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NEW BRUNSWICK, NJ-In light of a recent report from the Pew Center on the States that places New Jersey in the same fiscal peril as California and eight other states, Gov.-elect Chris Christie faces some wrenching budgetary decisions, say economic experts in the Garden State.

James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University here, tells GlobeSt.com that he was surprised that New Jersey was on the same list as Arizona, California, Florida, Illinois, Michigan, Nevada, Oregon, Rhode Island and Wisconsin. He points out that the sand states–California, Arizona, Florida and Nevada–were devastated by the residential housing bubble bust.

Meanwhile, Michigan, Illinois and Wisconsin are older manufacturing states linked to the auto industry. New Jersey lacks both those unique factors. “Ours seems like it’s almost a self-inflicted situation,” Hughes says. “It reflects fiscal mismanagement for most of this decade. That puts us in a very risky position because when investment decisions are being made, major corporations are going to look at that and say, the state may increase business taxes to cover the huge deficits it is facing.”

According to Gil Medina, executive managing director at Cushman & Wakefield in East Rutherford and a former New Jersey Secretary of Commerce during the Whitman administration, the state’s budget deficit for fiscal year 2010-11 is projected at $8 billion. In addition, the state has $35 billion in bonded indebtedness and approximately $130 billion of unfunded liabilities, including pensions and medical services for retired state employees.

“The challenge is extremely great and the solution cannot just be on the revenue side,” Medina says. “The state is reaching a point where tax levels are becoming unsustainable. We cannot resolve the fiscal problems of New Jersey by simply coming up with more ways of securing tax revenues and more fees for services from the citizens and businesses of the state.”

In a report in the Record, Gov.-elect Chris Christie stated he intends to veto any income tax hikes. Other published reports have hinted that he was considering declaring a fiscal state of emergency, which would give him broad powers to deal with the budget crisis. “In my view, we are in a fiscal state of emergency and the governor[-elect] declaring such is only acknowledging what we already know,” Medina says.

Making the financial situation even more complex, Medina asserts, is the fact nearly two-thirds of the state’s budget goes toward third parties, such as county and local governments, boards of education, medicare and other third-party payments. Therefore, all levels of government, from the state on down, must bear the budget-cutting burden.

“The state is also going to have to come up with a way of having county and local governments and school systems participate in the process of reducing costs,” Medina says. “Doing that in New Jersey where local rule is so strong is no small challenge.”

Hughes agrees the state is facing some unpleasant choices, which will mean in all likelihood spending reductions. “There is no way to avoid pain,” he says. “There will have to be budget cuts across the board. That may well mean aid to municipalities, K-12 education, and certainly higher education will get hit, but that seems to be the only potential course of action.”

Raising taxes in a state currently with the highest median property levies and least business-friendly tax structure in the US is not an option anyone in the business community would welcome.

“If we are interested in reducing real estate taxes at the local level, we better come up with better ways of delivering services at the municipal level so we can contain the increased cost of providing those services,” Medina says. “My biggest fear is that members of the legislature may be tempted to focus largely on the revenue side and what that has meant in the past is the business community has borne a significant portion of the tax burden. There is a limit to how much more the state can extract in the form of revenues, particularly from businesses and higher net worth individuals. There must be a heightened focus on the cost side.”

Following the election, Governor Jon Corzine requested that state departments slash $400 million in spending and asked state lawmakers not to pass any new expenditures during the upcoming lame-duck session. “[Gov. Corzine] did realize a number of significant cost savings, but they were simply not sufficient,” Medina says.

Part of the problem is that elected officials in the state have yet to confront the fiscal crisis in a meaningful way, Medina says. “There’s been tremendous inertia on the part of the elected to try to correct the imbalance in our budget because that requires political leaders to make some very difficult and in many cases extremely unpopular choices,” he says.

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