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New York Post

 

Jersey's Hangover

September 24, 2012

By Steven Malanga

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Earlier this year, Gov. Chris Christie declared that New Jersey’s comeback had begun. Since then, the state’s unemployment rate has risen and tax collections have slowed. Last week, Standard & Poor’s revised its outlook on the state’s credit rating from stable to negative.

The governor’s critics have been quick to declare that his agenda of austerity and reform isn’t working. But Christie’s biggest mistake has been to raise expectations so quickly in a state hamstrung by more than a decade of gross fiscal mismanagement and bad economic policy.

Christie has done much to set Jersey in the right direction, but he has much more he needs to do before a true Jersey comeback emerges.

After all, Jersey hadn’t legitimately balanced its books in more than a decade. Instead, the state consistently spent more than it took in, while relying on gimmicks like borrowing to pay its bills. The impact of those gimmicks continues to haunt the budget.

For one thing, the state didn’t pay its pension bill for years. Since 2001, it has allotted just $3.7 billion out of its budget for pensions, when its own pension experts say it should’ve put in about $27 billion.

On top of that, the state has borrowed liberally and unwisely; now repaying that debt is a major burden on the budget. In 1998, for instance, the Whitman administration floated $2.7 billion in pension-obligation bonds which now cost the state $300 million a year to repay. It’s also on the hook for foolish borrowing (at legislators’ urging) by the now-insolvent NJ Sports and Exposition Authority.

Lawmakers also drained the state’s unemployment trust fund to keep growing the budget, forcing the state to take a $2 billion loan from the feds once unemployment began rising in 2008 — more debt the state must now repay.

Such misgovernment reverberates through the years. In 2004, when tax revenues came up short, Gov. Jim McGreevey borrowed $2 billion to cover a 17 percent jump in spending. That cash, on top of $2 billion in pension payments McGreevey skipped, let the state spend about $4 billion more than it took in — and set an artificially high baseline for spending in later years.

Taxes shot up, too. In just three short years, McGreevey raised taxes $3.6 billion. Gov. Jon Corzine followed with a $1.1 billion sales-tax hike plus a temporary surcharge on high-income earners (which expired shortly before Corzine left office).

The cumulative damage was huge. In 2009, Corzine’s last year in office, Chief Executive magazine’s poll of US business leaders ranked Jersey the fourth-worst place in the nation to do business (behind only California, New York and Michigan).

But now Christie has passed three budgets without raising taxes and held down the rate of spending increases despite the past gimmicks the state is now forced to pay off. He’s also signed into law pension reform that begins to dig the state out of its retirement-fund mess, easily one of the nation’s worst.

And the governor has passed reforms to let cities and towns control their own budgets, including fixes to the state’s binding-arbitration system that was driving municipal pay sky-high.

These moves have begun to make a difference in the way businesses see the state. In a NJ Business and Industry Association poll late last year, 49 percent of executives said they have confidence in the state’s ability to control the growth of government, up from just 14 percent in 2009.

Perhaps most encouraging is that in the last 12 months, Jersey had added about 60,000 jobs, according to the Bureau of Labor Statistics. Jersey hadn’t added that many jobs in any year since 1999.

But New Jersey is nowhere near out of the woods. The state desperately needs to cut its sky-high taxes to attract investment. Yet there’s little room to do that now.

The state faces still-growing pension costs thanks to the years of mismanagement. Just getting back to proper levels of payments into the pension systems will gobble up a big chunk of any increase in tax collections as the economy recovers. The annual bill for paying off the 1998 pension borrowing, meanwhile, will jump in a few years to $500 million.

Given Jersey’s challenges (and the nation’s), Christie would’ve been wiser to tell the state’s residents that much has been achieved, but much needs still needs to be done.

After all, Jersey is the only state ever cited by the Securities and Exchange Commission for fraud — a dishonor state officials earned by misleading investors a decade ago about the pension mess. Lawmakers similarly hookwinked Jersey residents for years.

As Christie well knows, most voters in the state just want officials to be candid with them now about the task at hand.

Original Source: http://www.nypost.com/p/news/opinion/opedcolumnists/jersey_hangover_SWrJ1PWBziSP9i1m4AtwHJ

 

 
 
 

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