June 24, 2008

Legislature Passes Fiscal 2009 State Budget

Last night, the members of the state legislature voted to approve the $32.86 billion fiscal 2009 state budget bill, A2800, which will allow Governor Corzine to sign the budget by the June 30 constitutional deadline. This year's budget is unprecedented because it appropriates $600 million less than the fiscal 2008 budget, which breaks the pattern of significant yearly budget increases. The fiscal 1998 budget was $16.4 billion, compared to $33.5 billion in fiscal 2008.

The State Chamber commends legislators and the Corzine Administration for crafting a budget that reduces spending below last year's level and that contains no new or increased taxes for the second year in a row. This budget demonstrates to the employer community that our government is finally beginning to address the serious fiscal problems plaguing the state. Although there is still a long way to go before the crisis is over, this important first step in controlling spending will hopefully help economic growth efforts by sending a positive message to potential investors in New Jersey, as well as outside, that our government is interested in creating a favorable fiscal environment.

Highlights include:

• The $32.86 billion budget cuts spending $600 million below the $33.5 billion budget signed last year. This is the second-largest cut in spending year-to-year in New Jersey.
  
  
• The budget reduces the use of one time revenue sources by 90 percent, moving the state closer to a philosophy of only spending recurring revenue.
  
  
• The balance in the budget was achieved through $2.9 billion in spending cuts.
  
  
• Nearly $16.7 billion is dedicated to property tax relief, a $73 million increase over the current year. The budget allocates $2.5 billion for direct property tax relief, which ensures that 90 percent of homeowners continue to receive property tax rebates. Rebates are eliminated for homeowners earning more than $150,000.
  
  
• The operating budgets of the executive departments have been decreased by $193 million.
  
  
• The Departments of Commerce and Personnel will be eliminated with the key functions being transferred to other appropriate agencies. This move is expected to save $2 million. The Governor's original proposal to eliminate the Department of Agriculture has been discarded.
  
  
• The state workforce will be trimmed by 2,000 positions largely through an Early Retirement Incentive (ERI) program to save $91 million. ERI will be offered to certain workers age 58 and older with 25 years of service. To maximize the savings, the Administration will allow only 10 percent of the vacated positions to be backfilled.
  
  
• $11.5 billion is allocated for preschool to grade 12 education ($614 million more than last year) representing over one-third of the total state budget. Of this increase, $515 million is direct aid to school districts under the new funding formula approved by the legislature late last year.
  
  
• The budget provides $640 million for charity care, a $76 million reduction from the current level of $716 million. Additionally, $44 million will be allocated to a new Hospital Stabilization Fund to assist hospitals experiencing financial distress. Funding for Graduate Medical Education (GME) is increased by $9 million.
  
  
• Municipal aid is reduced $170 million or 9.4 percent, including significant reductions in the Consolidated Municipal Property Tax Relief Aid program. Municipalities were originally slated to have aid reduced even further, but negotiations restored $20 million.
  
  
• The budget provides $2.1 billion for higher education, a reduction of $76 million from the $2.174 billion spent in the current year. The Governor's proposed budget included an income limit on the NJ STARS scholarship program, but this proposal has been dropped.
  
  
• The budget diverts $9 million from a shore protection fund to keep state parks open.
  
  
• The budget delays the scheduled 2009 Transitional Energy Facilities Assessment (TEFA) reduction and extends the phase out to 2013 to raise $62 million to be allocated to hospitals, nursing homes and Medicaid recipients.
  
  
• $194 million is allocated for the Business Employment Incentive Program (BEIP).
  
  
• $500,000 is appropriated for the New Jersey Small Business Development Centers, a 50 percent restoration of the proposed $1 million reduction.
  
  
• The budget provides $8 million for expansion of the NJ Family Care program.
  
  
• As a result of negotiations, the proposal to charge Medicaid recipients' co-pays has been dropped.
  
  
• In January 2009, the state will require rural municipalities that do not currently pay for their State Police patrols to contribute to the cost. The state expects to collect $12 million.
  
  
• The budget allocates $5.3 million to the Election Law Enforcement Commission, a restoration of $200,000.
  
  
• Four percent of Special Municipal Aid funds are allocated for oversight and audit activities by the State Comptroller.
  
  
• Authorizes up to $5 million from the Diesel Risk Mitigation Fund to reimburse school bus owners for installing retrofit technology.
  
  
• For the first time, there will be no "Christmas Tree" items added on to the budget, or requests by legislators for additional appropriations for their home districts.

Pension and Health Benefits Reform Act of 2008

As part of the budget negotiations, the legislature passed the Pension and Health Benefits Reform Act of 2008, which reforms several provisions of the pensions and benefits system for new public employees. These reforms are intended to produce savings for the state and protect the long-term solvency of the public employee pension and benefits system.

Reforms include:

• Increasing the retirement age from 60 to 62.
  
  
• Increasing the minimum qualifications for enrollment in the Public Employees' Retirement System (PERS) or the Teachers' Pension and Annuity Fund (TPAF) to a $7,500 annual salary.
  
  
• Eliminating Lincoln's Birthday as a state holiday.
  
  
• Prohibiting pension credits purchased from an out-of-state public job from being counted towards post-retirement health benefits.
  
  
• Allowing incentives for public employees who opt-out of the State Health Benefits Plan.
  
  
• Requiring municipal employees to work a minimum of 20 hours per week to qualify for health benefits.

The Chamber supports these steps to ease the state's long-term fiscal crisis and encourages the legislature to consider additional changes in the future. These suggestions include increasing the retirement age of public employees to 65; replacing the defined-benefit hybrid plan for new hires with a defined contribution plan; negotiating one contract on behalf of all local workers where the state picks up the cost; and phasing out lifetime benefits for retirees, as has been done successfully in the private sector.

Please contact Mary Ellen Peppard at (609) 989-7888 with any questions.