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When the New Jersey Supreme Court ruled recently that borrowing to balance the state budget is unconstitutional, both political parties claimed victory. Republicans crowed because it was Democratic Gov. James E. McGreevey's borrowing plan they had gone to court to challenge. But Democrats were equally quick to point out that the court did not reverse McGreevey's action, instead mandating only that such borrowing could never take place again. In effect, the court gave the state a year's grace period.
In truth, the big winners were the people of New Jersey. That includes any number of them who are yet to be born, since borrowing on such a large scale generally involves making interest payments for 20 or 30 years.
By holding that the state cannot rely on borrowed funds to balance its operating budget the court not only upheld the state Constitution but also struck a blow for common sense. You must live within your means, was the undisputed message. Indeed, New Jersey residents have every right to expect their government will create annual budgets that are responsible and prudent. No household could survive long with a family budget that depends on borrowed money or something akin to the other fiscal gimmicks that states frequently employ to meet day-to-day expenses.
Neither party has a monopoly on fiscal gimmickry. In recent years, Democrats and Republicans alike have balanced the budget by selling a portion of the state highway system, issuing billions of dollars of pension obligation bonds, deferring payments into employee pension and healthcare systems and "securitizing" anticipated proceeds from a settlement with tobacco companies. Clearly, in their effort to close the gap between spending and revenues, our leaders have been known to cross the line from fiscal ingenuity to fiscal irresponsibility.
Now, in what marks the first time the New Jersey Supreme Court has restricted the budget-making powers of the Governor and Legislature since the 1947 adoption of the state Constitution, at least one avenue has been closed off. The balanced budget that the state Constitution (as opposed to the U.S. Constitution, which allows deficit spending at the federal level) requires cannot be achieved by selling bonds to cover operating expenses.
But citizens could still end up being losers if the Governor and Legislature-now and in the future-respond to the court ruling the wrong way.
The wrong way would be for politicians to decide that living within the state's means can only be accomplished by cutting back spending that helps people. The right way would be to once and for all make sure the state has the means to do what needs to be done.
For too long, officeholders from both parties in New Jersey have put off the inevitable day of reckoning. They have lived with what is called a "structural deficit," which means that in many years the state does not take in enough money through the current tax structure to meet its obligations. So it resorts to gimmicks-it borrows, phases in new programs over time in hopes the money will be there eventually, passes laws to dedicate funding streams to particular uses without acknowledging this takes money away from other good purposes-and so on.
What it does not do-but must-is take a hard look at needs and resources in an effort to make them match. Doing that would most likely lead to such actions as:
- Raising the state gasoline tax to a level similar to almost every other state and adjusting car registration fees to account for the impacts of SUVs and other big, heavy, luxury vehicles, so the proper investments could be made in mass transit and infrastructure instead of using the depleted Transportation Trust Fund for operating expenses.
- Making the state income tax more progressive, so it reflects the ability of upper-income residents to pay and is better poised to make use of the windfalls that come when the economy exceeds expectations.
- Recognizing that New Jersey's sales tax is still based on a manufacturing economy that is gone forever, and looking at taxing many of the same service- and technology-oriented transactions that most states do.
- Adopting what is known as a "current services budget" that looks ahead a number of years to assess how many people will need what programs and services, so the true costs can be known ahead of time and planned for.
- Taking a much harder look at incentives and tax breaks given to businesses, to see if they really bring in as much revenue as they cost.
This is not just a New Jersey problem. It is a national problem for the simple reason that politicians are better at spending money than they are at making sure there is enough to go around. Fiscal responsibility is long overdue. But it need not mean scrimping on necessities. There is a progressive way to approach budgeting-one that recognizes that meeting needs requires an ongoing, straightforward assessment of what it takes and then finding the money and the will to make it happen.
Mary E. Forsberg is Research Director for New Jersey Policy Perspective (www.njpp.org) and author of the upcoming report, "Let the Sunshine In: Making New Jersey's Budget More Transparent."
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