NY Times - February 22, 2009

Federal Stimulus Money Still Leaves State in Need

By DUNSTAN McNICHOL

TRENTON

EVEN though more than $6 billion is expected to come to New Jersey under the federal stimulus plan — a sum equivalent to about 10 percent of projected state spending over the two years of the program — analysts say that it may not be enough to head off the fiscal pain that Gov. Jon S. Corzine has been warning about for the past two months.“I wouldn’t pop the Champagne corks yet,” said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. “It may ease the slide somewhat, but it remains to be seen whether it will turn things around.”

Based on an analysis prepared for state lawmakers, the federal stimulus plan includes just over $1.4 billion to supplement school aid. Medicaid payments are scheduled to rise by $2.2 billion. Highway projects like the new Route 52 Causeway to Somers Point are in line to get $650 million, and rail and bus initiatives will be awarded $520 million.

Throw in hundreds of millions more for public housing, home weatherization and clean water projects, and New Jersey is in line to collect a total of $6.2 billion in special federal aid before the stimulus program runs its course in 2011, the analysis showed.

Yet it is unlikely that the money will be enough to prevent deep cuts in state services or generate enough jobs in the private sector over the long term.

Robert A. Briant Jr., chief executive of the Utility and Transportation Contractors Association, whose members stand to benefit directly from the billions of dollars in new federal spending, said he feared the infusion would offer only short-term relief for the construction industry.

“We have some hope for the next two years, two and a half years,” Mr. Briant said. “We just don’t know where it’s going after that.”

The stimulus program arrives at the same time New Jersey is confronting a collapse of historic proportions in state revenue.

The state sales tax, counted on to generate $8.6 billion in the budget year that will end June 30, suffered the worst quarter in its 45-year history during the holiday shopping season last year, and is on track to fall $653 million short of projections.

The state income tax, New Jersey’s largest revenue source, is on pace to fall $1.45 billion short of projections this year, while a surge in corporate demands for cash refunds — to $187 million last month from $62 million in January 2008 — has slowed income from the state’s corporate business tax to a trickle.

In all, the state is facing a $2.8 billion drop in budget revenue, a projected gap that dwarfs the $850 million in stimulus money New Jersey expects to be able to spend during the current budget year.

“Clearly it helps,” said Richard J. Codey, the State Senate president and an Essex County Democrat, referring to the federal aid. “But it’s not the be-all and end-all.”

Mr. Corzine demonstrated that on Tuesday when he proposed almost $500 million in new budget cuts in Trenton the same day that Mr. Obama signed the stimulus package.

Those cuts would have been even steeper, Mr. Corzine said, but for the federal aid.

But with the new cuts hitting state employee salaries, hospitals and support for developmentally disabled residents and limiting payments into the underfunded state pension system, Mr. Corzine has already generated bitter opposition from unions and other advocates.

On Monday, his showdown with state workers’ unions faces a key milestone as the State Senate considers, for the second time, a measure that would let towns and school boards defer $584 million in payments into the state pension systems. Unless that maneuver is approved, Mr. Corzine cannot proceed with plans to cut school aid by $75 million to balance the current state budget.

The pension funds started last year short by $28 billion, and lost another $17 billion in soured investments during 2008. Mr. Corzine already has announced plans to put $1.2 billion less into the funds this year than the $2.2 billion the actuaries say is needed to ensure that the fund will be able to support promised benefit payments. Public employee unions fear that the local government deferral will jeopardize their members’ ability to collect benefits that they have already earned.

In all, the state’s seven retirement systems provide benefits for about 700,000 working and retired government employees and teachers.

Unions were further incensed on Tuesday when Mr. Corzine proposed a mandatory two-day furlough of state workers to save $35 million.

“It really feels like it’s a public feel-good move,” said Hetty Rosenstein, New Jersey area director of the Communications Workers of America, the largest public employees’ union.

Ms. Rosenstein said the furlough would work counter to the federal stimulus, in that it would keep money out of the hands of middle-income state workers who generally spend their paychecks rapidly.

Collapsing local revenues are not the only force undermining the impact of the stimulus program.

Many of the federally funded programs were already oversubscribed before Mr. Obama signed them into law.

For instance, state highway officials identified 65 projects worth a total of almost $1.3 billion for financing with the stimulus funds. But the package as approved includes only $500 million for state highway work.

Similarly, while state officials have earmarked $150 million for local highway projects, local officials have presented almost $350 million in work for funding.

That has already touched off jockeying among various constituencies.

William G. Dressel Jr., executive director of the New Jersey State League of Municipalities, said, “What we have impressed upon D.O.T. and the other state agencies who will be responsible for allocating dollars to fund the stimulus program is that a major purpose of the stimulus program is to direct dollars to Main Street, not necessarily State Street.”