought the state to a current-year shortfall of between $1.5 billion and $2 billion – that honor goes to political decisions made by both parties between February and June.

Let’s start in February, when Gov. Christie outlined an overly optimistic budget that included the highest projected revenue growth of any state in the nation and close to $500 million in dedicated fund diversions in order to fund the first-year cost of his proposed 10 percent income tax cut while avoiding major budget cuts and the public outcry that goes with them.

While it is not unusual for an administration to push the limits on revenue projections in the initial budget projections, it is unusual to completely ignore crucial facts showing the projections to be unrealistic as the budget process moves forward and to not adjust the projections accordingly. This year, the administration ignored the clear evidence that its revenue assumptions were much too optimistic.

But the governor was not the only one making decisions based on politics rather than sound financial practices and policies – the legislative leadership joined the governor in adopting a budget based on revenue forecasts that were about as plausible as winning the Powerball lottery.

Yes, the Democrats did reject the proposed tax cut, luckily setting aside the money aside rather than spending it on their own priorities, thus potentially producing more surplus. In the end, that was an easy decision since actual tax collections began running noticeably behind projections right after the budget message in February.

The legislative leaders ducked the harder decision to use their power to insist on more reasonable revenue estimates and not the governor’s rosy projections. They did this even after publicly challenging the administration’s revenue forecasts during budget hearings, and even though they used different figures than the governor’s in FY 2012.

The decision to use the higher revenue estimates had no political downside for the legislative leaders. If they had reduced the revenue projections to match those of the Office of Legislative Services, they would have been forced to reduce spending by $700 to $800 million. This would have likely involved unpopular choices or additional budget gimmicks that they had already criticized the governor for using.

If revenue met the projections, they were not on the hook for making unpopular budget cuts. And if the revenues did not meet projections – as is clearly now the case – they could sit back and simply say “we used the governor’s numbers” and let the administration deal with the mid-year shortfalls. They could then pick and choose which cuts or adjustments to criticize and lay it all at the feet of the governor.

The Republican legislative leadership also appears to have abdicated its responsibility by robotically following the governor. One doesn’t have to look too far in the past – i.e., when OLS revenue projections were lower than those of Democratic administrations – to find Republican leaders expressing the utmost concern for “responsible budgeting.”

We are now entering a new year and are halfway through this budget year, staring at shortfall that is likely between $1.5 billion and $2 billion. These decisions were made; they can’t be changed now. But we can hope is that if a similar situation occurs this year that both the governor and the legislative leaders from both parties will make different decisions – ones based on fiscal sanity. However, since this year is an election year, we understand that the chances of fiscal sanity prevailing are no better than one’s chance to win, say, the Powerball lottery.

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