Nj Budget Crisis

There is a financial crisis in the New Jersey State government in the form of a deficit of 4.8 billion dollars. As Governor Codey said in November, "The state is pretty much broke." (Atzert, 2006) These problems are not new ones. They have been compounding for about 15 years. New Jersey was once one of the higher bond rated states in the country. As stated in the 2006 Budget-in-Brief,

New Jersey, in only 20 years, has gone from being a financial powerhouse, characterized by strong job growth and consistent budget surpluses, to having one of the largest structural deficits of any state in the country. As noted on the chart below, the State's bond rating has been in steady decline since 1992, when it last held triple A status. New Jersey is one of only 9 states whose bond ratings have been downgraded by Moody's Investors Service since the recession of 2001 and have not recovered. (Atzert, 2006)

This chart, taken from the 2006 Budget-in-Brief shows the decline of New Jersey's credit rating.

There are some clear reasons for this problem the state of New Jersey finds itself in. A big problem is the fully funded and over-funded pensions of the past. The three largest pension funds in New Jersey are The Teacher's Pension Annuity Fund, Public Employee Retirement Fund, and Police Fireman Retirement System. Just going back a few years, these pension funds were "over or well funded." ("New Jersey", 2006)

Many state employees are also able to save sick and vacation days and be compensated for them at the end of their employment. This may not seem to be something that will make a huge difference in the budget, but it is a few dollars that can be moved to more needed programs. A suggestion made by Paul Nelson in his blog on the NJ Fiscal Folly web-site is,

The practice of "banking" unused vacations and sick days should be legally terminated for all state and local government jobs. Failing that, the payouts should be capped at some minimal level (e.g., not more than 10 days equivalent). (Nelson, 2006)

Once again, this is just a small portion of the steps that need to be taken in reforming the financial system in the state of New Jersey.

One of the biggest issues concerning the state of New Jersey's debt, is the use of one-time revenues and "gimmicks" in the budget. Some of these

"gimmicks" were deferring costs of school aid and property tax relief into the next fiscal year. This is not a solution. The 2006 Budget-in-Brief gives a glimpse of this,

Between fiscal 2002 and fiscal 2006 alone, the use of non-recurring revenue and cost deferrals totaled more than $16 billion including, most prominently:

* Delayed pension contributions ($4.5 billion);

* Securitization of tobacco settlement, cigarette tax and motor vehicle revenues ($4.7 billion total);

* Ongoing diversions from the Unemployment Insurance Fund ($1.6 billion)

The chart on the next page shows the use of these one-time revenues. (Atzert, 2006)

Governor Corzine feels very strongly about stopping this snowball effect,

This addiction to short term solutions to long term problems has continuously compounded the deficit hole for succeeding years' budgets and eroded the state's credit rating as a result. These practices must end! And they will! (Atzert, 2006)

It remains to be seen how the final approved budget turns out and whether or not

these "gimmicks" will ever actually end.

It is because of these mistakes that have been made in the past that Governor Corzine has proposed the budget the way he did. Although the governor had to back out on some promises he made during his campaign and inaugural speech, he let it be known that he understood what everyone would be thinking. He said,

To those who