WHAT IS LEFT TO TAX?

Last week, the New Jersey State Supreme court decided an important case: that  State government should not borrow money to pay for current operating expenses. The lawsuit was brought by State Republican leaders and tax payers. The court ruled that the Governor’s and the State Legislature’s 2005 budget, adopted in June 2004, violated the State Constitution because bonds (state debt) should only be issued for capital projects such as bridges, buildings, etc. I and my fellow Republican colleagues did not vote to pass the budget.

The court’s decision was a victory for New Jersey taxpayers in the future. However, the court backslid and allowed the unconstitutional borrowing for this year’s budget because the justices believed that it would be chaotic for the Legislature to reconvene and retool the budget.

“Instead of taking the good fortune of rebounding revenues and tax increases and applying it to their chronic financial problems, they continue to borrow and accelerate spending,” is what an analyst with Fitch Ratings said about New Jersey’s budget-making process.

As a result of the court’s ruling, New Jersey’s bond rating has gone down. We are now among the lowest ten states for bond rating. What this means is that New Jersey will have to pay more bond interest than originally estimated. A poorer bond rating means that there is an eroded confidence of repayment to the bond holders. Therefore the State will be required to offer an inducement to bond buyers to take additional risk – higher interest. For the next twenty years, more money in every State budget will go to repaying the bonds than planned.

While the McGreevey administration has claimed that every year has been a hardship to balance the budget, the Governor has increased spending each year. This year alone was an increase of nearly 18% percent over last year’s budget.

Next year, the Governor and the entire New Jersey General Assembly are up for re-election. Prior to its elections – next June someone will have to find new revenues to pay for reoccurring expenses. If revenues do not increase to meet program costs the State will have a “structural deficit.”

New Jersey has already spent every cent of its tobacco settlement fund and has created a plethora of new taxes on everything ranging from cigarettes to home sales to cell phone usage. Is there anything left to tax for next year’s budget? Will the Legislature reduce spending in the 2006 budget or will it creatively find new taxes and fees? That remains to be seen.

For more information on the budget and bond rating, please contact my office at (732)708-0900 or asmcorodemus@njleg.org.