After months of revisions, Gov. Corzine's new budget plan significantly reduces state spending in the next fiscal year. But it does so partly by piling billions of dollars of costs onto future budgets, and it raises taxes and fees by $1.3 billion, mostly on the wealthy.

With the recession battering state revenues, Corzine has retooled his budgets since January to deal with a historic drop in tax collections. Over the last week, a clear picture of a reworked spending plan emerged as the governor and lawmakers headed into the final weeks of negotiations.

Corzine has proposed large spending cuts, but many of his reductions would provide short-term savings and add to long-term costs.

Nonpartisan analysts from the Office of Legislative Services have predicted $6 billion deficits in future budgets as the steps taken to balance the 2009-10 plan expire.

"It seems that we've got problems next year as well," said Sen. Phil Haines (R., Burlington), a member of the Budget Committee.

Treasurer David Rousseau responded that he was focusing on the current budget and the one that begins in July, not the 2010-11 plan.

Corzine, citing the drop in state revenues, defended the most eye-opening piece of his new plan yesterday, the elimination of property tax rebates for everyone but senior citizens and the disabled.

"If you don't have the resources, you can't spend the money," Corzine said. "I know the public understands and I know it's painful; we don't like it, they don't like it."

Corzine said he hoped to restore rebates after this year.

"It will be one of the very first things that we do restore, because I think property taxes are a challenge for the people in this state," he said.

Corzine said voters would be the judge of whether he made the right call. He has also said the tax increases would last one year only.

Republicans continued to criticize the rebate cut as an attack on the middle class, but there has been no public pushback from Democrats.

"We have to accept the fact that this is one year where we lack the ability to fix some of the problems that we'd like to," said Sen. Barbara Buono (D., Middlesex), chair of the Budget Committee.

July 1 deadline

Lawmakers and Corzine have until July 1 to put a new budget in place.

The Corzine administration says it has cut $5.7 billion from the current budget and the one that begins July 1.

The largest reduction was on rebates, directly affecting homeowners, who could lose checks that averaged $1,000 last year, and renters, who would lose checks of less than $100. About 1.1 million homeowners and 740,000 renters would be affected.

Senior citizens and people with disabilities would keep receiving their checks.

The cut would save the state, and cost taxpayers, $976 million. It accounted for 27 percent of the year-to-year spending reductions Corzine was proposing for the new budget.

Of the $3.6 billion in decreases proposed, $1.4 billion, or 38 percent, would come from skipping pension payments or refinancing debt. An additional $314 million in savings would come from federal support for Medicaid costs.

Budget pressures

The pension and debt costs would add to future budget pressures and would be a repeat of some of the steps Corzine has criticized as major culprits in creating the state's fiscal mess. Officials in both parties conceded, however, that Corzine was making these moves under much more dire circumstances than previous governors.

Roughly $2.3 billion in federal stimulus aid was not counted in the state's bottom line. When that money dries up, it will create new budget holes.

Corzine's plan now relies on $903 million of income tax increases on filers making $400,000 and up. The tax rate on income between $400,000 and $500,000 would grow to 8 percent from 6.37 percent; from $500,000 to $1 million the rate would be 10.25 percent, up from 8.97 percent; and income of $1 million and more would be taxed at 10.75 percent, the highest top rate in the nation. The top New Jersey income tax rate is 8.97 percent.

The tax hikes would be cumulative for high earners. A person with a $1.1 million income, for example, would face a $9,800 income tax hike.

According to the Treasury Department, 61,300 filers, around 1 percent of the state total, would be impacted by the new rates.

Other taxes would rise on wine and liquor, health insurers, and through the elimination of a property tax deduction for filers with incomes of $150,000 or more.

The tax and fee increases would help stabilize revenues that would otherwise fall below fiscal 2005 levels.

Corzine would cut $258 million from state departments and overhead and was counting on $156.6 million from furloughs and wage freezes. An additional $324 million in cuts would come from other pieces of state government.

Funding for arts, tourism, and beach replenishment would decrease. A health-care expansion from last year would be largely reversed. After-school programs would lose money.

Among the latest cuts, Corzine would drop a $25 million preschool expansion plan and slice $35 million in aid meant to help schools pay construction debts.

State colleges and universities would be in line for a $35 million to $40 million aid restoration, due to rules tied to the stimulus dollars.

The changes announced in the last week mean that after signing a $32.9 billion budget last June, Corzine has cut the plan down to $30.2 billion and is proposing a $28.6 billion budget starting in July.

The spending level, if adopted, would be $4.9 billion smaller than the plan Corzine signed in 2007.

Despite those steps, the Office of Legislative Services projected long-run deficits due largely to the revenue drop that would take years to recover from, ballooning pension payments, Corzine's pledge to eliminate most of his tax increases after this year, and the expiration of federal stimulus aid.

Rousseau told the Senate Budget committee that before the economic meltdown struck, Corzine had reduced the state's reliance on budget gimmicks, scaled back spending, and restored some pension funding, putting the state on a path for long-term budget repair.

"What's happened is, this economic tsunami has basically come in and destroyed that foundation," Rousseau said.

Contact staff writer Jonathan Tamari at 609-989-9016 or jtamari@phillynews.com.