NJ gov seeks to slash spending, amend constitution

By Jon Hurdle

TRENTON, New Jersey (Reuters) - New Jersey Governor Chris Christie on Tuesday outlined plans to close a budget gap that he described as a "grand canyon" by slashing spending on pensions, schools and cities, while amending the constitution to cap future increases.

The $10.7 billion budget gap for the 2011 fiscal year starting on July 1 ranks as the largest per taxpayer of any state and is equal to more than one-third of New Jersey's budget, Rich Bagger, Christie's chief of staff, told a press briefing.

In his first full-year budget address since taking office in January, the Republican governor proposed closing the projected deficit by deferring $3 billion worth of public pension payments, limiting increases in school aid by $1.7 billion, and cutting public transit subsidies by $272 million.

"Today, we are fulfilling the promise of a smaller government that lives within its means," Christie said in prepared remarks.

Christie also proposed amendments to the state constitution that would prevent New Jersey from increasing spending on direct government services by more than 2.5 percent a year and would impose the same limit on local government property tax levies.

The plan to limit increases in local levies is aimed at controlling property taxes that are the highest in the nation, which successive administrations have failed to overhaul.

"My budget proposes that we reform the way New Jersey government operates; and that we demand reform from the local governments we fund as well," Christie said.

Lawmakers will be asked to place the proposed constitutional amendments on the November state-wide ballot.

Democratic lawmakers, who control the state legislature, said Christie's proposed state spending cuts would result in a rise in local taxes, which would mostly hit middle- and lower-income taxpayers.

"I'm worried that this is a Ronald Reagan trickle-down agenda, and things never trickle down," said Senate President Stephen Sweeney, a Democrat.

"The middle class and poor are going to get a tax increase. It's that simple," he said.

The New Jersey League of Municipalities said the 2.5 percent cap is "unworkable," unless municipalities are given other tools to compensate for the loss of revenue.

"The state is, once again, balancing its budget with municipal revenues," it said in a statement.

State revenues are seen falling by 8.7 percent in fiscal 2011 from the current year, to $29.8 billion, according to budget documents. Appropriations will drop 8.9 percent to $29.3 billion, leaving a targeted fund balance of $501 million.

Christie, who campaigned on lower taxes and smaller government, has warned for months that he would make deep and painful cuts in state spending in an effort to revive the finances of a state with about $34 billion in debt.

In February, he announced plans to rebalance the fiscal 2010 budget with $2.2 billion in spending cuts and revenue measures.

Following months of below-projection tax receipts, income tax revenue is forecast to drop 4.3 percent from the current budget, and corporate and sales taxes are seen down 3.6 percent and 1.4 percent, respectively.

(Editing by Leslie Adler)