Magazine | August 16, 2010, Issue

The Scourge of Trenton

New Jersey governor Chris Christie is winning a war for fiscal sanity

It was supposed to have been the biggest fight of Chris Christie’s young administration: a May showdown over what Democrats in Trenton were calling the “millionaires’ tax,” designed, like each of the 115 statewide tax increases of the last decade, to paper over a small part of a yawning structural deficit by soaking the rich, one last time. Never mind that half the filings and a third of the revenue from the tax were to come from New Jersey’s business community, already battered by a perfect storm of overtaxation, capital flight, and recession. The Democrats were loaded for bear, and had the legislative majorities in place to pass the measure, having spent all winter threatening a government shutdown should Christie use his veto pen.

Democratic senate president Stephen Sweeney had even admonished, in a turn of phrase eminently Trentonian in its sheer backwardness, that “to give up $1 billion to the wealthy during this crisis is just wrong.” He promised that the millionaires’ tax was where the Democrats would “make our stand.”

The tax passed on party-line votes in the assembly and senate on May 20. Sweeney then certified the bill and walked it across the statehouse to Christie’s office, where the governor — who had vowed to balance the budget without raising taxes, and who’d developed a bewildering habit of keeping his promises — vetoed it. The whole thing took about two minutes.

“We’ll be back, governor,” Sweeney told Christie on being dispatched with the dead letter.

“All right, we’ll see,” came the reply.

And just like that, the biggest obstacle standing between Christie and the realization of his sea-changing, fiscally conservative first-year agenda was gone.

“We have not found our footing,” Democratic state senator Loretta Weinberg later said, still reeling from the decisive defeat. “I think a lot of people underestimated Chris Christie.”

Christopher James Christie is fond of saying that he’s been underestimated his whole professional life. The Newark-born son of an Irish father and a Sicilian mother, Christie is the product of respectable but middling schools — the University of Delaware and Seton Hall Law — and enjoyed a successful, if not spectacular, career as a partner in a small New Jersey firm. He served a single term as a Morris County freeholder, but was primaried, and soundly defeated, in his bid for reelection. When, despite a lack of criminal prosecutorial experience, he was appointed U.S. attorney in 2002, some detractors thought it a bit of cronyism — the Bush administration rewarding Christie for the fundraising work he’d done during the 2000 election.

They were wrong. By the time Christie left the job six years later, he had put over a hundred crooked pols — “from the school board to the state house and of both political parties” — behind bars, without losing a single case. And he had tried and convicted terrorists, Mafiosi, and child pornographers; arms dealers, gang members, and corporate hacks.

So when he announced for governor in 2009 — as a low-tax, small-government alternative to Democrat Jon Corzine, who had the misfortune of being both an incumbent and a former CEO of Goldman Sachs — he did so with a brand name. Yet the initial response from the right was skeptical. New Jersey had become deeply blue over the past 40 years, and its Republican executives tended to be milquetoast centrists. Even as Christie beat conservative favorite Steve Lonegan in the primary and surged past Corzine on a wave of anti-incumbent fervor, the state’s small conservative establishment feared they were in for more of the same. Those fears seemed justified, since Christie, despite employing the proper rhetoric about Trenton’s unsustainable “addiction to spending,” was frustratingly vague about his plans to fix the state’s finances, more or less claiming that he had to see for himself how bad the situation was before he’d know what needed to be done. To many, this was the tack of a governor who intended to go along to get along, and who’d be swallowed whole by the Democratic Trenton machine.

#page#About this, too, Christie’s critics were wrong.

“I think Democrats in the legislature, and Democrats in the counties, had become accustomed to rolling governors,” says Jay Webber, a state assemblyman and Christie’s pick to chair the New Jersey Republican State Committee. “They rolled Jon Corzine all the time — they didn’t respect him. I think they rolled [former Democratic governor] Jim McGreevey, and they rolled [former Republican governor Christine Todd] Whitman in her last term, which wasn’t as strong as her first term. I think Trenton had lost sight of what that office can do, and Chris Christie stepped in there and showed them, very quickly.”

It started in December of 2009. Governor-elect Christie was in the middle of a transition meeting with senior staff when he was presented with a startling document.

It was a chart, prepared by independent Wall Street analysts, showing the state’s cash balances over the previous four years and forecasting future balances. It wasn’t good.

“It was like a picture of a failing company,” says Richard Bagger, Christie’s chief of staff and a veteran of Trenton politics. “It just went down and down. In December it touched zero. Then in March 2010, it plunged into the red.”

That didn’t match the picture painted by the political appointees in the outgoing Corzine administration, who were telling Christie’s transition staff that the state’s operating budget would get it through the rest of the fiscal year. In fact, the state was down to only a few days of cash on hand, and was meeting payroll with expensive short-term borrowing.

But if Christie’s transition team had any doubts about which analysis was closer to the mark, within two hours of the governor’s being sworn in on January 19 career treasury staffers had confirmed the worst: The state was going to default on its obligations the first week of March. The only way out, Christie was told, was more short-term borrowing.

How did New Jersey, once an economic powerhouse, get so low? It starts, but by no means ends, with the recession.

New Jersey’s economy is intimately bound with, and its narrow tax base heavily reliant on, the financial sector. In the wake of the banking collapse, the state suffered a worse unemployment spike than even New York, precipitating what the state treasurer called a “historic revenue collapse.”

This meant that in his last budget, for fiscal year 2010, the outgoing Corzine saw a $7 billion shortfall appear as if from thin air. To meet it he cobbled together federal bailout bucks, tax hikes, worker furloughs, and deferred pension payments — but he didn’t take so much as an Allen wrench to the budget’s structural imbalances, namely, public spending that had doubled as a percentage of GDP over four decades to finance an increasingly Byzantine patchwork of regional “authorities” and “commissions” that crosscut existing state, county, and municipal governance; a morbidly obese pension system underfunded by at least $46 billion; and $52 billion in total outstanding debt — more than $5,000 per resident — backed by everything from cigarette-tax revenue to traffic tickets.

The New Jersey that Chris Christie inherited was one that the Mercatus Center at George Mason University had ranked 46th in the Union on its economic-freedom index, and one whose business-tax climate the Tax Foundation had called the worst in the nation. Its narrow tax base had been in a death spiral for years: High-tech, high-paying jobs were fleeing — one Boston College study estimated $70 billion in wealth had left between 2004 and 2008 alone — and being replaced by low-wage, low-tech ones. For decades Trenton had jacked up taxes on the wealth that remained — inspiring new rounds of capital flight — and relied on weak budgetary rules and accounting tricks to kick growing shortfalls down the road. As a July 2009 study by Mercatus’s Eileen Norcross and Frederic Sautet concluded,

#page#the government of New Jersey has resorted to fiscal evasion — avoiding the rules meant to constrain spending — and has sustained spending growth through fiscal illusion, obscuring the full costs of policies by relying on intergovernmental aid and debt to achieve the current level of spending. The state has long emphasized current spending at the expense of higher taxes for future taxpayers. The costs of this approach are now coming due.

Come due they had for Christie, who after less than a day on the job was being advised to borrow his way out of crisis. What he did instead set the tone for everything that followed.

Five weeks later, on February 11, Christie addressed a special joint session of the state legislature, replacing the vague promises of the campaign trail with first principles, and elaborating the constraints under which he was determined to govern:

Our constitution requires a balanced budget. Our commitment requires us to begin the next fiscal year with a prudent opening balance. Our conscience and common sense require us to fix the problem in a way that does not raise taxes on the most overtaxed citizens in America. Our love for our children requires that we do not shove today’s problems under the rug only to be discovered again tomorrow. Our sense of decency must require that we stop using tricks that will make next year’s budget problem even worse.

And in an extraordinary move, he then declared a fiscal state of emergency, announcing that by executive order he would impound $2.2 billion in appropriations from a fiscal year that was already seven months gone. That figure represented virtually every dollar the state was not legally obligated to pay out for the remainder of the year. In Bagger’s words, it was “everything that wasn’t nailed down.”

“By doing that so quickly and so dramatically, and by executive action, it really set the stage,” Bagger says. “It was just a very clear declaration that there’s a new reality.”

There was much wailing and teeth-gnashing about the cuts among Democrats. Sweeney accused Christie of “pick[ing] someone else’s pocket,” and senate majority leader Barbara Buono went so far as to say the executive order had “declare[d] martial law” in New Jersey.

This raised the stakes significantly for the FY 2011 budget battle, which was then only beginning. In the year to come, the state would face an $11 billion deficit that made the previous shortfall look like a gratuity. It was a big hole, and Christie needed Democratic votes to close it.

But he had no intention of mollycoddling the other side. On March 16, the governor went back before a joint session of the legislature and introduced a $29.3 billion budget that doubled down on his most controversial measures, trimming fat — and muscle, and sinew — from virtually every department and every entitlement in the state.

The budget did small things, like reducing overtime hours, shrinking the state’s fleet of official vehicles, replacing paper with digital filing, and consolidating government office space. It cut the pay and pension eligibility for members of a number of state boards and commissions, many of whose duties required them to do little more than attend once-monthly meetings. It saved $216 million by eliminating a number of wasteful programs, and another $50 million by privatizing others.

But the budget did big things as well. It shrank the state’s major spending programs — including many that were, the governor admitted, not without merit — by reducing base appropriations and either scaling back or eliminating scheduled funding increases. It converted the state’s property-tax rebate system — long funded by borrowing, at interest, to cut checks to homeowners — with tax credits. It cut $466 million in local aid, against Trenton’s trend of corralling more and more municipal tax dollars for the purposes of redistribution, while pushing a constitutional amendment that would limit towns’ ability to raise property taxes in the future.

#page#And like Corzine before him, Christie deferred payments to the state’s pension program to secure $3.1 billion in savings, under the justification that it was imprudent to sink more money into a failing system. But unlike Corzine, Christie pushed through tough pension reforms that rolled back overgenerous payment increases, limited payouts for unused sick leave, and enrolled new workers into 401(k)s. He’d also signed a law requiring public employees to pay at least 1.5 percent of their salaries toward their health benefits, which would save the state and local governments hundreds of millions each year.

But what caused the first and most strident wave of opposition to Christie’s agenda was his decision to slash funding for public education, by some $820 million.

That scary number obscured the fact that, when one subtracted the federal-stimulus goodie bag that Corzine had used to plug the leaky dam of the state’s school-funding formula the previous year, Christie’s budget was actually increasing aid to schools. And it obscured the fact that the cuts topped out at 5 percent per district, and that Christie had offered to restore them in districts where teachers accepted a one-year pay freeze and agreed to increase their contributions to their benefits packages from zero — zero — to 1.5 percent of their salaries.

Of the 591 school districts in the state, fewer than three dozen agreed to these conditions. Instead, the teachers’ unions, led by the New Jersey Education Association (NJEA), invested nearly $6 million to lobby against the budget, running radio and television ads accusing the governor of failing to “protect the quality of our schools” and, gob-smackingly, of going back to “the old Trenton ways of doing business.”

The campaign reached its peak, and its nadir, on May 22, at a march on Trenton organized by public-sector unions. There, NJEA president Barbara Keshishian led as many as 35,000 labor activists — a mere 7 percent of the 460,000 names on the books of the state’s pension system — in shouting down the governor and warning Democrats not to become his “accomplices.”

When a reporter asked Christie what he thought of the protest, he literally shrugged, saying that it had had “absolutely no effect” on him.

“[I hope they] had a good time,” Christie said. “And I hope that it helped spur Trenton’s economy.”

The governor had grown increasingly hostile toward the NJEA in the months since he’d introduced his budget, and had essentially stopped taking their phone calls in April, after the union had failed to discipline a functionary for circulating an e-mail praying for his death. Thereafter, he went from not pulling punches to putting his full weight behind them. When a teacher at a town hall in the borough of Rutherford complained to Christie that his budget would leave her inadequately compensated relative to her education and experience, he told her to find another job, and reminded her that the cuts wouldn’t be necessary if teachers made the most modest concessions.

“Your union said that is the greatest assault on public education in the history of the state,” he told the teacher. And then, to applause: “That’s why the union has no credibility — stupid statements like that.”

Indeed, the war of credibility between the unions and the governor had been settled weeks before, when New Jersey’s school districts put their annual budgets — many of which sought to hike taxes to erase Christie’s cuts — to a taxpayer vote. Nearly three in five failed, a greater number than in any year since 1976.

Meanwhile, what was supposed to be an epic battle with the Democrats largely failed to materialize. Sweeney and Co. had made their stand on the millionaires’ tax, which amounted to little more than a demonstration at Christie’s flanks, and then had more or less quit the field.

#page#Elected Democrats were conspicuously scarce at the May 23 Trenton rally, and in reaction to the NJEA president’s warning against the majority’s becoming “accomplices” to the Christie budget, senate president Sweeney could only shake his head. “Instead of showing the public that we’re in it together, they’re showing them that they still don’t get it,” he had said of the rally participants. “We’re not accomplices. If anything, we’re trying to fix the state with him.”

And it was true so far as it went. Sweeney had shown leadership on pensions, working with the governor to assure broad Democratic support for reform. This struck some in the state’s labor movement as a special kind of betrayal, since Sweeney was himself head of an ironworkers’ union. But it made sense. Private-sector unions like Sweeney’s depended on economic activity for work, and his members were suffering mightily through the recession, even as public-sector labor was shielded from the worst of it.

Thus did Christie split the Democrats in the state legislature from their traditional labor base, exploiting fissures both between public- and private-sector unions and between the teachers’ unions and the taxpaying public. Having taken their best shot at Chris Christie, the opposition now found themselves chastened, confused, and cannibalized.

The rout was not unnoticed by one anonymous member of the Democratic leadership, who told a reporter from the Newark Star Ledger that “we’re getting murdered. We’re losing the public debate and we know that. He’s beating us and dividing us. He won’t forever. But he sure is now.”

Nor could the Democrats, having lost the public-opinion battle, count on stopping Christie’s budget in the house: New Jersey’s constitution gives an oppositional majority little in the way of procedural tools to block a determined governor’s path. As the only at-large elected official in the state, the governor not only commands the bully pulpit but appoints all the key executives — from attorney general to education commissioner — who might stand in his way. Moreover, his line-item budget veto is both powerful and precise, giving him the ability to strike whole clauses or decrease individual appropriations to the cent. The only thing the governor can’t do is raise spending.

Budget talks between the governor’s office and members of both parties hummed along through the late spring, but they were now on Chris Christie’s terms, and there was no longer any doubt that he would get 99.9 percent of what he wanted.

The Democrats, for their part, found themselves with nothing to do but stall. They’d arranged a series of thematically disjointed budget hearings in which a number of sympathetic interest groups were trotted before committees to recount tales of woe about how the budget would hurt them. But as May gave way to June and the deadline to pass a budget neared, they had yet to offer a real alternative.

“There were divisions everywhere,” says Assemblyman Webber. “Democrats were divided between the senate and the assembly, divisions within the senate and the assembly — some geographic, some having to do with their core constituencies. They couldn’t agree on a message. At the end of the day the only thing they could come to some agreement on is ‘Let’s raise taxes and spend more money.’ And then they fought over who should be the beneficiary of our newfound largesse.”

So long did the Democrats delay that, with barely a week until the vote, senate minority leader Thomas Kean Jr. had to direct the state’s nonpartisan Office of Legislative Services to prepare the Christie budget under Republican sponsorship. In an unprecedented move, the Democrats let it happen.

#page# “I don’t see how that can be interpreted as anything but simply handing away control of the most important bill this legislature passes on annual basis,” Kean says. “I’ve never known it to happen in the history of New Jersey — where the minority party has carried the ball on the budget.”

The majority had agreed to supply the bare minimum votes required to assure passage of the budget, but they were content to let Christie and the Republicans do the heavy lifting.

“De facto, they had abdicated their leadership to the governor in March, when the governor introduced his budget,” says Webber. “But de jure, they abdicated their leadership in June, by letting us go and pass it.”

A political cartoon published by the Star Ledger’s Drew Sheneman on June 8 captured the mood in Trenton at the time. It showed Christie and a generic Democratic leader in opposite corners of a boxing ring, a white towel arcing through the air between them. The caption read: “It’s customary to wait for the fight to begin before you throw in the towel.”

A near-pristine version of Christie’s budget passed at 1:13 a.m. on June 29, less than 24 hours before the constitutional deadline. It followed a long night of debate that was less the Democrats’ Waterloo than their Battle of New Orleans, coming long after the war had ended. Christie signed it twelve hours later in a firehouse in South River, a Central Jersey suburb in heavily Democratic Middlesex County, before a small crowd of boosters. Outside, a scant contingent of protesters waved signs.

But as significant as his early victories have been, Christie must now turn to pushing the structural reforms that will institutionalize his vision of leaner, meaner state government. He knows this second act will be much harder to pull off than his first.

Even as he was fighting the budget battle, the governor was barnstorming the state to talk up perhaps the most significant of these reforms: his “Cap 2.5” initiative, which would constitutionally limit the ability of municipalities to raise property taxes.

The cap is popular among residents, most of whom pay the preponderance of their non-federal tax liability in property taxes. And it has received steadily increasing support from the state’s mayors and other municipal leaders, who rely almost exclusively on property-tax revenue to run their towns. Even Cory Booker — the decidedly liberal, if heterodox, Democratic mayor of Newark, and perhaps the only elected official in the state whose political star burns as bright as Christie’s — has signed on. 

But Christie’s amendment is at the mercy of the Democratic legislature, whose assent is required for a popular referendum on it. The deadline for giving it this year has come and gone, forcing Christie to negotiate on the terms of the Democrats’ proposed alternative: a higher, 2.9 percent cap run through like Swiss cheese with exclusions and opt-outs that would render it all but meaningless. Christie was able to whittle down the exceptions to four and reduce the cap to 2.0 percent — lower even than his proposed 2.5. But it is statutory, not constitutional, and therefore subject to the caprice of Trenton. Christie has vowed not to give up the fight.

Other battles loom wherein the governor’s chances for success are highly uncertain. He has promised yet more pension and compensation reforms, moves that could break his tenuous alliance with the reformist elements in the Democratic party and push his openly hostile relationship with labor beyond Thunderdome.

Then there is Christie’s plan to fundamentally reshape the state’s massive gambling and entertainment interests, effectively ending the increasingly unprofitable horse racing in the Meadowlands, and wresting control of Atlantic City casinos from an overburdened and underequipped municipal government. That move is sure to draw the attention — and the ire — of some of the state’s most, shall we say, persuasive constituencies.

#page#But by far the biggest test of the success of this year’s budget battle will be — next year’s budget battle. The fact is that no matter what happens between now and June of 2011, there will be a tremendous temptation to revert to the status quo ante: Either the state’s economy lingers in the doldrums and Democrats claim redemption for their long-failing policies, or Christie’s program helps spur a recovery for New Jersey taxpayers and Democrats come to voters with the message that fiscal crisis has been averted and New Jersey can get back in the business of big government.

But Christie insiders are convinced that the bar has been reset, and that they can fight next year’s budget wars on their terms.

“They say there is another $10 billion gap for next year,” says one top Christie insider of the 2012 budget.

That’s based on the assumption that you take your hands off the wheel, and you go back. You don’t do any reforms, and you therefore put back all of the money that was pulled this year.

  

No.

   The whole point of resetting the base is that as the economy starts to recover and we start to see some growth, then there is not an automatic conclusion that this program that was cut becomes restored. Then it becomes a serious discussion about what priorities of the state, what taxes should be cut.

The administration is confident they have the best man to shape that discussion, and the ubiquity in the right-of-center blogosphere of YouTube videos showing Christie speaking eloquently, and extemporaneously, about his vision suggests they have it right.

“I don’t think you can underestimate the political capital the governor has accumulated in his first six months in office,” says Webber.

“The first six months were crucial for him to establish himself as somebody who’s willing to use the veto pen, someone who has a unified party behind him, someone who can rally the public to his point of view. And he’s shown all that. Now when the big fights come, he starts from a stronger position than he started from in February or March.”

Not even those closest to Christie know whether he plans to run for a second term, but one of his great strengths is that he governs as if he won’t. He has claimed, with the ring of truth, that he pays no attention to his roller-coaster public approval ratings — that to him, the only poll that mattered was the one that installed him as Jon Corzine’s successor in November of 2009. This philosophy is not Republican, but republican: He sees himself as a representative of the people who nevertheless refuses to pander to them, to recalibrate his stances at their every perturbation.

Senator Kean, who hopes to move from minority to majority leader in the senate, has confidence that Christie will continue to stick to his guns.

“The governor has an internally strong constitution — that’s who Chris is — and he has an externally strong constitution in the constitution of the State of New Jersey,” Kean says.

“I think he is absolutely the genuine article. That’s why we won’t ever go back to the status quo, at least not under Chris Christie’s governorship.”

It is said that on a long enough timeline the impossible becomes the inevitable. After decades of unchecked bloat in Trenton, a drastic scaling back of the excesses — and the ambitions — of big government seems, each day, less an impossibility and more an inevitability.

Chris Christie has made it so.

Daniel Foster — Daniel Foster is a former news editor of National Review Online.

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