Published: August 8, 2008
In the Region - Long Island, Westchester, Connecticut and New Jersey
WHILE New York Gov. David A. Paterson is warning that his state faces a 1970s-style fiscal crisis, Gov. Jon S. Corzine said that New Jersey taxpayers don’t have to worry about finding a similar fate with the recently approved state budget, at least for now.
In an interview last week, Governor Corzine said that his administration and lawmakers took into account concerns about the economy and had already agreed on trimming spending and making tough cuts as part of the state budget for the new fiscal year, which began July 1.
“We’re following our revenues to see if they fall more than we anticipated, but we already anticipated revenues that were associated with a recession,” Mr. Corzine said in a telephone interview.
He said when his administration was hammering out the 2009 budget earlier this year, it was already working with conservative revenue projections, but after seeing lower sales tax revenues, it scaled them back another $200 million.
With lower revenues, officials made what Mr. Corzine described as “heartbreaking” cuts in almost every area of state government, from higher education to hospitals.
There were cuts in pension and health benefits for new state workers and public-school teachers and reductions in state aid to hospitals and municipalities. Also, the Personnel Department and the Department of Commerce were eliminated. The retirement age for new public employees was raised to 62 from 60. And Lincoln’s Birthday was eliminated as a holiday after 2011. Because of the changes, the $32.9 billion budget was $600 million less than the previous year.
“If the recession gets deeper, we’ll have to come back with additional cuts,” Governor Corzine said. “But we tried to allow for that when we put our budget together, for good reason.”
New Jersey officials may have had a better view of the extent of the downturn because while New York’s economy was being buffered by the ebullient housing market, New Jersey was feeling the financial woes of the telecom and pharmaceutical industries, which have a heavy presence in the state, analysts said.
“New Jersey’s economy was a little weaker a little earlier than New York’s,” said Robert Kurtter, a managing director at Moody’s Investor Service. “Corzine has been talking in New Jersey about the impact of the financial services sector and the weaker economy for a year and a half now.”
But all of that preparation may not be enough to avert a crisis if the recession is far worse than anyone anticipated. Indeed, state budget officials, as well as the bond rating agencies, said they were monitoring the situation closely. The first indication of whether and how much income tax revenues are likely to drop won’t be in until October, when the first quarter tax revenue figures are released. In New York, whose budget cycle begins April 1, first quarter tax receipts have already come in $453 million below projections.
“We’re watching it, and we’re concerned, but the fact that they’ve taken action in this budget is a good step in recognizing the tighter times ahead,” said Karl Jacob, a senior director who covers New Jersey for Standard & Poor’s. “Because of their restraints on spending, and the assumptions they used in terms of personal income tax growth, I think they’re a little bit ahead of the game.”
One of the big wild cards will be the extent of the damage on Wall Street. While New York may feel the brunt of a prolonged downturn in the financial services industry, New Jersey will share in those woes because of the large numbers of people who live in the state and work in that sector. In a good year, the financial services industry generates as much as 40 percent of the state’s tax revenues.
“It’s a big swing element, what bonuses are, and what the earnings of the firms are,” Governor Corzine said. “It’s something we’re very concerned about.”
Just how grim the revenue picture is will not be clear until next April, when people file their income tax returns. At that point, if tax revenues fall well short of projections, the government could be forced to hold back expenditures.
“There’s a lot of uncertainty until then,” said David J. Rosen, legislative budget and finance officer. “But we don’t see anything yet that suggests to us there’s a problem.”