As I am sure we can all agree, the unprecedented nature of our current budget crisis and its impact on the people of New Jersey makes convening this historic session of the Legislature a necessity. At the end of last week, we reached a point that none of us wanted to reach. As Fiscal Year 06 passed to Fiscal Year 07 without an approved and signed budget, the Constitution forbids us to spend money without duly authorized appropriations.
The shutdown of state government is much more than a mere inconvenience to the citizens of New Jersey. It is more serious than an interruption of a night at the track or a cancelled visit to Atlantic City.
It means the loss of a paycheck to tens of thousands of construction workers, casino workers and public employees. It means real hardship to small business owners who will lose income because they can't sell lottery tickets. Make no mistake, people are being hurt and more will be hurt in the days ahead.
Beginning next week, the state will not have the ability to refund pharmacies for the medicine they are providing to our seniors. New home warranty certifications will be delayed--meaning families will not be able to move into homes they have purchased. Our summer educational camp for the blind and developmentally disabled children will have to be postponed. Each of us knows this situation has gone from unfortunate to unacceptable.
A known financial crisis, many years in the making, has turned into an immediate constitutional crisis and a personal crisis for our citizens. It is time to act. Actually, it is way past the time to act.
I understand an increase in the sales tax is politically difficult; just as the $2.5 billion in cuts I proposed in March were politically difficult. Any spending cut or any tax increase is politically risky. But I also understand that taking a problem head on is better than hiding from it, even when it hurts. Not doing the right thing because it's too hard or too uncomfortable is not acceptable. Not today, and not ever.
I have been all around this state talking about the proposed budget. The public gets the problem. They may not know every line in the budget, but they understand way more than we give them credit for. They know that both parties have used gimmicks and short-term solutions to avoid stepping up to responsibilities. Our citizens know that they and their children will bear the burden to make things right. I will be nothing but upfront with them about our challenges and the solution.
The focus on short-term solutions to long-term problems has continuously compounded the state's deficit. It cannot and will not continue. It has undermined our state's credit rating and prevented us from addressing other challenges, like property taxes, stem cell research, school construction and ethics reform. For too long the main objective of the budget process has been to finish it.
The goal has been to complete a budget and go home with as little political discomfort as possible. Today, finishing the budget, simply for that purpose, is not good enough.
Short-term patches that get us through the night are no substitute for sound fiscal policies.
Last year, Governor Dick Codey in his budget address said budgets were "driven by the politics of survival. That there was always a gubernatorial election or a legislative election or some other reason that prevented an honest discussion of the state's fiscal problem." And building off that, the Legislature passed a budget that was significantly more responsible than in recent years and was rewarded with a credit upgrade from Wall Street. I seek to build on the hard work all of you started--to continue to rebuild our fiscal house and restore our fiscal foundation with honesty, forethought and discipline.
Every year we seem to confront a multi-billion dollar budget deficit. And every year that deficit drives the politics of budget survival. It is one thing when this happened following the terrorist attacks of September 11th and after three years of a bear market on Wall Street. But there is no reason why in the middle of a four-year economic expansion, New Jersey stands alone in a massive sea of red ink. Recurring deficits are unacceptable fiscal policy.
They are unacceptable to the citizens we represent and they should be unacceptable to each of us. Every year we talk about the problem but yet little fundamental appears to change. The deficits don't get smaller in fact, every year the path to structural fiscal balance becomes more and more difficult.
We simply survive and wait to begin the next year's seasonal march to the finish. The public and each of us deserve more than just a "finished budget." Our goal must be a budget that provides a sound starting point, a foundation, for successive years. It must be a budget that is intellectually as well as fiscally honest. A budget that meets the expectation of being straight with the public about what it will take to finally start fixing this problem, not just this year, but over succeeding years.
We need to stop having this debate every year and putting off until next year the problems we face. We need to get the budget mess behind us so we can focus on the things we need to focus on; the welfare of our children, the most vulnerable and our seniors. There are real problems in this state that demand our attention but will never get solved if we must spend our time trying to fix the same budget problem over and over and over again.
The budget is our most fundamental responsibility. If we can't fix it, how are we going to fix the other more complex problems? Property taxes and the budget are in fact inextricably linked. We cannot solve one without dealing with the other.
How can we talk about improving the school funding formula when we have to freeze aid every year because we can't fix the budget? How can we realistically talk about meaningful property tax reform when all our ideas are consumed trying to figure out next year's budget patch? How can the state help reform local government if we can't get our own house in order?
When I put a budget out in March, I welcomed a high level of public scrutiny and debate because it would only improve our proposal. My budget was shaped by a core set of principles.
Those principles will remain the same as long as I am your Governor. We need to stop spending more than we take in. We need to have real and achievable recurring revenues.
We must stop borrowing to pay today's bill on tomorrow's dime. We must stop buying time with one-shot revenues that only exacerbate tomorrow's problem. We must protect the most vulnerable in our state. And we must promote job creation and business growth.
The budget I submitted in March was a starting point for discussons. I fully appreciate this is a collaborative process and we have welcomed and accepted your input, your ideas. No one can say that the Legislature has not had a meaningful seat at the table. Have there been items where we have disagreed? Of course. I can't accept the creation of a new payroll tax on working citizens.
I don't think it's fair and I think it penalizes work. I can't accept new taxes that can't be effectively and efficiently quantified, implemented, enforced or collected. I can't accept creating new taxes that are not subject to any meaningful public debate, discussion or analysis. I cannot accept deferring our commitment to reform the child welfare system.
The welfare of children doesn't have the luxury of waiting until tomorrow.
But many, many recommendations made by the Legislature have already been agreed to. We have agreed to eliminate the hospital tax. We have agreed to eliminate proposed taxes on alcohol and water. We have agreed to higher revenue estimates put forth by the Office of Legislative Services. We have agreed with the legislative leadership to defer $180 million addition dollars to the funding of our pension system. We have agreed to additional cuts and efficiencies beyond the $2.5 billion we originally proposed on March 21.
The net effect of the taxes that have been eliminated from our original proposal, the higher revenue estimates that have been agreed upon and the reduced level of pension funding means we are still over $1 billion away from a balanced budget. And this figure is without the full range of budget restorations that are yet to be negotiated with the legislature. To close that $1 billion-plus gap, we have proposed a one-penny increase in the sales tax.
Of all the unattractive options, in my judgment an increase in the sales tax is the fairest and will have the least impact on our state's economic competiveness. As we have said before, food and clothing will still be exempted and a one penny increase in the sales tax will cost a family of four roughly $260 a year. And by some estimates, as much as 25 percent of the additional revenue from the increase will be paid by out of state entities. The Assembly leadership has proposed to increase the sales tax by a penny if it is used only for property tax reform.
Absolutely, property tax reform must be addressed in this state and as soon as this budget is behind us, my full energy will be devoted to working with President Codey, Speaker Roberts, and Minority Leaders Lance and DeCroce to tackle the property tax beast this summer.
In response to the Assembly's acceptance of a sales tax increase for property tax relief, the Senate leadership has offered a budget compromise--essentially splitting the difference between the positions. Half the sales tax increase will go towards fixing our budget problem and half will be dedicated as a down payment on our property tax reform efforts. The simple math means we will have to make up this difference.
But make no mistake, this Senate compromise still requires us to come up with $600 million in new cuts or new revenues beyond what has already been agreed to. Within the structure of the Senate compromise, I am committed to working with the ideas presented by the legislature to find this funding. This is no longer about whether there will be a tax increase along with over $2.5 billion in spending cuts to balance the budget.
President Codey, Speaker Roberts and I have all agreed that unfortunately new revenues along with spending cuts are necessary to fix this problem. Each of us believe that an increase in the sales tax is a fair and responsible method to raise new revenues. Our disagreement today is over what portion of the sales tax should go towards putting the state on sound fiscal grounds.
I have been through every line in this budget. Each one represents more than mere words next to a number. Every line represents a priority or a decision about something that we believe is important. I believe in my heart that for too long, the budget process has failed the citizens we represent. There has been too much focus on the short term and too little faith in the public's ability to handle and accept difficult news.
I am prepared to work as hard and as long as necessary to change the status quo and put this state on a solid long-term foundation. I proposed the penny increase because I believe it is the most responsible way to right our ship. However, compromise is an important part of life and politics and I do not want to let the perfect be the enemy of the good.
In the name of compromise, I am willing to a meet the Legislature halfway. But I am not willing to compromise and compromise and compromise until we essentially have a budget that represents the policies we are trying to avoid. We can't afford to miss this opportunity to bring long-term discipline to the budget.
We cannot let another year go by without substantial action. The stakes for our future are simply too great. It is easy to think this budget debate is about whether or not there will be property tax relief. It is easy to think the debate is solely about a penny increase in the sales tax. That analysis shortchanges what we must achieve.
This debate is about whether we will have a budget with a predictable, reliable and recurring revenue stream at its base. Or, if we will have a budget with a patchwork quilt of unknown, untested and unvetted ideas that we hope will once again, simply get us to the finish. I am willing to compromise but I am not willing to gamble with our state's future.
None of us chose public service so we could raise taxes or make other unpleasant choices. Each of us has our own reasons for being here. It could be to improve the quality of education. It could be to improve services for individuals with mental illness. It could be to expand access to health care or unleash the potential of stem cell research.
For me, I am here because I believe that government can help build a brighter economic future for everyone. But whatever the reason was that brought you here, the reality is sometimes you have to fix the foundation before you can think about what's next. If we ever want to achieve the things each of us came here to do, we have to fix the financial foundation of our state.
I know that there are a hundred things each of us would rather be doing on this Fourth of July. We should be honoring the men and women protecting our freedoms both here and overseas. We should be at parades or barbecues, with our families and in our communities.
But we took an oath and we have an obligation to the public to enact a balanced budget.
It is a hundred and five days past when I proposed a budget. It is four days past when we should have had a budget in place. We must stay here until we meet our Constitutional obligation. Our obligation of public office extends beyond doing the things we want or the things that are easy.
It requires us to do what is right.
It requires us to rise above the politics of fear and make decisions that are in the best long-term interests of those we represent. That is the essence of our oath of office and responsibility as public servants. Thank you and let's get this done.