NEW JERSEY

Christie unveils $35.5 billion state budget plan, his last

Salvador Rizzo, and Nicholas Pugliese
NorthJersey
“Trenton will be a much more welcoming fiscal climate for the next governor in 2018,” Gov. Chris Christie said during Tuesday's address.

Gov. Chris Christie unveiled his final budget plan for New Jersey on Tuesday, casting his fiscal stewardship of the state as a net positive despite a historic run of credit-rating downgrades and surprising lawmakers with a blizzard of complex policy plans just as his term begins to draw to a close.

As first reported by The Record, Christie proposed a $35.5 billion budget for fiscal 2018, which would be $1 billion, or 2.9 percent, larger than the spending plan he signed last year.

Funding for schools would rise by more than $523 million, to $13.8 billion, with no district seeing a reduction. New Jersey’s beleaguered pension system for public workers, which has fallen deeper into the red each year in the past two decades, would get its biggest cash infusion in history, $2.51 billion, a $647 million increase over the current fiscal year.

With his term ending in January 2018, Christie’s budget address before the Legislature was his last big chance to draw a fiscal road map for New Jersey. The speech also served as an extended victory lap, with Christie celebrating his accomplishments over seven years, mounting a vigorous defense of his fiscal record and drawing attention to the bright spots in the state’s slow, but steady, recovery from the global recession of 2008 and 2009.

EDUCATION:  Christie will not revamp school funding in new budget, sources say

BUDGET ADDRESS: Full text of Christie's final budget address

WATCH:  Governor Christie's final budget speech

Christie took credit for cutting 11,000 jobs from the state workforce, while local and county governments cut another 21,000, he said. He celebrated a sharp reduction in the state’s use of one-shot revenue sources in the budget, from 13.2 percent when he took office, to 2 percent in the new budget plan. He boasted of repairing the state’s unemployment insurance trust fund and leading it to a surplus of $1.9 billion, imposing a 2 percent annual cap on local property tax increases, and overseeing a steep fall in the unemployment rate, from 9.8 percent when he took office, to 4.7 percent.

“Trenton will be a much more welcoming fiscal climate for the next governor in 2018,” Christie said. “We have slayed the ghosts of fiscal irresponsibility that haunted this house in 2010.”

New Jersey’s job growth since the recession, however, has been one of the slowest for any state. And the major Wall Street credit-rating agencies — Fitch Ratings, Moody’s Investors Service and S&P Global Ratings — have downgraded the state’s general obligation bonds 10 times since Christie took office, the most for any governor in U.S. history. Financial analysts and former state officials have been warning for years that New Jersey’s tax base is not growing fast enough to cover all the legally mandated costs in the budget. Christie has refused to raise taxes for budget programs; at the same time, he has signed larger spending plans every year.

Of particular concern to Wall Street is the state’s retirement system for public workers, which Bloomberg recently ranked as the worst-funded in the country. At $2.51 billion, the pension payment Christie is proposing for fiscal 2018 would cover 50 percent of the state’s actuarially determined contribution, or half the amount needed to fully fund retirement benefits already earned by nearly 800,000 public workers and retirees.

With that pension payment, Christie said, his total contributions to the retirement system over eight years would total $8.78 billion, by far the most for any New Jersey governor. But because of chronic underfunding since 1997, those contributions have not arrested the tide of growing unfunded liabilities. State reports released earlier this month showed they grew once again in 2016 by several billion dollars. The first pension fund is projected to become insolvent in 2021.

The New Jersey Legislature as Christie offered his fiscal 2018 budget plan on Tuesday.

A series of new and complex ideas tackling health care, pension and education costs also figured into Christie’s speech, although some of the biggest proposals were not factored into his budget plan. That Christie would roll out those plans showed unusual boldness for a chief executive with less than a year left in office who will be competing for attention this year with a governor’s race and all seats in the Legislature on the ballot as well.

“It’s a pretty aggressive agenda for a last-year governor, but I don’t think I would have expected anything less,” said Assemblyman Declan O’Scanlon, R-Monmouth, the Republican budget officer, applauding Christie for offering several "out-of-the-box" ideas. “Nobody in the Legislature has any business deciding we should coast for a year. That would be an abdication of our responsibility.”

Taking another stab at pension reform after a stunted attempt during his first term, Christie proposed sending the revenue from the state lottery to the retirement system. That revenue was $987 million in 2016 and was used to help operate psychiatric hospitals, homes for veterans with disabilities and facilities for residents with developmental disabilities. It also helped fund school nutrition programs, tuition aid grants and state colleges, among other initiatives.

“The contribution would have the immediate effect of reducing the unfunded liability of the pension system by approximately $13 billion and would increase the funded ratio of the pension system by almost 15 percentage points in one fell swoop, from 49 percent, to 64 percent,” Christie said. This proposal, however, was not included in his new budget plan.

The governor noted that he had also reduced the expected rate of return from the pension system’s investments, from 7.9 percent, to 7.65 percent, as of Monday, which would more closely reflect those investments’ recent performance.

Assembly Speaker Vincent Prieto, D-Secaucus, said after the speech that he doubted whether the lottery revenue could be funneled to the pension system. The state constitution says lottery revenue must be used “for state institutions and state aid for education.”

"I'm going to be blunt: This may be smoke and mirrors," Prieto said.

On education funding, Christie challenged lawmakers to pass a plan in the next 100 days that overhauls New Jersey’s funding formula for school districts. Offering an olive branch to Democrats, Christie seemed to abandon a controversial plan he first floated last year to flatten funding across all school districts, to $6,599 per pupil, and instead offered to restart negotiations “without any preconditions” and “with no stupid blue-ribbon commissions.”

Christie again zeroed in on the School Funding Reform Act of 2008, which he has shorted for years, arguing that its funding formula pours billions of dollars to poor, urban schools with no discernible improvement in graduation rates. Meanwhile, the formula sends much less money to rural and wealthier districts, he adds.

“Everything is on the table; no idea out of bounds for discussion,” Christie told lawmakers. “If we don’t do it in 100 days – shame on us.”

Democrats said after the speech that they were open to "tweaking" the school-funding formula to distribute state aid "more equally," but Prieto also noted that the School Funding Reform Act had been found to be constitutional by the state Supreme Court, which has mandated a special level of funding for decades in 31 historically poor school districts.

Christie won sustained applause from the lawmakers, lobbyists, state officials and his family members in the Assembly chamber for repairing the state’s Transportation Trust Fund recently, guaranteeing funding for the next eight years of road, bridge and rail upgrades. Republicans also applauded him for holding the line on most major taxes.

“This will be the first governorship in memory where no taxes were raised to add money to the general fund,” Christie said. The Republican governor did strike a deal to raise New Jersey’s gas tax by 23 cents per gallon last year, but that revenue was dedicated to the Transportation Trust Fund, not the budget.

As part of that deal, Christie and Democrats also eliminated the estate tax and reduced the sales tax from 7 percent, to 6.625 percent, a move that was criticized by S&P analysts because it will deprive the state budget of nearly $1 billion a year by the time those tax cuts are fully phased in come 2021.

“The results will be smoother roads and safer bridges … all great things for New Jersey’s commuters,” Christie said.

Gov. Chris Christie delivering his budget address to a joint session of the state Legislature on Tuesday.

In a surprise move, Christie called for Horizon Blue Cross Blue Shield of New Jersey, the state’s sole non-profit insurance carrier, to convert part of its surplus into a “permanent and sustainable fund” that would provide health care for needy populations and drug addiction treatment, one of his signature issues. Christie said Horizon had a $2.9 billion surplus on $12 billion in yearly revenue.

The new budget plan, however, does not contemplate any savings from this proposal. And Tom Wilson, Horizon's director of public affairs, said in a statement after the speech that Christie had mischaracterized the company as flush with cash when its net income for 2016 was less than 1 percent of revenue.

Previous administrations have explored turning the insurer into a for-profit company, which would bring a large tax windfall to the state budget, but Christie stopped short of calling for that conversion.

"Raiding the reserves that protect the families we insure, including our Medicaid members, will only make insurance more expensive and less secure," Wilson said. "The claim that Horizon and our policyholders have an ‘abundant surplus’ is just plain wrong — those reserves have only enough to cover 75 days of claims or just a single day of hospital care for every person Horizon insures."

Lawmakers have until July 1 to collect testimony, hold hearings and propose changes to Christie’s budget proposal. Christie is proposing to include a rainy-day fund of $493 million, or 1.4 percent of spending.

One of the few proposed reductions in Christie’s budget targets charity care for New Jersey hospitals, which defrays the cost of treating uninsured or underinsured patients. State Treasurer Ford Scudder said nearly 780,000 people have obtained health coverage under the federal Affordable Care Act — 487,000 through an expansion of Medicaid and 295,000 through a new insurance marketplace established by the law. That rising level of coverage has reduced the need for charity care, he said.

Funding for the program would decline by $25 million in Christie’s new budget, for a total reduction of $50 million, since the federal government matches charity care funding dollar-for-dollar. The program already has been cut by more than half, losing $375 million in funding since 2015, said the Fair Share Hospitals Collaborative, which represents 31 hospitals. The group said years of funding cuts would “jeopardize” health care across the state.

Scudder said the budget plan also contemplates $125 million in savings contingent on passing new legislation to increase transparency in the way hospitals bill out-of-network patients, and on making the same health care benefits changes for school employees that were made last year to state workers’ plans. Those changes rolled back coverage for chiropractic, acupuncture and physical therapy treatment; mandated the use of generic prescription drugs when available; and limited the number of prescription drugs covered under the program, said Sen. Joseph Vitale, D-Middlesex.

“Moreover, employees will benefit from lower premiums, and local governments and school districts will also save approximately $127 million, constituting meaningful property tax relief,” Scudder said.