TRENTON, Feb. 21 — Less than a year after he shut down state government to balance the budget with a sales-tax increase, Gov. Jon S. Corzine plans to propose a budget on Thursday that would avoid raising taxes and increase local school aid for the first time in at least five years.

Mr. Corzine’s budget would offer $1.2 billion in direct payments to residents as relief for their property tax rates, a byproduct of a marathon-like process that has consumed the capital for the last six months. The governor’s spending plan is expected to total $33.3 billion, an increase of 7 percent over last year.

The budget would also expand the earned income tax credit for poor residents, at a cost of $64 million, and offer businesses tax breaks totaling $275 million.

“Everyone is going to feel” the benefit of the tax cuts, promised Bradley I. Abelow, the state treasurer, at a briefing with reporters late Wednesday afternoon.

New Jersey law requires the state budget to be balanced. So to pay for the tax cuts and increased school aid, Mr. Corzine plans to tap $1.3 billion in reserve funds, spending cuts totaling $300 million and “very strong revenue growth” of $200 million, chiefly from business taxes, Mr. Abelow said.

The budget would also freeze the level of hospital aid that is used to cover people without health insurance, and calls for only a nominal increase in the state’s contribution to employee pension plans. State fiscal analysts say that increase is barely half what is required to keep pace with future costs.

Under a tentative contract agreement reached on Wednesday with a union of state employees, the state would also save hundreds of millions on health care and pensions. The two largest locals in the union, the Communications Workers of America, are opposed to the contract, though, and their opposition raises questions about whether it will be ratified.

Also notable is what is missing from the budget, according to legislators who attended a series of briefings on Wednesday at Drumthwacket, the governor’s mansion in Princeton. There is no mention of leasing or selling state assets including highways and the lottery, which had been widely discussed as a way to help lower the state’s growing debt. Nor is there anything about putting video lottery terminals at horse racing tracks, they said.

Mr. Corzine, a Democrat who is a former co-chairman of Goldman Sachs, the investment bank, is scheduled to outline his proposals in an address to both legislative chambers on Thursday morning. Full details of the budget, however, will not be provided until next week.

Governor Corzine is likely to get a better reception than he did last year, when he vowed in a grave inaugural budget speech to raise the sales tax to 7 percent from 6 percent while cutting $2 billion in spending to bridge a $4 billion deficit. That led to a stalemate with the Democratic-controlled Legislature, and Mr. Corzine’s gambit of shutting state government — and Atlantic City’s casinos — for eight days in July, until lawmakers agreed to the tax increase.

This year all 120 legislators face re-election. Many are feeling a bit skittish in the face of subpoenas filed last week by federal prosecutors investigating how they have doled out grants in the budget process since the Democrats took control of the State House in 2004.

Senate President Richard J. Codey, who was briefed by Mr. Corzine at 7:30 a.m. Wednesday, said: “He said to me, ‘Dick, it’s a boring budget,’ and I told him, ‘That’s great news.’ ”

Republicans, meanwhile, offered mixed opinions of the budget.

“It’s going to be pretty much a stay-the-course kind of budget,” Assemblyman Joseph R. Malone III, a Republican from Burlington County, said after the governor’s briefing. “But what we really impressed upon the governor is that this budget process be as absolutely open as possible, and I think the governor understands that his credibility — and the credibility of the rest of us — is on the line.”

Leonard Lance, the Republican leader of the Senate, said that while he was pleased that there were no tax increases in the budget, he was troubled by the property tax proposals and the use of the reserve funds. He also expressed disappointment over the lack of additional money for higher education, school construction projects or open space.

“I am greatly suspicious that the property tax credit program is of one-year duration only, and lo and behold this is an election year,” Mr. Lance said.

It is hardly a secret that New Jersey, addled by a combination of tax cuts and relentless borrowing over the last decade, has been wallowing in fiscal difficulties in recent years, even as most other states — like New York — have had surpluses.

Hence Mr. Corzine’s determination last year to raise the sales tax to help close a deficit of $4 billion. Administration officials estimate this year’s deficit at $2 billion, and next year’s at $2.5 billion.

But Mr. Abelow said the state could close this year’s gap and provide $580 million in new school aid for all districts. That figure, about 3 percent of last year’s state aid for education, would represent the first major increase for districts other than the poorest ones in three years, and the largest percentage increase since 2001.

Corzine budget: Aid up, not taxes
The plan, to be introduced today, has more for towns and schools and offers homeowners some relief.
By Elisa Ung and Jennifer Moroz
Inquirer Trenton Bureau

TRENTON - No tax hikes or new taxes. Increased aid to public school districts. And money for property-tax relief for most households.

Gov. Corzine today will propose a legislative-election-year budget that his administration says is full of good news, a spending plan "not designed to please any constituency... other than the taxpayers of the state," state Treasurer Bradley Abelow said at a news conference yesterday.

All school districts - poor and wealthy - would get at least 3 percent more in aid; for most, the increase would be the first in three years. Municipalities would receive a 2 percent aid boost - also their first in several years.

The budget also includes the property-tax credit program, approved by the Legislature, that gives most households a 20 percent credit or rebate.

It also would expand a tax break to 200,000 low-income working families. And it includes $50 million more for higher education.

While some Republicans and school advocates complained that it would not boost aid to suburban districts enough, the budget was largely praised by Corzine's fellow Democrats, who control the Legislature.

Revenue growth and spending restraint helped allow the breaks, Abelow said. Corzine's proposal also includes no funding for capital improvements for higher education, open space or state buildings.

The fiscal 2008 budget would contribute only half the recommended amount to the state's pension system, and it would set New Jersey up for a $2.5 billion budget shortfall next year, Abelow said.

Last year, Corzine proposed a budget that hiked the sales tax, cut higher education funding, and resulted in a stalemate with legislators that forced a weeklong government shutdown.

This year, Senate President Richard J. Codey (D., Essex) said Corzine had told him that his budget was "pretty boring."

"I said, 'That's good, Jon. When it comes to a budget, boring is good. It means we're not storming the Bastille,' " Codey said.

The $33.29 billion budget is about 7 percent bigger than last year's, but Codey said critics should note that most of the extra money would not go to operate the state.

"Almost all of it," he said, "is going back [to taxpayers] in the form of property-tax relief."

Assembly Speaker Joseph Roberts (D., Camden) was also enthusiastic: "In these tough fiscal times, to have a budget with no new taxes and no new fees is an extraordinary achievement." He said his major area of concern was that charity care - state aid to hospitals to care for the uninsured - was kept flat.

He did praise the increase in school aid. Suburban districts, he said, "have been strangling, and this is a lifeline for them."

Total school aid would increase $580 million under Corzine's plan. Of that, $270 million would be indirect relief for items such as debt service and retiree benefits.

The remaining $310 million in additional funding would go toward direct aid. About a third would go to the so-called Abbotts - 31 needy, mostly urban districts. Another third would go to all other schools. And the last third would be additional aid for low-income or high-needs children in non-Abbott districts.

Lynne Strickland, an advocate for middle-class districts, said the increase was "a step in the right direction" but not quite enough.

"We're still feeling like we're still taking a big part of the brunt of the budget deficit," said Strickland, head of the Garden State Coalition of Schools.

Corzine and lawmakers had pledged the boost in school aid because they were unable to work out a new formula for distributing aid to schools during their property-tax overhaul, which Strickland said was still desperately needed.

Assemblyman Joseph Malone (R., Burlington), who sits on the Budget Committee, said the increased aid to suburban middle-class districts was not enough, especially for those whose enrollment has surged.

"In some regards, I respect the governor for what he's trying to do, but I don't think it goes far enough to relieve the inequities," Malone said.

William Dressel, director of the New Jersey State League of Municipalities, said he was pleasantly surprised by the small boost Corzine wanted to give towns. "I'd like to have more, but given the fiscal realities of the state, I can handle that," he said.

The plan includes $40 million in savings from the state labor agreement announced yesterday, Abelow said. But the state would increase spending on retiree benefits, debt service, and contractual salary and benefits increases for state workers.

In his speech to the Legislature this morning, Corzine is expected to address late-night, last-minute legislative additions to the budget, also known as "pork" or "Christmas tree grants." The U.S. Attorney's Office last week issued a flurry of subpoenas targeting such spending, and lawmakers are pushing ways to make that process more transparent.

Though Abelow praised the budget as fair and frugal, he also said it was "starving" government by not improving the state's outdated technology and infrastructure.

"That's what's really hidden in this - how much we're not able to do," he said.

Budget Proposal Highlights

The plan

The $33.29 billion total is about a 7 percent increase from last year's budget.

It includes the first sizable school and municipal aid increases in years.

Nearly half the budget - $16.6 billion - is some form of property-tax relief.

Taxes

The budget proposal is the first since 2001 with no tax increases.

Included is $2.3 billion for a plan to cut property taxes by 20 percent for most homeowners.

School aid would rise 3 percent and municipal aid 2 percent. Those increases, too, are intended to control property taxes.

Two business taxes, including a tax on a type of corporation often used by small businesses, would be eliminated.

Education and families

Aid to higher education would rise $50 million; it was cut by about $170 million last year.

A tax credit for working families who earn less than $20,000 a year would be expanded to those earning up to $38,000 a year.

Other spending and savings

The budget relies on savings from a new state-worker contract that would raise salaries for next four years but force employees to contribute to their health care for the first time and contribute more toward their pensions.

It includes $9 million for a new state comptroller's office to oversee government spending.

No extra money is included for open-space preservation or construction for state colleges and public schools.

The governor wants three days to review the final budget and identify who requested specific changes.

SOURCE: Associated Press

Contact staff writer Elisa Ung at 609-989-9016 or eung@phillynews.com