New Jersey's response to its fiscal mess

May 19, 2010

There has been a lot of publicity recently around the budget problems facing a number of states, particularly California and New Jersey. As we’ve written, both of these states face major budget deficits, underfunded pension systems, faltering economies, highly burdensome taxes, and declining revenue. The difference between them is that New Jersey is taking action to fix these problems.

New Jersey recently had a statewide election that was largely a referendum on the state’s disastrous financial situation. Candidate Chris Christie was clear about his approach to tackling the challenge: he wants to cut government spending and cut it by a lot. New Jersey voters welcomed his straight talk and elected him last November. Since then, Christie has been working to make good on that pledge.

In 2011, the Governor plans to reduce state expenditures by $10.1 billion. He is seeking to reduce the number of state jobs; eliminate, streamline, and privatize programs; and root out waste wherever possible. Given that education consumes more than one third of New Jersey’s budget, cuts in education spending were inevitably a part of his overall proposed reductions. In total, Christie has proposed reducing education spending by $820 million.

Not surprisingly, these proposed cuts have created controversy. The Governor urged teachers to accept a wage freeze, but the unions were loath to make those concessions. Yet this sometimes-ugly political tug-of-war has served an important purpose in educating the public about the budget crisis. For example, fewer voters understood just how generous state worker benefits are until Gov. Christie laid it out: A retired teacher who, while working, paid a total of $62,000 toward her pension and nothing for full medical coverage will receive $1.4 million in pension benefits and another $215,000 in health care benefits during retirement. Is this system really fair to taxpayers who have to foot this bill?

This is important information for taxpayers to have since the state’s pension system faces a $46 billion unfunded liability. Last month, Governor Christie signed laws that modestly scaled back benefits for state workers by increasing employee contributions to healthcare, limiting payouts for unused leave time, and eliminating recent benefit increases. More pension reforms are needed and being proposed.

These aggressive spending cuts are moving the state in the right direction, but there’s still much farther to go. When the problems are as bad as New Jersey’s, drastic steps are needed to return to fiscal stability. Lawmakers in California and in Washington, DC should heed the example New Jersey’s Governor is setting.

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