NJ`s New Budget Unveiled

After months of preaching an economic message of gloom and doom, Gov. James E. McGreevey delivered his $23.7 billion budget Tuesday, a spending plan lean on benefits but fat on fee increases and new taxes.

"Less revenue plus higher costs equal a $5 billion deficit," McGreevey said during his announcement.

The people in their seats knew it was coming, but McGreevey said it again for effect.

"Let me repeat that. The state of New Jersey starts out this budget year $5 billion in the red," McGreevey said.

McGreevey blamed the situation on a bad economy, overspending by the previous administration and no help from Washington, among other reasons.

The bottom line, according to the governor, is that there will have to be cutbacks. He said that as many as a 1,000 jobs will be eliminated.

"At the same time that they're talking about reducing the salary budget of state workers they're not talking about cutting down on the number of management personnel they hired," said Rae Roeder of the Communication Workers of America.

State universities were told they would lose $100 million.

"Young people, who have dreamed about going to college, dreamed about making a contribution, understanding they have to be educated -- in many instances they are not going to have that opportunity," said the Rev. Stanley Justice.

The state will also end all cultural, arts, historical and science and technology grants, according to the new budget.

"I work for the Commission of Science and Technology, so that's the complete elimination of what we do which is economic development for the state," said Lamonte Sample.

As promised, McGreevey did not raise sales, income or business taxes. And he also cut spending, something the governor has warned would happen.

But the budget, which the Legislature must approve by June 30, has some surprises, particularly for those who smoke cigarettes or earn over $100,000 a year.

Here are some questions and answers about the state budget proposal:

Q: What about that $5 billion deficit McGreevey spent months warning the state about?

A: There never was an actual deficit. By law, McGreevey must introduce a balanced budget where spending equals revenue.

The $5 billion figure was predicated on a budget with no spending cuts and no increases in revenues.

But McGreevey instead has proposed slashing spending and increasing state revenues through additional taxes.

Q: How much money does the state expect to get and where does it come from?

A: The budget anticipates $23.8 billion in revenue. The bulk of it is income taxes ($7.4 billion), sales taxes ($6.3 billion) and corporate income taxes ($1.8 billion).

The economy is expected to grow slightly, giving a boost to the revenue stream from the major taxes. McGreevey has also proposed a 50-cent increase in the tax on cigarettes, a 7 percent tax on hotel rooms and new taxes on perks at Atlantic City casinos.

Q: Where does the $23.7 billion go?

A: Most of the state budget -- 70 percent -- gets sent right back out in the form of grants and aid money.

Of that, 40 percent is direct aid to local schools and municipalities. Schools would get $8.1 billion, which includes a $200 million increase for new buildings and property tax relief. Local governments will see $1.7 billion.

The new hotel tax, expected to collect $140 million a year, will help fund local property tax relief.

State operations -- employees, programs, computer systems, office materials -- account for 15 percent of the total budget.

Q: What got cut?

A: Every state department, except for the Division of Youth and Family Services, gets a smaller budget.

McGreevey also halted all grants to arts, science and cultural programs.

Social services were also trimmed. Two popular prescription benefit programs, PAAD and Senior Gold, would have higher income levels and higher premium payments. That would save the state $50 million.

Health care benefits for the indigent were also cut. FamilyCare would eliminate benefits for adults and resident aliens, and serve only children. That would save $75 million.

McGreevey also saved $171 million by slashing the NJ Saver rebate. Homeowners with household income of more than $100,000 would be ineligible for the rebate.

Q: Does the budget feature any accounting tricks?

A: Yes. Several areas listed as major savings aren't really cuts at all. The biggest is a reported $605 million savings from changes to the pension system. The state is required to make a contribution when the pension investment fund drops below a certain level.

McGreevey now wants to phase in that payment over five years. What would then be the state's portion for this budget year would come not from the general fund, but rather a special account created years ago.

Another budget maneuver comes in the school aid column.

For the fiscal year that ends in June, the administration reports a $296 million savings by delaying payments in aid to school districts until the first week in July.

But that same $296 million is included in the aid figure for the 2004 budget. In effect, McGreevey's accountants have double counted the same aid.

Q: If McGreevey cut so much, then why is this budget higher than the year before?

A: Because the state must pay more for fixed costs, such as contracts, salaries and debit payments.

Q: What happens next?

A: The budget must be approved by the Legislature by June 30. McGreevey needs Senate and Assembly approval for several bills, including the new hotel tax, higher cigarette tax and the delays to the pension fund.

To read the press release from the Governor's office about the budget proposal, click here.

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