New Jersey’s $29 billion budget for FY 2010 is now law. Taxes have been raised on cigarettes, wine, and liquor. And there is a new tax rate of 10.25 percent on those earning over $400,000 (the ever-expanding and misnamed “millionaire’s tax” introduced by Governor McGreevey in 2004 was aimed at those earning over $500 million). In addition to the federal bailout, New Jersey managed to get a $2.1 billion line of credit from J.P. Morgan Chase early last month.If the legislature spends it all, they’ll have to tack on $18 million in interest payments.
There will be no property tax rebates for those earning over $75,000 (excepting the elderly and disabled).
There are no layoffs for union-represented public employees. Spending will be increased in public schools, college tuition aid, and on Family Care health coverage.
The National Conference of Legislatures has a new report on the fiscal health of the states. It’s a grim picture. Budget gaps that started appearing in 2008 are likely to continue into 2011. While enacting FY 2009 budgets, 44 states filled a total $40 billion gap. But within a few months, budgetary gaps reopened, this one topping a $62.4 billion.
The main cause is the drying up of revenue streams. And each state has its own vulnerabilities: New Jersey and New York are tied to Wall Street, Hawaii is linked to the tourism industry. Given the depth of the recession, and these types of structural dependencies, it’s proving very hard for states to maneuver out of the crisis.
This gets back to the fiscal choices and assumptions of governments. We’ve heard about “aggressive accounting” – creative, and suspect accounting practices. Now we may be seeing the results of “aggressive budgeting,” – the tendency to expand spending on the assumption that revenues only go up.
The next chapter for the states, an estimated budget gap totaling $121.2 billion in 2010, says Corina Eckl of NCSL, “The fiscal situation facing the states is like a bad horror movie. The details get more grusome and they never seen to end.”
When New Jersey’s Governor Corzine released the FY 2010 budget last month, it showed a surplus by $500 million, through a combination of cuts, tax increases, and stimulus funds.
But yesterday the Office of Legislative Services has issued an update, which finds that the budget runs a $100 million deficit.
Revenue projections, the OLS suggests, were too rosy in the FY 2010 budget proposal. This suggests questions about the fungibility of the stimulus finds: It may be that the governor can find the money by pulling money out of education increases.
Further tax hikes and pension holidays are the last thing the state should do. More cuts are the way to go, but given recent history, its an open question: Will states be asking for a second bailout?