Good morning. Madam Chair and Members of the Senate Budget and Appropriations

Committee.

It is a pleasure to be here for my fourth and last scheduled appearance before this

committee and seventh appearance since the budget was first introduced.

As we close the hearing process, I would first like to take the opportunity to thank the

committee for the courtesy you have given me during my previous appearances and the

courtesy given to the other members of the Governor’s cabinet. Sitting front and center

rather than behind the curtain has been an interesting experience this year for me.

At this time I would like to update the committee and the public on the revenues that will

be used to support the Governor’s proposed FY 2009 budget.

With receipts from the April collections now taken into account, we have before us a

revenue picture that is mixed and reflective of an economy in flux.

The good news is that calendar year 2007 was a pretty good year. New Jersey clearly

experienced the echo from that year through stronger than expected spring collections in

a couple of the key taxes. The bad news is that it IS just an echo, and we cannot – and

will not – forecast that the good times will continue to roll in the midst of today’s

recessionary economy.

This year’s revenues reflect increased receipts from our income and corporate taxes on

earnings for the calendar year ended December 31, 2007. Unfortunately, sales tax

revenues, based on current economic activity are falling.

Taken together, with the objective performance of the national economy, we are forced to

revise slightly downward our revenue estimates for next year.

Make no mistake, however; the numbers reconfirm what the Governor said in February,

which is that we cannot afford to spend more than the roughly $32.8 billion in revenues

available for the next fiscal year. This amount represents the projected $32.3 billion in

anticipated revenue for FY 2009, plus the use of $500 million in excess surplus.

The use of only $500 million of the expected nearly $1.2 billion in excess surplus is

necessary as we must wean ourselves off of the tricks and gimmicks of the past and the

repeated reliance on one-time revenues to pay for our current and recurring spending.

The practices of the past have led our great state to the brink of financial disaster. We

have placed our children’s future at risk by borrowing in order to pay for current

spending.

2

The agonizing choices we face today about how much to cut state aid to hospitals,

municipalities or higher education are a direct consequence of the mistaken choices made

in the past.

Instead of funding scholarships for higher education, we are appropriating State monies

to the Unemployment Insurance Fund to make up for years of raids and diversions.

Rather than expanding health care coverage for New Jerseyans, we are cutting aid to

hospitals in part because we now must pay more than $2.8 billion in debt service to cover

the cost of our past borrowings.

Borrowings were all too often used to pay for current expenses when Governors and

legislatures weren’t willing to live within their means and only spend what was coming

in.

As the Governor has said since February, we are at a turning point. The time has come

for us, together, to say: " no more".

As you conclude your deliberations I would like to reiterate what the Governor stated in

his remarks before the Conference of Mayors last month that the budget you adopt meets

the following objectives:

No spending greater than $32.8 billion in available resources…

No new taxes …

No additional reliance on one-time funds or surplus to support current year spending.

In that regard, we are reaffirming the commitment that every dollar of unexpected surplus

built up this year be used to pay down the state’s debt. As you have heard the Governor

say repeatedly, debt service is crowding out New Jersey’s ability to fund critical priorities

in the budget. This use of surplus revenues is critically important to relieve the onerous

conditions that prevent the Governor and the Legislature from funding vital programs and

services.

This use of surplus will result in a reduction of $130 million in debt service for FY 2009

that will offset a significant portion of the reduction in revenue we are now projecting.

Absent this debt service savings, additional reductions would have to be made.

Our budget relies on $500 million in surplus being carried over from this year to support

FY 09 spending. It is important for us to recognize that this action has a ripple effect for

FY 2010. In short, this means that we have built into the 2010 budget a requirement to

identify $500 million from either spending cuts or revenues to replace this year’s $500

million in one-time revenue.

3

Using more one-time revenue to support the FY 2009 budget would create a larger

impact on the FY 2010 budget. More notably, it would constitute a relapse to

irresponsible, deficit budgeting.

With this in mind, we ask that every resolution considered by this committee be subject

to this same test.

Since every additional dollar of non-recurring actions that is used to support FY 2009

spending adds to a FY 10 shortfall now sized at roughly $2 billion, we ask the Legislature

to recognize the amber light and proceed with due caution.

Cost cutting must start with state government itself and for that reason I ask that you

support our initiative to reduce the state workforce by an additional 3,000 positions. We

believe the most effective and efficient way to shrink government is through an early

retirement program.

For that program to work we must ensure it is accompanied by a statutory limitation on

the size of the state’s workforce – we must cap the ability to rehire.

Over time we need to have a government that is increasingly efficient and able to achieve

more without costing more. However, there are limits.

It is only reasonable to believe that a government that is smaller and cheaper is also a

government that does less. It is inevitable that by taking the dramatic step of reducing the

size of government, we will accelerate both of those processes.

If we choose not to implement an ERI, we would be required to make up the savings by

identifying other program cuts.

In addition to the reduction in revenue for FY 2009 there are also a limited number of

areas where we need to add items to the budget that we proposed in February. In each

instance, we are identifying a funding source for restoration. By and large, these minor

adjustments reflect updated projections.

However in three instances, the restorations are in direct response to the open dialogue

this administration has had with stakeholders since the budget was introduced in

February.

First, while we are gratified that our proposed restructuring of aid to towns has already

resulted in an upsurge of local initiatives to consolidate services, we also recognize that

asking our smallest communities to accept an immediate cessation in state aid is not

practical. As a result, our revisions to the budget will ensure that no community faces an

increase in the average residential property tax bill of more than $100 as a result of the

CMPTR reduction that was proposed for small communities.

4

Second, we are committed to a revised DEP’s Parks restructuring plan in an effort to

maintain services in New Jersey’s State Parks. This revised plan will be a combination of

service curtailments at some parks and the redeployment of other resources within DEP.

Third, we will accept that the Department of Agriculture should remain as a state agency

and have directed the Secretary to identify savings from operations, exclusive of food and

nutrition programs, that replace the savings that would have come from consolidating its

functions into other agencies.

Finally, the work of this legislature will not be done until we enact a proposed

constitutional amendment requiring voter approval of future debt issuance and statutory

change forbidding future use of non-recurring revenue to support ongoing operations.

I would now like to go into more detail on some of the specific changes we are making to

the revenue and spending that was proposed in February.

Senate Budget

and

Appropriations Committee

FY 2009 Budget Update

State Treasurer R. David Rousseau

May 13, 2008

2

(In Millions)

Income 11,727 $ 12,379 $ 12,172 $ 12,600 $ 428 $ 7.4

Sales 8,181 8,480 8,490 8,390 (100) 2.6

Corporate 2,997 2,520 2,675 2,950 275 (1.6)

Other* 8,304 8,497 8,635 8,565 (70) 3.1

* All Sales Tax and Corporation Business Taxes on Energy are included in Other.

3

(In Millions)

Revenues

Income 12,212 12,640 428

EITC Expansion (40) (40) -

Sales 8,490 8,390 (100)

Corporate 2,675 2,950 275

Other 8,635 8,565 (70)

Total Revenues 31,972 $ 32,505 $ 533

Lapses 493 575 82

Appropriations

Original 33,471 $ 33,471 $ -

Supplemental 148 413 265

4

(In Millions)

Changes

SACWIS and Title IV-E 19.000

DCF Underspending 12.950

School Aid 14.370

Teachers Pensions / FICA 16.065

Health - PAAD and Nursing Homes 12.000

Human Services Grants (20.000)

State Comptroller Delayed Startup 3.053

Senior/Disab/Vets Deduction & Sr Freeze (3.077)

Higher Education Debt Service 21.139 *

OIT 1.665

State Employee / College / Muni Fringe (4.558)

Prior Year and Other 9.726

Subtotal, Changes 82.333

* Offset by revenue

5

(In Millions)

Changes

Nonpublic Schools 6.153 *

Preschool Expansion Aid (0.617)

Excess Receipts - DEP 1.750 *

Unemployment Compensation Fund 260.000

Presidential Primary 2.500

Employee Benefits (3.275)

Unused Sick Leave (2.300)

Subtotal, Changes 264.211

* Offset by revenue

6

(In Millions)

Debt Reduction 650 $

Capital 34

7

(In Millions)

Income 12,600 $ 12,866 $ 12,700 $ (166) $ 100 $ 0.8

Sales 8,390 8,710 8,556 (154) 166 2.0

Corporate 2,950 2,460 2,700 240 (250) (8.5)

Other* 8,565 8,433 8,354 (79) (211) (2.5)

* All Sales Tax and Corporation Business Taxes on Energy are included in Other.

8

(In Millions)

Revenues

Income 12,926 12,760 (166)

EITC Expansion (60) (60) -

Sales 8,710 8,556 (154)

Corporate 2,460 2,700 240

Other 8,433 8,354 (79)

Total Revenues 32,469 $ 32,310 $ (159)

Appropriations

Original 32,969 $ 33,035 $ 66

9

(In Millions)

Changes

ICF/MR Shortfall 19.244

Charter Schools 8.658

Charter Schools - Additional Hold Harmless 2.135

CBT Dedication 18.165 *

CMPTR for under 10k municipalities 14.900

ELEC 0.500

Legal Services 1.600

Department of Agriculture 0.500

Subtotal, Changes 65.702

*Offset by revenue

10

(In Millions)

Lottery Enhancements 25 $

Debt Service Reduction 130

Solutions 70

11

(In Millions)

Salary program - utilize carry forward (shift to other sources) 10.0 $

DCA - Extraordinary Aid 7.3

DCA - Consolidation Fund 7.0

DHSS - Early Intervention Program (revised projections) 5.0

DOC - Inmate Medical 5.0

DOE - Teachers' Pension and Social Security (revised projections) 5.0

DHS - Medicaid - Decrease drug pricing from weekly to monthly 3.5

DHS - Medicaid - Over the counter substitution 2.9

DHS - Family Development - fraud and abuse 2.5

LPS - State Police Information Technology (revised projections) 2.0

LPS - State Police billing for urban areas 1.5

DHSS - media campaigns 1.3

LPS - State Police Non-criminal records checks (shift to other sources) 1.0

DHS - Training related expenses (revised projections) 1.0

DHS - Work Verification (revised projections) 1.0

DOC - Additional community placements 1.0

DOC - Divert Technical Parole Violators to Alternate Parole Programs 1.0

DHSS - Anti-smoking programs 1.0

DHS - Medicaid - Eliminate payments for preventable hospital errors 1.0

DHS - Mental Health community contract efficiencies 1.0

Higher Education Student Assistance Authority - OB-GYN loan redemption program 1.0

OIT - various reductions 1.0

Agr - departmental efficiencies 0.5

Other 6.5

TOTAL 69.9 $

12

(In Millions)

Revenues

Income 12,926 12,760 (166)

EITC Expansion (60) (60) -

Sales 8,710 8,556 (154)

Corporate 2,460 2,700 240

Other 8,433 8,354 (79)

Proposed Revenue Actions 25 25

Total Revenues 32,469 $ 32,335 $ (134)

Appropriations

Original 32,969 $ 33,035 $ 66 $

Proposed Spending Actions (200) (200)

13

Projected Shortfall Continues Into FY 2010

OPENING FUND BALANCE 1,100 $ 600 $ (500) $ (45.5)

REVENUES

Income 12,700 $ 13,367 $ 667 $ 5.3

Sales 8,556 8,796 240 2.8

Corporate 2,700 2,700 - -

Other 8,379 8,379 - -

Total Revenues 32,335 $ 33,241 $ 906 $ 2.8

TOTAL RESOURCES 33,435 $ 33,841 $ 406 $ 1.2

RECOMMENDATIONS/PROJECTIONS 32,835 $ 35,372 $ 2,537 $ 7.7

Aid to Education $620

Pensions at 65% * 500

Employee Benefits (other than pensions) 300

Medicaid 225

Salary Increases 200

Homestead Rebates / Senior Freeze 105

NJ Transit 100

Debt Service 80

Municipal Aid Inflation 80

Other Growth 327

FUND BALANCE 600 $ (1,531) $

Required Ending 600

Fund Balance with Required Ending (2,131) $

* If funded at 100%, $1.3 billion would be required and shortfall increases to $2.9 billion