It has been nearly two months since I proposed a $29.3 billion budget designed to get our state back to fiscal sanity and make New Jersey a home for economic growth. As New Jersey’s mayors, council and committee members, I know you are feeling the crunch as you adapt your own budgets, share in the sacrifice and adjust to the economic realities we must all confront. The responses I’ve heard from you run from sober resolve and willingness to make the same difficult choices at the local level that we propose in state government, to opposition and reluctance to embark on this dramatic new course. I understand and welcome the debate. But let’s begin with agreement on some inescapable truths that brought us to this time of reckoning in our great state.
We are choking on property taxes. Our state and local tax burden as a percentage of income is the highest in the nation, at 11.8 percent. Our state budget has ballooned by one-third—a full $10 billion—to $32.2 billion in just eight years, and we are crippled by state debt that has more than tripled to $51 billion. Meanwhile, spending and taxing at the local level has been no less restrained, fed by billions of dollars in state aid. In the last 10 years, property taxes have skyrocketed 70 percent, and local spending has risen nearly the same percentage, from $26.5 billion to an estimated $44.7 billion this year!
These are facts, not opinions offered to fit philosophical or partisan agendas. These are our shared burdens, based on mathematical certainties we all face.
I know I’ve proposed some very tough medicine, including a municipal aid reduction of $359 million and an $819 million reduction in direct aid to schools. And I have heard the familiar response that aid cuts will merely shift the cost of government to local taxpayers in the form of higher property taxes. That mindset must change, and this is where your support, courage and leadership are needed if we are to succeed in fixing our state.
I have proposed a long-overdue tool kit of reforms to empower local governments and school districts to manage budgets more effectively without raising property taxes while providing services at levels and costs that taxpayers can afford. The centerpiece is a constitutional amendment imposing a hard cap of 2.5 percent on property taxes imposed by municipalities, counties and school districts. This would bring discipline but also leave flexibility. If a municipality, county or school desires to increase spending requiring a tax increase more than 2.5 percent, it can take the initiative and make the case by asking its voters to approve a cap override. It would also encourage proper budgeting and forward thinking by allowing municipalities and schools to come in below the cap and “bank” the difference for future years. This proposal is modeled after Proposition 2.5 in Massachusetts, implemented in 1982 with remarkable long-term results. It went from having the third-highest local tax burden in the nation to the 33rd highest.
We must also remake our collective bargaining system at the local level and contain employee salary and benefit costs. You know better than anyone that the current interest arbitration law tips the balance in favor of public sector unions, with contracts failing to take into account the impact on property taxes or spending caps. To level the playing field, I recommend legislation that: prohibits any new labor contract, including all salary and benefits costs, from exceeding the 2.5 percent cap; provides for arbitrators to be selected by the Executive Branch of state government; and, requires the impact on property taxes to be taken into consideration when making their decisions.
I am also recommending legislation to amend civil service rules to eliminate obstacles to cost-saving, permit furloughs at the municipal and county levels and to allow local governments to opt out of civil service altogether. Finally, while a good and encouraging start, the recent pension reform bills I signed into law last month must go further. Among other things, additional legislation must roll back the 9 percent increase in pension benefits granted by the Legislature in 2001 for all pension service credit earned in the future, and cap payout for accumulated sick leave at $15,000 for current as well as future employees to the extent permitted by law.
These are just part of the reforms that I have proposed. I know this is all a shock to the system we’ve grown accustomed to, but that is exactly the point. It is no exaggeration when I tell you that our very way of life, our attraction as a place to live, raise a family, go to college or run a business is at risk. Not because we lack the people and resources necessary to regain New Jersey’s greatness. Not because our state’s natural beauty is declining. And not because of powers that are beyond our control. As leaders, we ourselves have allowed this crisis to build slowly over a period of many years, and the only thing we’ve lacked is the political will to reverse course. I intend to change that, but I will need your help—not as Democrats or Republicans, urban or suburban, but as fellow residents and taxpayers of this great state. We can do this, and we must if we are to make New Jersey affordable and a home for growth again. As Governor, I look forward to working with all of you on behalf of the people we serve together.