Even among California, Illinois, and nearby New York State, New Jersey is renowned for the fiscal profligacy of its state and local governments. Known around the world as the backdrop for The Sopranos, Ivy League giant Princeton University and scandal-plagued Vegas wannabe Atlantic City, New Jersey saw its municipalities and state agencies spend $96 billion in taxpayer dollars during the 2008-2009 fiscal year, nearly double the expenditures of a decade ago -- and outpacing the 74 percent increase in spending among all states in the same period.
But by year's end, New Jersey may end up as reputed for spending cuts, clampdowns on lavish public pensions and staring down affiliates of the mighty National Education Association, as for Miss America, its famed turnpike, and the Jersey Shore. Most-surprisingly, it is happening in a most-bipartisan manner.
On Monday, the Democrat-dominated state senate approved measures capping the payments civil servants could receive from cashing in sick days to $15,000 (from the more generous one day's worth of pay for every two unused sick days) and banish part-time workers from qualifying for public pensions. The final bill will likely be approved by the state's lower house and signed into law within the next month. Two weeks earlier, the new governor, Chris Christie (a Republican), took steps to deal with the state's $58 billion deficit for retiree healthcare liabilities (as of 2007) by ending free healthcare for teachers (and other bureaucrats). They will be required to contribute 1.5 percent of their salaries to fund medical coverage.
Meanwhile Christie looked to rein in the state's public schools, which spend more per pupil than every state except for much-smaller Vermont and Wyoming (and managed to increase spending by 8 percent in 2008-2009 despite declining tax revenues). Last week, he announced that $475 million in state funding would be withheld from local districts in order to plug up a $1.3 billion hole in this year's budget. This included slashing $126 million in funds for ten school districts -- including Newark and Atlantic City -- which managed to generate $109 million in surpluses during the last fiscal year despite consistently demanding additional state funding to address their academic and bureaucratic failures. Notes local education blog NJ Left Behind: "Within these districts reside extremely needy kids. Why is this money in surplus -- intended to be rolled over to next year's budget -- rather than used for additional services right now?"
Certainly none of this is beloved by New Jersey's public employee unions, who find themselves not only battling Christie -- who made battling the unions a centerpiece of his successful gubernatorial campaign last year -- but even Democrats such as state senate president Stephen Sweeney, an organizer for the International Association of Ironworkers. Bob Master, a spokesman for the Communications Workers of America, which represents the plurality of civil servants, warned that "Democrats will have to start acting like Democrats." The New Jersey Education Association, whose possible endorsement Christie rebuffed last year, has hit the airwaves, pushed out e-mails, and even set up a Facebook page to battle the governor's measures. Proclaimed union president Barbara Keshishian: "[Christie's] order could have serious unintended consequences for the future of our public schools.''
Given the influence of the unions, the threats may still work. But New Jersey taxpayers and politicians, like their counterparts in the rest of the nation, may finally be ready to reckon with the costs reaped from decades of fiscal decadence. If successful, Christie and his colleagues may present as compelling a model for restraint as that offered by Indiana Gov. Mitch Daniels since taking office six years ago.
UNTIL RECENTLY, POLITICAL LEADERS IN Trenton could comfortably ignore the consequences of their fiscal recklessness, largely because they could boast that New Jersey was a (relatively) low-tax haven among even more-profligate East Coast states. Nestled between New York City and Philadelphia, the state once compared to an open barrel by Founding Father Benjamin Franklin attracted shoppers from both metropolises to its sprawling malls with lower sales taxes, lured families looking for Levittowns without the accompanying high property taxes, and became corporate headquarters for companies seeking campus-style office space unavailable in big cities. Between 1950 and 2000, New Jersey's population doubled even as growth in New York State and Pennsylvania barely budged.
This growth (and the taxes generated from it), fueled spending sprees -- including the construction of the Meadowlands sports complex for the New York Giants and Jets football teams -- and deal-making between politicians (Democrat and Republican alike) and public employee unions at every level. Municipal governments hired 45,000 more employees between 1990 and 2002, according to the Mercatus Center at George Mason University; the state government added another 7,900 during that same period. The state's civil servants and teachers became among the best-compensated in the nation's public sector. The average civil servant retiree collects $25,000 annually from New Jersey's pensions, 15 percent more than the national average. The average retired teacher -- who benefitted during her career from near-lifetime employment thanks to tenure and free health coverage -- earned even more, collecting $34,643.48 in annuity payments.
Occasionally, Garden State taxpayers rose up against this profligacy. They ended the political career of Brooklyn-born congressman-turned-governor Jim Florio in 1993 after he successfully passed what was then the nation's largest tax increase in order to balance a $3 billion deficit. But for the most part, they were more upset with auto insurers such as AllState for steadily hiking premiums than with local government spending sprees and the deals struck between politicians and public-employee union at all levels of the public sector.
But the current recession -- now in its fourth year -- has awakened New Jersey residents and politicians to the reality that the status quo is far too costly to maintain. The possibility of an $8 billion budget deficit in the 2010-2011 fiscal year is forcing state officials to consider drastic measures. Nor can they no longer ignore the long-term woes ahead. Besides the $34 billion deficit in its public employee and teacher pensions -- among the largest in the nation -- there is some $101 billion in long-term debt held by the state and municipalities that went to previous spending sprees and previous budget-balancing tricks. Then there are the long-term economic costs of hefty tax hikes, which have made New Jersey's property taxes the highest in the nation. The average rate of 1.74-percent of assessed value paid by Garden State homeowners is higher than the 1.14 percent paid by colleagues in New York; the total in-state tax burden of 11.8 percent of income paid by New Jersey residents is the highest in the nation, according to the Tax Foundation.
These days, the lack of urgency shown by Christie's immediate predecessor, Jon Corzine (who stifled efforts by his fellow Democrats to cut pension and healthcare benefits for state employees) is no longer being tolerated. Christie, a former prosecutor who ousted Corzine in stunning fashion last November, is already hacking away at the current budget through an array of executive orders and with assistance from the Democratic legislature. Christie has told mayors throughout the state to expect less funding from state coffers.
Either way, Christie and Democrat legislatures have much weeding to do before New Jersey's economic and fiscal gardens can flourish again. This won't be a respite at the Molly Pitcher rest stop.