Hard budget decisions await N.J.'s Whitman CAMPAIGN 1994

THE BALTIMORE SUN

TRENTON, N.J. -- Do more with less. Shrink government. Cut taxes. It is the new gospel of State House politics, for which New Jersey Gov. Christine Todd Whitman has become the high priestess.

A decided underdog against incumbent Democrat James J. Florio a year ago, Mrs. Whitman promised to slash income taxes by 30 percent in three years. She won. Now, upset-minded Republican candidates throughout the Northeast -- including Maryland's Ellen R. Sauerbrey -- are modeling themselves after her, hoping to strike the same chord among tax-weary voters.

In New Jersey, Mrs. Whitman has already delivered on half her promise, cutting taxes 5 percent this year and 10 percent more beginning Jan. 1. But Marylanders looking for a glimpse of the impact of such cuts on government services will have to wait.

That is because Mrs. Whitman's success to date was largely engineered through budget maneuvers that allowed her to dramatically reduce taxes without a comparable reduction in spending. Political gain with little pain.

One of her biggest budget "cuts" came from reducing the state's contribution to its employee pension program -- a move that merely shoved the liability off to future generations. It was a big-dollar trick that cannot be replicated in Maryland, where state officials took essentially the same step a decade ago.

Mrs. Whitman's really hard budget decisions -- the kinds Mrs. Sauerbrey would be forced to make here -- are still ahead of her.

And neither woman is telling taxpayers yet what she intends to do.

Mrs. Sauerbrey, surprise winner in last month's GOP primary for governor, has pledged to cut Maryland income taxes 24 percent over four years, even while giving state workers a 3 percent raise next year.

She says she can do all that without big layoffs or damaging cuts in state services.

Moreover, Mrs. Sauerbrey says she will not even have to cut into previously scheduled increases in state aid for schools and other local programs -- a huge budgetary target that Mrs. Whitman is already aiming at in New Jersey.

"It is my intention, over the four years, not to take state budget decisions out on local governments," Mrs. Sauerbrey said. "I know I can do it."

In New Jersey, Mrs. Whitman has found the challenge of delivering on her own tax-cut promise so daunting that she now talks of a one-year delay in what had been a firmly promised three-year plan.

"Oh, we're going to do it," she says with confidence. "It may be four years, rather than three, but we'll get it done."

Critics see the slippage as proof her plan is unraveling. Her politics, they chortle, have suddenly come face-to-face with budget realities.

Mrs. Whitman's biggest problem is that New Jersey, like Maryland, faces an inherent budget imbalance: Because of programs mandated by various state laws, it is scheduled to spend more money next year than it is likely to take in.

If nothing were touched, spending in New Jersey would go up by about $1.1 billion, while revenues are expected to rise by only $600 million.

Something must be touched, however, since the state's constitution -- like Maryland's -- requires a balanced budget. So Mrs. Whitman must close that gap even before she attempts to provide more tax relief.

In part, she and her aides say they intend to deal with her budgetary problems by doing old tasks in new ways, perhaps with new technology, and by being more efficient.

Mrs. Whitman also says she is certain her tax cuts will ignite New Jersey's economy, ultimately increasing revenue for the state.

But she acknowledges that some permanent cuts in state spending also will be necessary.

Critics predict failure

Skeptics -- Mrs. Whitman's in New Jersey, Mrs. Sauerbrey's in Maryland, and Democrats in New York, where a tax-cutting state senator is running neck-and-neck with three-term Gov. Mario M. Cuomo -- say states cannot sustain the loss of so much revenue without doing irreparable harm to government services, school systems and the overall quality of life.

They complain that buzzword solutions -- such as "privatizing" -- services or "reinventing government" -- are unlikely to produce the big-dollar savings needed.

And they predict these grand tax-cutting plans inevitably will become a shell game in which the burden is merely shifted from state to local governments, just as Ronald Reagan's tax-cut policies shifted federal responsibilities to the states.

Claire Cohen, a specialist in state credit ratings for Fitch Investor's Service in New York, has been watching the tax-cut fad spread from one state to another.

"It doesn't seem to me in any of these [states] that we've seen any realistic detail of how you would balance revenue loss of that magnitude," she said.

"You hear, 'We would tighten the belt of state government,' but ** everyone that was affected by the recession has already done a lot of belt tightening. . . .

"The ultimate effect has to be on the local units of government."

Budget preparations

As Mrs. Whitman looks to her next budget, her chief budget adviser, Treasurer Brian Clymer, says "everything is on the table." Cabinet secretaries, he said, have been ordered to come in with flat or reduced budgets.

He said the state would go after the big "cost-drivers," such as municipal and school aid that make up a third of New Jersey's $15 billion budget. Local budgets, he said, are rising faster than the cost of living, and Mrs. Whitman has dispatched audit teams to find out why.

State aid to local governments and school boards in New Jersey has already been frozen for two or three years. As a result, local property taxes have been sharply on the rise, even before Mrs. Whitman's policies have had a chance to trickle down.

Town and school officials say that if state aid remains frozen or -- worse -- is cut, they will have no choice but to boost property

taxes even more, cut services, or both.

Some Jersey school districts are eliminating art and music positions, reducing athletic programs and cutting custodial jobs. Many are having trouble meeting the increasing cost of special education students.

In the competition for the ever dwindling state dollar, some say a sort of class warfare is breaking out. They suspect what one public employee union official in New Jersey called "an unspoken racism" in which troubled urban centers are pitted against the wealthier, politically powerful suburbs.

"We're worried," said Lawrence S. Feinsod, school superintendent in Madison, N.J., a wealthy suburb between Morristown and Newark. Suburban schools, he said, lost money under Governor Florio. "And we are fearful we are going to be 'leveled down' in a way that New Jersey will end up having an entire system of mediocre school districts."

The Whitman administration, however, complains that New Jersey's school system already spends more per pupil, $10,900, than any other state, in part because of duplicative layers of bureaucracy from 611 separate school districts. (In Maryland's 24 school districts, the average per pupil expense is $5,978.)

"Part of the state's responsibility is to force a little belt-tightening," said Mr. Clymer in an often-repeated phrase that local officials are beginning to find irritating.

Jack K. Rafferty, mayor for 19 years of Hamilton Township, a community that abuts Trenton, said even the best-run municipalities will not be able to make ends meet if the state continues to freeze local aid.

Local tax sources

Mayor Rafferty says his biggest fear is that Mrs. Whitman, in a desperate search for money, will rob municipalities of a tax on utilities that has been a traditional source of local revenue.

Montgomery County officials in Maryland have expressed similar worries that Mrs. Sauerbrey would go after their local sources of taxation to pay for state tax cuts.

In both states, local officials seem to agree that the pressure is likely to be shifted to property taxpayers.

Carl R. Golden, Mrs. Whitman's press secretary, disputed that notion, saying that in New Jersey the reverse is occurring. Newly released figures, he said, show the rate of property tax increases is slowing, precisely because local governments know they, too, must begin to do more with less.

Mrs. Whitman's critics, he said, "really are desperately trying for a way to cast some doubt on what she is doing because they recognize clearly the tremendous positive public response to her administration at this point."

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