Vol. LXIV, No. 9
Wednesday, March 3, 2010
New Jersey Governor Chris Christie outlined his vision for state spending at the first meeting of the recently-created New Jersey Council of Economic Advisors, noting that the states key fiscal challenges stem from the burgeoning deficit and the consequent rapidly increasing tax rates. Medicaid, the pension system, and unemployment insurance were characterized as the major drivers of debt in New Jersey.
In the session at the Woodrow Wilson School at Princeton University on Tuesday, Council Chair Robert Grady explained that the goals of the Council are to take a dispassionate look at how state spending actually works, compare New Jerseys spending with that of other states, and determine how much of the fiscal distress might stem from national versus state policies and practices.
The projected $11.2 billion deficit is a real thing, and is not something that can be dismissed, said Mr. Christie, citing the estimated total of the state deficit in 2011.
According to statistics presented at the meeting, the outstanding state debt, not including obligations, is $33.9 billion as of 2009, and the deficit for this year as of February 4 is already $2.2 billion. In 1989, the top marginal tax rate was 3.5 percent, and two decades later it was calculated to be 10.75 percent.
The day of reckoning has come, said Mr. Christie, who expects the 2010 state budget to be the most difficult one any administration has had to deal with since the 1970s.
The governor established the Council by executive order on January 20, with the intent of creating an advisory body to analyze ways to cut spending and to consider systematic reforms in the way we provide services in the state of New Jersey, he said.
The pension and benefits situation is a driver of not only the state budget, but also a driver of state property taxes, Mr. Christie remarked, noting that the pension, benefit, and salary system has been out of control for a long time, and that municipalities are struggling as a result.
Health benefit costs for governmental employees are increasing at double digit rates every year, and local negotiation has been a problem because of the arbitration situation, which has tilted in favor of labor unions, Mr. Christie said, adding that we need to give municipalities the tools to lower costs.
Determining ways to compensate government employees throughout the state in an equitable way is part of Mr. Christies purview, though he wondered whether the state needs as many employees as it has. We need to look at how were going to deal with funding over the next decade and ask ourselves what we can afford to provide while also being humane.
Explaining his proposal to reform unemployment insurance announced last week, Mr. Christie said that New Jersey currently contributes a $600 maximum in weekly unemployment benefits, which is the second richest state in America in terms of unemployment benefits. Under the Governors new plan, the benefits would decrease to $550, and beneficiaries may have to wait one week before collecting the benefits.
Mr. Christie is opposed to the proposed increase in the payroll tax this year, because of his concern that it may result in layoffs and increased private sector unemployment. That, to me, is an unacceptable option, he said.
Calling for shared sacrifices, Mr. Christie noted that everyone is going to have to contribute to getting this state back on track from a fiscal perspective.
We were sent here to make fundamental changes, Mr. Christie said, referring to himself and Lieutenant Governor Kim Guadagno. Paraphrasing a conversation he had with another elected official, he noted, We all got into public service with the hope that we could serve in consequential times.
The Council meeting continued with presentations from a panel of experts regarding the states largest areas of annual spending and outstanding obligations, namely, Medicaid and health care programs, and pensions.
Panel participants included Director of the Center for State Health Policy and Professor of Planning and Public Policy at Rutgers Joel Cantor; Senior Fellow at Mathematica James Verdier; Managing Director of the Pew Center for the States Susan Urahn; and Professor of Management at the Wharton School of Business at the University of Pennsylvania, as well as the President of the Econsult Corporation David Crawford.
Members of the New Jersey Council of Economic Advisors include Mr. Grady, a partner in the Cheyenne Capital Fund; Director of the Policy Research Institute for the Region at Princeton University Richard F. Keevey; Chairman of the New Jersey Economic Development Authority Alfred C. Koeppe; Former Chairman and CEO of Prudential Insurance Company Arthur F. Ryan; and Director of the Heldrich Center for Workforce Development at Rutgers University Carl Van Horn.
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