Most states have closed the books on FY 2009 — just barely. July marks the start of the FY 2010 for many states, but as the Washington Post reports, just six weeks in a dozen states are short by a total of $24 billion. This year is certain to be a repeat of the last — only much worse, with revenues unlikely to recover in the short-term. Some of the budget balancing tactics of last year are depleted. Reserve funds are empty. And at least half of the federal stimulus has been spent.
With the choice between further tax hikes or budget cuts (or both), it’s likely that many states will choose something FY 2009 saw a great deal of, budget gimmicks. But these also have a cost. While deferring pension payments, eliminating property tax rebates, or taking out a line of credit to balance the budget may have seen New Jersey through July 2009, it was enough for Moody’s to downgrade the state from a “stable to a “negative” credit rating.
Moody’s credit review was prompted by New Jersey’s planned issuance of $200 million in school construction bonds. New Jersey’s bleak fiscal picture isn’t an overnight occurrence. The state’s steady march to insolvency dates back decades and is driven by many things, including the tripling of taxpayer-supported debt since 1990 to $45 billion (most of it not approved by taxpayers). According to the New Jersey Taxpayers’ Association’s Misery Index, taxpayers have felt the increasing pressure of runaway government spending for a decade.
The federal bailout may have gotten New Jersey through part of its budget ordeal — but it has not stopped the state from the mistakes that brought it to the brink. In considering how to tackle the coming year elected officials must break with the habits of the past, increased spending supported by ever-increasing taxation.