April 10, 2008
Dick Knight - ED NJCM
Don Fauerbach - former ED NJCM
Mayor Doug Palmer -
Mayor Nutter -
Good afternoon -
It’s good to be back with you… all of my friends, or should I say former friends, at the Conference of Mayors.
Actually, it’s good to be anywhere.
So many of you reached out to me personally after my accident…with get-well wishes and prayers…I really appreciate it.
Mayor Nutter—as we go through budget season on this side of the Delaware, finding friends for me has become a Harry Truman experience…
…as you recall, he said if you want a friend in Washington—get a dog.
I’m now spending my spare time looking for a Rottweiller.
That’s to protect me, not to attack you.
Commissioner Doria—I’m counting on you having warmed up the crowd and calmed everybody down.
I am blessed to be with all of you today, as I am sure all of you can appreciate.
Thank you all for your expressions of concern and well wishes after last spring’s accident.
From almost every perspective, since we were last together, the challenges of my life have been both substantial and intense.
I’ve learned a lot—and I don’t just mean the lesson of wearing a seat belt.
I’ve certainly learned life and good poll numbers can be fleeting and fragile.
And—I’ve learned to take on an even greater sense of urgency toward my responsibilities in life and to the citizens of New Jersey.
More than ever, I am focused on fundamentally changing and correcting our state’s deeply flawed spending and fiscal habits…while maintaining a progressive, strong partnership with the people of New Jersey.
From one CEO to another, you all know that government cannot spend more than it takes in—unless you live in Washington or you are prepared to accept gimmicks or mortgage our future.
In some ways, we’ve done a lot of both of the latter.
No group of people knows this reality better than mayors.
Recognizing our financial limits, from one CEO to another, I continue to believe that government can and should be a force for good in our society by meeting priorities like education, public safety, and providing for the most vulnerable.
While particular failures and ethical lapses sometimes take people’s minds away from the good work …
…that view unfairly overlooks the commitment, contributions, and successes the vast majority of mayors and other public officials make in providing for the public good.
But as all of you know, governing isn’t easy, it isn’t without its challenges.
Balancing how much and how we pay for the services our people expect from the government is among our most important tasks.
I recognize that task is far more difficult when our economy is in a recession and we’re carrying the burden of the fiscal mistakes of the past.
Both factors are in play here in New Jersey—we do have a deepening national recession.
Just this past week, I had to propose using $260 million of 2008’s surplus for the state’s unemployment trust fund because $4.7 billion had been taken out of the fund to balance budgets in previous years.
Otherwise, a trigger to raise taxes $350 million would have been tripped—hardly appropriate at a time of recession.
Triggering a tax hike during a recession is the last thing any one wants.
I could go into other examples, as there is little basis for trust in the historic use of the term “trust fund.”
Further, I need not remind any of you that New Jersey has $32 billion of bonded debt and $85 billion of unfunded post-retirement teacher and public-employee benefit obligations.
These are pretty mind-boggling numbers.
The total annual carrying cost for these legacies is $5 billion and growing.
Making a long story short, I believe, and I hope you agree, it’s time to take drastic, transformative steps to change the course of our state’s fiscal direction. That time is now.
As you know, in January, I set forth a fiscal restructuring plan to do just that.
The four tenets were:
1) To keep the budget level with last year, or lower.
2) To ensure we match expenses with recurring revenue in future years.
3) To limit state borrowing.
And 4) To implement a program to fund transportation infrastructure and reduce our crippling debt load—a load that crowds out many of the priorities you and I and others care about.
Let me be clear, I am as strongly committed to those tenets as ever and know the consequences of not taking on this challenge now will be an even more draconian adjustments in the future.
We can’t just ignore it because there will be another unemployment trust fund issue; bill will have to be paid on pensions and benefits.
The policy of resetting the state’s finances is firmly seeded in the proposed 2009 budget.
And I suspect you have heard—the debate is on.
This budget comes with real sacrifices—$3 billion of them—and will best be accomplished with shared sacrifice—including from the 75% of the budget that offers grants and aid to our schools, municipalities, and directly to taxpayers.
Too often, Trenton in the past has been afraid to take the steps to honestly address the shortfall.
Too often, Trenton has avoided sacrifice by mortgaging the state’s future.
That pattern must stop, and I need your help to make that turning point a reality.
I feel the burden of the “tough medicine” as much as anyone. I know you do too.
It’s not something I like talking to people about.
I am not a “my way or the highway” type of person, so I am open, within limits, to adjusting the choices within the budget.
I have spoken with some people here about them.
In some instances, we may even overreach in our enthusiasm to fix our problems.
That said, the framework of the budget sets limits on what choices can be made.
Increasing one line of the budget means cutting another.
With that context in mind, I’d like to define what we all could see as success for this budget.
First, and most fundamentally—We must live within our means and spend no more than we take in—our present expectation is that we will have $33 billion in revenues, about $500 million less than we spent last year.
And, as I’ve said, given the economic recession we are now in, we may very well be required to revise down that expected total. We should know more by the first of May.
Second—we should impose no new taxes or fees given the state’s already-high tax burden and the economic downturn. It seems like that would be counterproductive to economic growth.
Third—we must shrink the size of government itself so that the greatest burdens of reduced revenues is on government and not the taxpayer.
We should require doing more with less, and sometimes choose to do less.
And finally—we should avoid reverting to one-shot gimmicks, pushing off onto tomorrow our responsibilities of today.
All of these elements of a successful budget require we look at the end product as a whole cloth and—this is the important part—not only at the individual patches of the quilt.
Sometimes, we act as if one line item is the whole budget.
So for instance, if we were to restore some portion of municipal aid or phase in cuts for smaller communities—which would be perfectly reasonable—so they can more effectively tap the shared-services and consolidation fund, then something else must be cut.
I’m open to that discussion—if it’s responsible and reasonable.
Or, if we were to restore more resources to hospital charity care, should we lower aid to community colleges, local schools, or our food distribution programs?
It’s not one choice, it’s a series of choices.
I could go on.
You all struggle with similar choices every day on the frontlines of local government.
The choices are painful, but adjustments must be offset.
We cannot spend more than we can take in.
When we constructed the budget, we were mindful that cuts in municipal aid could lead to cuts in services or lead to a push for revenues.
That said, our expectation is that the increase in funding of education 3-times the cut in municipal aid should still relieve the pressure on the overall property tax bill.
Recognizing that an average tax bill for a New Jersey homeowner is about 55% driven by the costs of education and roughly 25% by the local municipality, we would not expect as much pressure for overall local tax hikes as I hear in the debate.
Choices and priorities should always come with debate.
The legislature is well along that path as we speak.
I welcome the dialogue as long as we stay within the framework of total dollars available, no new taxes, and no gimmicks.
From one CEO to another, I can only ask that our debate acknowledge my responsibility for the whole cloth be every bit as much considered as we debate the individual parts.
Now, before I turn the mike over to Michael, let me make 2 obvious points on this budget debate.
1) What we do this year impacts the years ahead. Our decisions now shape how we budget and operate in the future.
2) How we address the difficult choices should reflect policy judgments we apply to state government—reinforcing outcomes we seek to achieve.
To the first point, reflecting inflation, previous commitments, and the growth of debt payments, we project the 2010 budget to be in deficit by $1.7 billion if we do nothing off of my proposed 2009 budget.
Borrowing more or relying on one-time revenues only aggravates next year’s problems—that’s been the classic mistake of digging the hole deeper and making the ultimate adjustment worse…
…dipping into pension funds, trust funds…
On the second point, our line-item choices do reflect long-policy directions we are encouraging in addition to the raw savings booked.
On municipal aid, incenting initiatives to share services and/or consolidate our multiple units of government is a worthy direction endorsed by the legislature and most observers.
We put together more than $32 million to incent it in a positive, not a negative, way.
On charity care, diverting aid to the hospitals most burdened by the uninsured conforms to a policy of financial-need-directed subsidies.
On departmental closings, we directed consolidations to where overlaps among departments were the largest, and the long-run cost savings get amplified through time as economies of scale and efficiencies are realized.
And, on employee reductions, we chose methods that produced the greatest savings with the least disruption, and will implement them in the context of different departments and with strict restrictions on backfilling positions.
State government must get smaller.
I cannot say enough—we must do more with less and we must choose to do less.
Some may argue, our proposed cuts are arbitrary.
Obviously, I disagree.
The only arbitrary factor is the amount of revenue we take in.
The $33 billion is the arbitrary product of our economy and the tax structure we maintain.
My job, along with the legislature, is to engage the debate and ensure we all come out with a result we can call a success.
Again, we succeed if we produce a budget of $33 billion or less, with no new taxes, a reduction in the size of government, and with no new gimmicks.
Let me close with a perspective of success from one of New Jersey’s legendary football coaches, Vince Lombardi.
He said: “Success is like anything worthwhile. It has a price. You have to pay the price to win and you have to pay the price to get where success is possible.”
For the good, decent, and hard-working people of New Jersey, I want our state to be in a position of success, just as you do.
I look forward to working with you, from one CEO to another, because I want us all to get to that position.
Thank you.
