The Politics of the Budget

Despite being a Republican Governor with a Democratic-controlled legislature, Chris Christie got the budgets he wanted during his first two years in office. But if Democratic legislative leaders are to be believed, that’s going to change this year.

The Fiscal Year 2013 budget that Christie will unveil Tuesday poses less of a fiscal challenge than Christie’s first two budgets, but Christie raised the political stakes by calling for a 10 percent income tax cut heading into his reelection year.

Democrats quickly pounced on the proposal as a tax cut for the rich, with Assembly Majority Leader Lou Greenwald (D-Camden) pointing out that millionaires could go on an exotic vacation with their $7,265 tax cut, while a family of four making $50,000 couldn’t buy a cart of groceries with the $80.50 it would receive.

Nevertheless, Christie has vowed to make the first stage of the income tax cut the political centerpiece of his budget, setting up a bruising four-month contest with Democrats who want to dedicate any extra revenue to property tax cuts that would benefit the middle class more.

The battle over this year’s budget, particularly the “class struggle” over Christie’s income tax cut plan, will play out in a politically charged atmosphere.

Senate President Stephen Sweeney (D-Gloucester), Senators Richard Codey (D-Essex) and Barbara Buono (D-Middlesex) are among the leading contenders for the Democratic gubernatorial nomination to face Christie in 2013. Sweeney and Codey may be mortal enemies, but they have every incentive to work together to make sure that the Democratic legislative majority refuses to pass Christie’s income tax cut, denying the governor yet another YouTube triumph heading into his reelection year.

Meanwhile, Christie’s rock star status as a potential Republican vice presidential candidate -- or even as a presidential nominee in the unlikely event that the GOP convention deadlocks -- guarantees that his efforts to cut the income tax will draw national media attention.

Ironically, the $150 million to $180 million in potential revenue that Christie would need to give up to pay for the first installment of his phased-in income tax cut is not the biggest fiscal challenge the governor faces.

The first problem is actually this year’s budget. State revenues for the first six months of the budget year (July 1-December 31, 2011) were projected to be $10.207 billion -- a 6.6 percent increase over the $9.576 billion that came in during the first six months of the previous fiscal year. However, only $9.881 billion came in -- $325.7 million less than expected.

Ominously, virtually every major state revenue source was down, including income, sales, business, and inheritance taxes, and casino and lottery revenues, and December was by far the worst month, with revenues down $178 million -- a 7.4 percent drop over projections.

Compounding this year’s problem is the Obama administration’s denial of $107 million in in-state claims for Medicaid reimbursement for providing health services for decades to low-income New Jerseyans who were wrongly denied coverage under Medicare. That $107 million one-shot was part of $300 million in projected Medicaid savings Christie used to balance this year’s budget.

While income tax revenue is often volatile and 60 percent of income tax revenue comes in during the second half of the fiscal year, Christie will not know until May if an unexpected income tax surge or a sudden boost in corporate taxes will be enough to make up for the $325 million revenue shortfall and the $107 million Medicaid loss. Last May, New Jersey did have a revenue surge that added $250 million to last year’s budget coffers and encouraged Christie to raise revenue forecasts for this year by an additional $300 million -- the amount the state is currently short. Considering New Jersey’s 9 percent unemployment rate and a state economy that is growing slower than neighboring states' and the nation's, however, New Jersey is just as likely to see revenues continue to come in below projections as to rebound.

Read more on NJ Spotlight.

NJ Spotlight is an issue-driven news website that provides critical insight to New Jersey’s communities and businesses. It is non-partisan, independent, policy-centered and community-minded.