New Jersey's looming budget crisis has the potential to undo much of the good coming from the economic stimulus legislation enacted this fall by Governor Jon Corzine and the Legislature, NJBIA President Philip Kirschner said today.  The best way to keep that from happening, he said, is for the Legislature to follow Corzine’s lead and cut spending.

"Let's give credit where credit is due: Governor Corzine and legislators from both parties are to be applauded for their quick and effective response to the economic crisis," Kirschner said.  "In a matter of weeks, they put aside partisan differences and worked together to enact meaningful laws to help stimulate the State economy."

"Now comes the hardest part - balancing the State budget," he said.  "It is essential that the Governor and our legislative leaders balance the budget by cutting spending - and not by resorting to raising taxes and increasing borrowing.  Otherwise, much of the good work that was done in the fall could be negated."

"So far, Governor Corzine has taken the right approach," Kirschner said.  "Instead of waiting until the end of the fiscal year, Corzine has proposed closing the budget gap now, in part by making deep spending cuts."

Last week, Corzine outlined a detailed plan to close an estimated $2.1 billion budget deficit.  The plan included $812 million in spending cuts.

New Jersey’s response to the last recession is an example of what not to do, Kirschner said.  In 2003, then-Governor Jim McGreevey pushed through a massive Corporation Business Tax increase to balance the budget.  The financial hit to businesses and the damage it did to the State’s competitiveness had a lasting impact. 

"Before the tax increase, New Jersey was a leader in private-sector job growth, typically creating jobs at a faster rate than the nation," Kirschner said.  "After the recession, New Jersey fell well below the national rate, creating jobs at about half the pace as the rest of the nation."

"New Jersey's long-term fiscal health was damaged too," Kirschner said.  "Other states that cut their budgets when revenues fell bounced back quickly, replenishing their coffers and enjoying years of revenue growth.  New Jersey, on the other hand, scuffled from one budget crisis to the next, unable to get its fiscal house in order."

One of the first challenges will come from the State's Unemployment Insurance (UI) fund.  Rising unemployment is draining the fund balance.  Without a cash infusion, the UI fund will be unable to meet its unemployment benefit obligations. This will trigger an automatic $350 million payroll tax on employers, offsetting the $300 million in tax savings lawmakers enacted late last year.

"Legislators and the Governor got the policies right last fall," Kirschner said.  "Now it's important that they pull together again so the budget crisis does not undo much of their good work."