From the Halls of Trenton is a regular feature of the President’s Report. Thank you to Hoboken Strategy Group for partnering with us to keep you up to date on the action while focusing on legislation of interest to our members. Their June column is an overview of the State Budget negotiation process now heating up in Trenton.
by Hoboken Strategy Group
June is traditionally a hot month in Trenton with the administration and legislators working through their priorities to achieve a budget compromise. While temperatures begin to heat up, tensions on West State Street are already hot as the administration and legislative leadership negotiate a budget deal. The Governor and the Legislature have until June 30 at 11:59 p.m. to develop a compromise to fund the State for the next fiscal year. While the road from now to that point will include countless hearings, press releases and partisan rhetoric from each side, it will make for interesting theatre for political observers watching it all unfold.
The New Jersey State Budget process is always a complicated one. On the afternoon of Monday, April 28, this year’s budget cycle became further complicated than previously predicted. State Treasurer Andrew Sidamom-Eristoff announced that State tax revenues were approximately $807 million less than anticipated. At the moment that this announcement hit the newswires, the State Budget process for this year was altered and nearly every State funding proposal for the next fiscal year was placed in consideration for possible cuts. In response to the shortfall, Fitch Ratings downgraded New Jersey’s debt from Aa3 to A1, the fifth downgrade since 2010.
Given the severity of the financial crisis, Governor Christie and legislative leaders collectively stated that “everything is on the table to balance the budget.” Options under consideration include cuts to educational programs, hospitals, an increase in the millionaire’s tax or delaying payments to the pension system for public workers. Senate President Stephen Sweeney (D-3) and Assembly Speaker Vincent Prieto (D-32) each came out in support of a millionaire’s tax that would apply only to whatever income a wealthy person earns over $1 million. Advocates of this increase have stressed that projections from this proposal would raise an estimated $800 million in the first year alone. However, Governor Christie rejected the concept of a millionaire’s tax and has vetoed legislation on the issue three times before. Since his first gubernatorial campaign in 2009, Governor Christie has maintained a strong “no tax” pledge and there has been no indication that the Governor will stray from this pledge.
On May 20, Governor Christie announced his plan to slash payments to public-worker retirement funds by $2.4 billion over the next two years to close the shortfall. The Governor issued an executive order which cut this year’s pension payment from the planned payment of $1.6 billion to $696 million. For next year’s budget, the Governor has proposed a payment of $681 million rather than the originally proposed payment of $2.25 billion. This proposal would have to be approved by the Legislature as a part of the FY15 State Budget. In the announcement of his plan, the Governor stated it would pay “today’s bills by covering the costs accrued on our watch by active employees…but does not pay down the unfunded liability accrued by the irresponsibility of previous governors and legislatures.” Many past administrations have skipped pension payments altogether to make up for revenue shortfalls, which has added to the current pension deficit.
In prior administrations, the State enacted increases in taxes and fees to fill budget gaps, such as the 2006 increase in the sales and use tax from 6% to 7% as well as the expansion of the sales and use tax to additional goods and services. Governor Christie’s current budget proposal maintains a reduction in the minimum tax on S-corporations; fully funding the Research & Development Tax Credit; and phasing out an energy tax called the Transitional Energy Facility Assessment.
The Governor’s budget plan was met with opposition by Democratic legislators and labor leaders. Since the announcement by the Governor, unions representing public employees including the New Jersey Education Association and the Communications Workers of America (CWA) each threatened to sue the State for the reduction in the pension payment. Assembly Speaker Vincent Prieto from Hudson County responded “Abandoning pension payments only make things worse down the road, and that’s unfair to taxpayers.” Speaker Prieto pledged to continue to work with the administration to resolve the issue in a fair manner.
At the time of the drafting of this article, it is still unknown definitively how the budget hole will be filled prior to the constitutionally mandated budget deadline. It is expected that public employee unions will have a full court press on the Legislature regarding the proposed adjustment of the pension payment with rallies anticipated. Meanwhile, Democrats will continue to call for the millionaire’s tax while the Governor and other Republicans will maintain their stance in support of the Governor’s adjustments in pension payments. To be successful in advancing a balanced budget in time, the keyword will be “compromise.”
Hoboken Strategy Group is a boutique New Jersey government relations and business development firm made up of public affairs professionals with years of experience handling legislative and regulatory issues on the local, state and federal levels. Kay Elizabeth LiCausi, President of Hoboken Strategy Group, serves on the Government Affairs Committee for the Hudson County Chamber of Commerce. Michael J. Comba serves as Vice President of Hoboken Strategy Group. They can be reached online at www.hobokenstrategy.com and on Facebook at Hoboken Strategy Group.