A grim state budget picture gets grimmer

It was already a dreary state budget, and it's about to get worse.

Gov. Corzine said this week he expected state revenue to fall short of his original projections by $1.5 billion to $2 billion, meaning he will have to find additional cuts or tax increases.

What would Senate President Richard J. Codey (D., Essex) suggest?

"Pray to God," he said. "When you have that kind of a deficit, there's not a heck of a lot that you can do that's going to make anybody happy. These are hard choices and hard times."

In addition to the revenue shortfall, Corzine is awaiting a federal ruling that could force him to restore about $40 million in funding for public colleges or risk violating the rules tied to using more than $1 billion in federal stimulus aid for education.

Finding savings to make up for the revenue shortfalls will only make it harder for lawmakers to restore some of the most unpalatable cuts already proposed.

In budget hearings so far, lawmakers have taken aim at proposals to impose copayments on Medicaid prescriptions and a program that provides free AIDS drugs. Some have criticized plans to reduce tuition grants at for-profit colleges, cut promotions for New Jersey produce, and reduce aid to some job programs for the disabled.

Labor unions have protested plans to furlough workers and freeze wages.

And that's not counting proposed tax increases on wine, liquor and cigarettes and income tax filers earning $500,000 or more.

"It's probably the bleakest thing I've ever heard in all of my years of being in office," said Assemblyman Joseph Malone (R., Burlington), the ranking Republican on the Assembly Budget Committee. "There were a lot of bad options before, but there are a lot of catastrophically bad options now."

Assemblyman Louis Greenwald (D., Camden), chairman of the budget committee, said lawmakers would protect the "core principles" Corzine laid out in March: education, health care and helping the vulnerable.

"Those principles I believe we should hold sacred and continue. At the same time, we're going to have to dig deeper and find other areas" to cut, Greenwald said.

Some of the largest areas of spending available to cut, however, would touch directly on those areas.

Medicaid spending accounts for $2.9 billion, roughly $1 out of every $10 in the $29.8 billion plan. Direct aid for public schools, a highlight Corzine has touted, costs the state nearly $8 billion. That is around one of every four state budget dollars, and school districts, which faced budget votes last week, are already counting on that support. Salaries account for $3 billion. Property-tax rebates, already scaled back for some, are a $1 billion expense.

In previous rounds of cutting, Corzine has found numerous small savings that shaved hundreds of millions of dollars off the budget. It's unclear how many small pockets of savings remain.

Corzine also could turn to tax increases, though he has stayed away from broad-based increases. His biggest tax proposal would affect the 1 percent of New Jersey income-tax filers with incomes of $500,000 or more.

A one-cent sales tax increases would raise about $1 billion.

Greenwald said tax increases should be a last resort. While everything is on the table, he said, "we can't tax our way out of this problem."

Codey said he does not expect a tax increase, but he added, "I can't tell you that's out of the realm of possibility."

Corzine, who gave the Associated Press his latest deficit estimates on Thursday, told the AP he was considering all options for closing the latest budget gap.

Robert Corrales, a Corzine spokesman, confirmed the estimated shortfall. Treasurer David Rousseau is scheduled to give lawmakers a formal update on the state's revenue picture May 19.

Along with the revenue problems, the governor may have to restore $40 million of funding for public colleges and universities in order to stay within the Obama administration's rules for receiving $1.1 billion in federal stimulus aid for education.

The federal aid came with requirements that states maintain previous levels of education spending. Corzine is awaiting a decision from the Obama administration as to whether his budget, which cuts direct support for colleges but increases tuition aid, meets that criterion.

If not, the state will have to restore the direct aid cuts, said Jane Oates, who until Wednesday was executive director of the New Jersey Commission on Higher Education. Oates, who left for a job in the Obama administration, said Corzine's budget was prepared before all the rules on the stimulus money were clear.

Oates said Corzine would adjust his plans if stimulus dollars were in peril.

"We're not going to risk losing that money," she said.

Corrales said yesterday the administration still did not know whether it would have to adjust its budget for that reason.