December 23, 2009

School districts with large surpluses face state aid cuts

By MICHAEL SYMONS
GANNETT STATE BUREAU

State officials plan to rebalance the state budget in part by cutting state aid to schools by $260 million, instead requiring districts with surpluses exceeding 2 percent of spending to tap their rainy-day funds.

Gov. Jon S. Corzine's administration also said Tuesday that it anticipates an additional $135 million in revenue not counted on when the state budget was struck six months ago, including funds from adding the multistate Powerball lottery early and back taxes being paid by previously undisclosed accounts in a Swiss bank.

In all, the administration announced $633.5 million in budget reductions Tuesday, which combined with $206 million revealed in October and the revenue-raisers address a midyear budget deficit Corzine estimated at $924 million, plus add $50 million to the surplus.

Administration officials said school programs, operations and local property taxes shouldn't be affected by the aid-for-surplus swap, but Assemblyman Joseph Malone III, R-Burlington, said the move is "tantamount to punishing those who have planned and budgeted efficiently."

New Jersey School Boards Association spokesman Frank Belluscio said low surpluses leave districts vulnerable in cases of emergencies but said he doesn't know the plan's details. "On paper it sounds like a dollar for dollar trade-off. In practice, it might not be that way," he said.

Treasury Department spokesman Tom Vincz said the school aid proposal, which will require legislative approval and would take effect in February, affects districts with surpluses that exceed 2 percent. The state enacted a law in 2007 capping surpluses, but the majority of districts exceed that, Vincz said.

"It would direct that school districts use 75 percent of the amount they have over and above the 2 percent in lieu of formula aid payments," said Vincz, who acknowledged the $260 million in savings to the state is at this point an estimate.

Tuesday's moves include eliminating the planned $100 million contribution into the state's defined-benefit pension system and $273 million in other maneuvers, such as $24 million cut from business grants, $5 million from cancer prevention and treatment and $377,000 from a scholarship program for people who lost parents in the 9/11 attacks.

"Like nearly every state in the country, New Jersey's budget faces dual pressures from the severe national economic crisis — a fall-off in revenue and greater demand for safety net services and related needs such as Medicaid, the state food purchasing program, and the senior property tax freeze," Corzine said.

Budget cuts and balance lapses have amounted to $839 million over the last three months, but that is being offset by $350 million in additional spending Corzine is seeking.

"It is belated but good news that the Corzine administration has come forward with spending cuts that Gov.-elect (Chris) Christie and others have called for," said Rich Bagger, co-chairman of Christie's budget task force and the incoming chief of staff. "However, there continues to be real risk of a further revenue shortfall in this year's budget. The fact that the Corzine Administration plans to push through last minute discretionary spending is cause for significant concern."

The administration says the spending includes $260 million for "safety net programs" such as Medicaid, property tax relief for senior citizens and tuition aid grants, plus $90 million for other programs. Some Republican lawmakers were critical.

"I am dismayed the administration chose to dole out more than $350 million in additional spending for a favored few while cutting school aid across the state," Senate Majority Leader Thomas Kean Jr., R-Union, said.

The Corzine administration Tuesday awarded $40 million in grants to nine financially distressed hospitals and $13.8 million in extraordinary aid grants to 16 municipalities with fiscal difficulties.

The Corzine administration also unfroze $20.6 million in aid payments to municipalities and more than $12 million for arts grants, money that had been held in reserve since early December while it figured out its budget-balancing proposal.

Piscataway Mayor Brian Wahler, who is president of the New Jersey Conference of Mayors, said the development is good news for municipalities with budgets in place that rely on that aid — some of them in budget cycles that end in 10 days.

"We recognize this was not an easy decision based on the condition of the state and with current budget concerns," Wahler said. "However we appreciate the release of these funds that ease the tax burden on our residents across the state."

The revised state budget for fiscal 2010 is now projected at $28.56 billion.

The $924 million budget gap Corzine cited Tuesday reflects an opening surplus that was $162 million less than expected, a revenue shortfall in the fiscal year's first five months of $412 million and the $350 million in additional spending.

It doesn't account for any shortfalls in revenues that may occur over the fiscal year's final seven months, when 65 percent of the year's tax collections are due. Revenues are 4.1 percent short of expectations so far, with income taxes close to projections but both sales and corporate taxes posting more persistent declines.

In August, the Swiss bank UBS agreed to provide the Internal Revenue Service information about approximately 4,450 American clients suspected of setting up accounts there to evade taxes in this country. It isn't yet clear how many of those accounts will owe taxes in New Jersey, but the state projects $35 million in revenue.

Corzine had originally forecast $40 million in Powerball revenue to the state, presuming the state would be joining the game by Oct. 1. The game is now projected to begin early next year, and the state projects $20 million in revenue.

The state also anticipates an extra $80 million in federal stimulus aid to offset costs from the Earned Income Tax Credit program, which benefits low-wage workers and has been expanded twice under Corzine's administration.