New Jersey's Economic Warning - irresponsible borrowing and spending - now causing real pain

[UpInArms]

http://www.nytimes.com/2008/02/28/opinion/28thu3.html?_r=1&oref=slogin

It is hard to remember when any governor used the sort of desperate language that New Jersey Gov. Jon Corzine chose this week to describe his state’s fiscal crisis. His words should be a sober warning to other states to get their fiscal houses in order before they face a crisis of Trenton’s magnitude.

In his annual budget address to the Legislature, Mr. Corzine declared that unless New Jersey made hard choices, it would fall into a “deeper fiscal swamp.” He outlined deep budget cuts — “cold-turkey therapy” — that would eliminate three cabinet departments, 3,000 state jobs and squeeze aid to hospitals, colleges and universities. Even if the Legislature agreed to all of the cuts, Mr. Corzine asserted, it would still have to find a way to bring in more money.

More than 20 states, including New York, are facing budget shortfalls next year, due at least in part to the economic downturn, according to an analysis released this week by the Center on Budget and Policy Priorities. The report said a few states — most notably, Arizona and California — face even bigger deficits than New Jersey.

New Jersey’s problems are magnified by a long history of irresponsible borrowing and spending. In a self-destructive gimmick, the state seriously underfunded its pension plan and used the money to pay for current spending programs. As a result, Mr. Corzine said, the state’s annual debt service now exceeds what it invests in higher education.

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(edited to fix title)

[LiberalEsto]

1. Bond issues were their downfall

As a former newspaper reporter who covered NJ for many years, I remember town after town and county after county passing bond resolutions to finance public improvements. The NJ Turnpike Authority and the NJ Highway Authority (Garden State Parkway) were always up to their asses in bonds. But because many of these communities and agencies had AAA bond ratings, they could float bonds at low interest rates. Whee! it was like free money, and tomorrow's taxpayers would pay for it. Too much "easy credit".

Now this debt has piled up, and the bond ratings of many of these borrowers have been downgraded.

I've seen far less use of municipal bond financing in Maryland, where I've lived for 18 years. Gaithersburg, the city closest to me, has practiced a "pay as you go" system for years for all public improvements. I don't believe they spend any part of their budget on debt service, and their tax rate is very low.