| A structural deficit occurs when a recurring expense is not paid for with recurring revenue. Think of it as being similar to paying your credit card bill this month by selling a few things on E-bay. It works - but you have to sell more stuff next month, too. Now imagine using your Mastercard to pay your Visa bill. Not only do you have more debt next month, but you also have more interest to pay off. Do this long enough and you'll be in dire financial straits.
New Jersey is in dire straights now. Twenty years ago, the State of New Jersey had a AAA credit rating - the highest possible. It is now rated at AA- and likely to go lower. That means that the people who buy our bonds - and give us the money to pay our bills - are not so sure that we'll be able to pay them back. In financial terms, that means we have to pay even more interest to entice them to make a more risky investment.
The Governor stated bluntly that "New Jersey has deep-seated problem." However, there is a way to improve things - but it requires making sound decisions in a responsible manner. It means speaking openly and frankly about our commitments and our values. "Budgets," said the Governor, "are about choices. And nothing speaks louder about your values than the choices you make."
Since 1997, state spending has almost doubled. Some of it was because of court-mandated increases in child welfare and school spending. Some of it was due to previous years' underfunding of state pensions (paying on the debt from previous years). Some of it was due to new programs that did not have new revenues - well-intentioned but irresponsibly funded. All of it has been collecting quickly and the bill is coming due. Governor Corzine stated, "We cannot continue to stick the bill in the drawer and pretend it hasn't come yet."
At this point, the State of New Jersey dedicates 40% of its total spending to state aid and another 33% to state-grants. That means that 77% of the money collected by the state goes back to our counties, cities, and school districts. 82% of the $11.2 billion in state aid ($9.3 billion) is spent on education (pre-K to grade 12). Property tax relief (12% - $1.2 billion), Medicaid (25% - $2.4 billion), and education (20% - $1.9 billion) represent a combined 57% of the $9.7 billion worth of state-grants.
But other programs also put a drain on the budget. One of the most surprising (or maybe not) areas of expense growth has been in prescription medications. Double digit medical inflation has pushed up the cost of state-run health care programs. Yet the companies that benefit from increased profits operate here in New Jersey (in some notable cases). These costs could be controlled if the State of New Jersey would negotiate lower bulk-rate prices for medications.
State-run pensions have also been overfunded, filled with IOU's and promises of better days ahead. As government employees retire, this becomes a recurring expense as future shortfalls become yearly deficits. The only answer is to live up to our obligations and fully fund these programs.
If nothing is done, New Jersey will face a deficit this year of $4.9 billion. That's due to the growth of programs for which the state is already obligated. It includes $1,889 million for state-funded pensions, 511 million for school aid, and $462 million for homestead rebates. If revenues grow at a constant 3-4% in line with the overall economy, deficits beyond this year will grow every year at a rate of at least $750 million and perhaps as much as $1.3 billion.
As another Democrat said recently, "budgets are moral documents". Governor Corzine is shooting straight about where the money goes. The only way to bring the budget into balance is to cut spending, raise revenues (taxes), or some combination of both. Unlike most other politicians, this governor is asking for public input. What do you want to cut? Which taxes would you raise? How would you put this state back on the path to a firm financial future?
This is your chance. Put up or shut up time. You have at least an opportunity to take control of this state - and your life. The only question is: Are you going to risk it? Do you have the faith in your convictions to tell the Governor what you think or are you just blowing hot air?
Governor Corzine continues to say, "Hold me accountable." Very well. We should hold ourselves to no lower standard than we ask of him. Speak up, New Jersey. |
