New Jersey Governor Proposes Deep Spending Cuts

By DAVID M. HALBFINGER

TRENTON — Christopher J. Christie, the first Republican elected governor of New Jersey in 12 years, unveiled a $29.3 billion budget on Tuesday that relies almost exclusively on spending cuts to reverse the sagging fortunes of a state he sees as battered by the recession and choking on its tax burden.

To close a deficit that he asserted was approaching $11 billion, Governor Christie called for the layoffs of 1,300 state workers, closings of state psychiatric institutions, an $820 million cut in aid to public schools, and nearly a half-billion dollars less in aid to towns and cities. He also suspended until May 2011 a popular property-tax rebate program, breaking one of his own campaign promises.

Democrats were quick to characterize Mr. Christie's proposal as falling disproportionately on the backs of the middle class, the poor, the elderly, schoolchildren, college students and inner-city residents, while leaving largely unscathed the wealthy and most businesses.

But Mr. Christie was ready for that line of attack.

"Today, we are fulfilling the promise of a smaller government that lives within its means," he said at a joint legislative session here. "The defenders of the status quo have already begun to yell and scream. They will try to demonize me. They will seek to divide us rather than unite us. But even they know in their hearts, if not yet in their minds — it is time for a change."

Mr. Christie's budget stands as a stark example of how a fiscal conservative determined not to raise taxes grapples with the budget of a once-expansive, now-humbled state government in challenging economic times.

Over all, his budget would spend $29.3 billion, including $1 billion in remaining federal stimulus money. Setting that aside, it represents a 5 percent reduction in state spending.

New Jersey's budget crunch is hardly unique; dozens of states face similar predicaments. But a budget relying almost exclusively on spending cuts puts the state in a much smaller peer group, along with Florida, Louisiana, Minnesota, Mississippi, South Carolina, Texas and Virginia — all led by Republicans, a number of them with national aspirations.

"Time has run out, and the bill has come due," Mr. Christie said in a speech frequently interrupted for applause, mostly from Republicans.

The budget would probably mean higher property taxes for most homeowners, at least in the short term, as local governments try to make up for the diminished state financing. But the governor is also proposing constitutional amendments and legislation to cap property taxes and spending at the local, county and school-district level.

Mr. Christie campaigned last year attacking the teachers' and public workers' unions and their costly contracts, and his budget lived up to his words: The $820 million cut in school aid is 7 percent of the total funding, and the 1,300 state workers being laid off come from a work force of about 65,000.

The governor said "the watchwords of this budget are shared sacrifice and fairness," yet his spending plan calls for only modest tax increases on insurers and hospitals, eliminates the film-production tax credit, and halves a tax credit for high-tech businesses.

The battle to ensue is likely to shape up around the so-called millionaire's tax, a one-year income-tax surcharge on people making more than $400,000 that Mr. Christie vowed not to renew. (Democrats allowed it to lapse in December.) If that surcharge were renewed, it would bring in close to $1 billion.

In his speech, Mr. Christie affirmed his stance on the issue, saying New Jersey's tax burden was already the nation's costliest. "Mark my words today: If a tax increase is sent to my desk, I will veto it," he said.

He said that to accede to any tax increases would be to "kill a job market already on life support."

Democrats greeted this with dismay, while vowing to work closely with the governor on the budget.

"The fact that the governor took that higher income tax off the table, I think is a major mistake on his part," said the Senate president, Stephen M. Sweeney, a Gloucester County Democrat who has been an ally of Mr. Christie's in cutting public-sector pensions. "This is a very cold budget. There has to be a little more compassion for the middle class and poor, because all the burden is being put on them."

Indeed, Mr. Christie's budget would squeeze those with lower incomes by eliminating cash welfare for the able-bodied, imposing new $310 deductibles and doubling some drug co-payments for Medicaid patients, cutting state-financed school breakfasts and rental assistance and trimming the state's earned-income tax credit to 20 percent of the federal benefit, from 25 percent.

Jon Shure, an expert on state finances at the Center on Budget and Policy Priorities, a liberal-leaning group in Washington, said he believed this would be the first time a state had reduced its earned-income tax credit.

"That's the kind of decision that could be avoided by going for more on the revenue side," he said. "You're spreading the pain to the lowest-income working people in the state."

Mr. Christie also wants to make steep cuts in aid to towns and counties, impound the $88 million in sales taxes collected in urban enterprise zones, and eliminate efforts by his predecessor, Jon S. Corzine, to prod local governments to consolidate or share expenses.

Mr. Corzine cut property-tax rebates for homeowners last year, though he preserved them for the elderly, the disabled and people making less than $75,000. Mr. Christie, positioning himself as a champion of the middle class, attacked the cuts fiercely and vowed to restore a portion of the rebates.

But in his budget, he is now canceling rebates entirely until next year, when they will begin showing up as credits on quarterly property-tax bills instead of arriving in the mail as yearly refund checks.

He also wants to reduce by attrition the so-called senior freeze that caps property taxes for the elderly, by not admitting new homeowners into the program.

Mr. Christie pointed to a few areas that were spared: state parks, food banks, prescription-drug coverage for the elderly and health insurance coverage for children. He called for sizable increases in food-stamp eligibility and in charity care, which pays hospital bills for the indigent. But taxes on hospitals would rise by $45 million.

The governor took pains to mitigate some of his cuts. The sharp reduction in school aid will be apportioned to limit the blow to any one district to 5 percent of its current-year budget. Districts relying on the state for less than that will see their state aid eliminated. Administration officials could not immediately say how many fell into that category.

Similarly, a broad reduction in state aid to municipalities was structured to raise the tax bill of the average taxpayer in each town by $250.

Mr. Christie's idea for a 2.5 percent cap on increases in property taxes, modeled on Proposition 2 ½ in Massachusetts, would allow no exceptions except by local referendum and would apply to towns, school boards and counties. He also is calling for new handcuffs on towns and school districts as they bargain with unions, to prohibit towns from awarding contracts with pay increases, including benefits, of more than 2.5 percent.