States of Progress – WSJ

Can states balance their budgets without tax increases? America’s two newest governors are giving it a valiant try that deserves attention as they cope with record deficits and a slow economic recovery.

Republicans Chris Christie (New Jersey) and Bob McDonnell (Virginia) were elected in November in states that had seen years of tax increases and explosive spending growth. Mr. Christie inherited a $2.2 billion deficit in 2010 and it is expected to grow to $11 billion in 2011. Mr. McDonnell is confronting the largest deficit in Virginia history—$4.2 billion for fiscal years 2011 and 2012, out of a $32 billion two-year general fund.

This week Mr. Christie proposed his first budget, calling for a 9% cut in the state’s $32 billion annual general fund. He is not talking about phony Washington-style “cuts” against a baseline that automatically increases each year. The governor is asking Trenton to spend $2.9 billion less in 2011 than it did in 2009, shrinking the budget to $29.3 billion, which he admits will be “painful, but what other choice do we have?”

Mr. Christie would cut $475 million in state aid to local school districts, $33 million in transit funding and $62 million from higher education. Dozens of low-priority boards, commissions and agencies would be axed, saving $70 million a year. The Governor’s critics moan that cutting education would victimize children, but he correctly points out that schools eat up more than one-third of the budget, and that New Jersey spends a gaudy $13,600 per student.

Mr. Christie deserves special applause for his willingness to battle government employee unions. His office calculates that New Jersey’s unionized employees have carved out health-care benefits that are 41% higher than the typical Fortune 500 company offers. A teacher who has contributed $62,000 toward her pension, and nothing toward medical benefits, can retire and receive over her lifetime a $1.4 million retirement package and an additional $215,000 in health-care payments.

New Jersey owes a staggering $90 billion in unfunded employee pension and retiree health-care obligations. To fully fund those benefits would cost $7 billion a year—money the state doesn’t have. Mr. Christie wants to start by shaving benefit costs by $100 million a year. He’s handcuffed in saving money this year, because predecessor Jon Corzine struck a deal with unions that guaranteed no cuts in salary and benefits to more than 200,000 state employees. That sweetheart deal will cost the state up to $300 million a year.

Meanwhile, Mr. McDonnell is preparing to sign a 2011-12 budget of $14.5 billion that will reduce state spending below 2006 levels ($14.8 billion). The $2.3 billion in cuts include a reduction in state employee pay, halving arts funding, selling off state-owned liquor stores, and cutting Medicaid payments by $300 million and aid to school districts by $700 million.

Mr. McDonnell argues the cuts are fair because school spending has risen 60% in the last decade, while Medicaid is up more than 75%. He has already signed legislation to allow off-shore oil drilling, which the state says could raise $5 billion in revenues over the next 30 years. (Are you listening, California?)

Both governors are under attack from liberal interest groups and the media for not raising taxes, but the public wants government to restrain itself the way families have already had to do. New Jersey’s property tax rates are the nation’s highest and its top income tax rate is close to the highest at 8.97%. Mr. Christie will have to negotiate his way through a legislature that is dominated by Democrats who answer to the public unions, but as he told them: This “is what the people sent me here to do.”

Virginia Democrats raised taxes twice in six years and should consider New Jersey’s punishing rates and fleeing taxpayers an example not to emulate. If Washington returned to 2006 funding levels the way Richmond will, the federal government would have nearly a balanced budget, not a $1.34 trillion deficit in 2011. With so much bad news about government to report, we thought you might be interested to know that spending control is possible.