No easy way out of deficit
By Jon Corzine
Star Ledger
February 10, 2008
Some of the world's major financial institutions have made headlines recently as they belatedly own up to losses and liabilities that have been accumulating over many years. In the aftermath, people will be fired, jobs will be lost, families will go bankrupt, mortgages foreclosed, entire companies may go under -- and the total cost may be spread over millions of bystanders caught in a recession.
The only consolation is that the first step toward recovery and resumption of economic growth requires facing up to the depth of our problems.
Our situation in New Jersey bears some resemblance to the current global meltdown. For decades, our political leaders have smooth-talked us and bamboozled us into one fiscal gimmick after another, building our state debt to $32 billion, one of the highest per-capita burdens in the nation. We granted pension and health insurance to teachers, policemen, and other public employees without setting aside the money that will be needed to pay for them.
The total long-term obligations of the state -- debt, unfunded pensions, and post-retirement medical costs -- have reached $45,000 per household. We have "enjoyed" growing aid to local governments even though our state budget became chronically dependent on financial tricks and stunts to paper over the simple fact that we spend more money than we raise.
That lack of foresight has also degraded the physical condition of our state. When we look at our infrastructure, too much of what we see is ancient and crumbling. Many of our bridges raise obvious safety issues -- a whopping 700 of them are considered structurally deficient. And even if we could live with the traffic jams that pollute our air and slow us from reaching our destinations -- and we can't -- we surely cannot prosper unless we make basic transportation improvements.
I take no comfort in the notion that we are not alone in our predicament. In the next fiscal year, at least 24 states are projected to have budget shortfalls. California alone faces a gap of $14 billion.
It's a grim picture but there is reason to hope in New Jersey. We remain a wealthy state, near the very top in family income and educational attainment. We have a location that can't be beat, whether for starting a business or raising a family. We have a bumpy road ahead, but it's not a dead end. It can lead to a restoration of our good credit rating, a resumption of our past practice of fiscal prudence, and the ability to realign our priorities.
After a year of research, I have proposed a four-point plan to lead us down that prosperous road: 1) freeze spending in next year's state budget at the current level; 2) limit growth in future budgets to the rate at which state revenue grows; 3) subject all state borrowing not supported by dedicated revenue to voter approval; and 4) lease the state's toll roads to an independent, non-profit organization that will sell bonds to turn our financial ship around.
Those bonds will be the responsibility of the non-profit, not the state. The proceeds from those bonds will paid to the state, enabling us to pay off half of our debt and fund crucial transportation infrastructure improvements for generations to come. The needed construction projects will be statewide, but with a concentration in the counties whose residents use the toll roads most heavily: Middlesex, Monmouth, Hudson, Ocean, and Bergen.
There is enormous value embedded in our toll road network -- value that, if unlocked, can help us claw our way back to fiscal responsibility. More small pecks around the edges might buy us a little time, but at the cost of even bigger shortfalls later. My plan has been endorsed by both business and labor groups -- not because they want to raise tolls, but because the entire package, including the future restraints on spending and borrowing, will clean up our financial house. It is the best of many unpleasant alternatives.
Quite naturally, the part of the plan that has received the most attention involves the toll increases that will help us pay off debt and improve transportation statewide. Even though a large share of the tolls will be paid by out-of-state traffic -- about 46 percent of all toll-road drivers are from out of state -- the new rates will be painful for many New Jersey citizens. A lot of people have suggested we use a different method to raise the revenue.
Well, we've done the math: to halve our debt and pay for long-term transportation improvements would take a 20-percent, across-the-board increase in the income tax, or a 30-percent increase in the sales tax, or a 45 to 50-cent increase in the gas tax...or some combination thereof.
Most people I talk to across the state don't like those alternatives. So the most common suggestion I hear is that we should slash state spending even more than the nearly $2.5 billion it will take to freeze the budget next year. But this figure is not insignificant at a time when costs are growing up to 10 percent per year -- as New Jersey business owners know very well -- and when we are court-mandated to spend on certain programs.
In reality, spending cuts are the backup quarterback of politics: they're always better until you trot them out on the field. Our state government primarily funds schools, property tax relief, municipal aid for struggling towns, Medicaid, children's health insurance, charity care for hospitals, higher education, programs for the developmentally disabled, public safety, and corrections. Tough things to cut, as will become clear in the coming weeks, when I detail a budget proposal that is likely to be painful.
The numbers are plain: no amount of possible spending cuts can come close to accomplishing the goals of the financial restructuring and debt reduction plan. But we will make very difficult cuts.
This plan is bitter medicine, and I'd rather be serving the equivalent of candy and ice cream. But that's the kind of irresponsibility that plunged us steadily into this mess. I don't like it; you don't like it; but this is the financial state we're in. I know this: we're way overdue to put aside the fiscal fantasies of the past. Any responsible action we will take will involve some pain. So now, for a change, let's take action, and let's do it right.
