Corzine First to Face Voters as Governors Brace for Backlash

Bloomberg
By Kristin Jensen

March 23 (Bloomberg) -- New Jersey Governor Jon Corzine says his plan to shrink a $7 billion budget gap by raising taxes and cutting workers? pay will create ?a stronger footing for tomorrow.? By the time that tomorrow comes, Corzine may be out of a job.

The governor, a former chairman of Goldman Sachs and the only incumbent up for re-election this year, is trailing his likely Republican opponent amid voter anger over the economic crisis -- and the steps he?s taking to deal with it: a fiscal 2010 budget that lops 9 percent from the current one, a wage freeze and unpaid furloughs for state workers, and possible cuts in property-tax rebates along with higher taxes on the wealthiest residents and on cigarettes and alcohol.

Corzine, 62, is the first governor to feel political wrath; he won?t be the last. The 50 U.S. states are facing combined deficits of as much as $370 billion over the next 2 1/2 years, according to the Center on Budget and Policy Priorities. President Barack Obama?s economic-stimulus package will probably cover just $140 billion of that, the center says, leaving states with two choices: cut spending or increase taxes.

?It?s a rock and a hard place for every state,? says Joe Seneca, a former chairman of New Jersey?s Council of Economic Advisers and an economics professor at Rutgers University in New Brunswick. ?State reductions are still necessary despite the federal support, and that will again further weaken the economy.?

Balancing the Budget

Unlike the federal government, most states must balance their budgets. And when they try to erase deficits by raising taxes and cutting jobs, they risk further damage to the economy because people with less money won?t spend as much.

While Democrats captured the presidency in November to go with their control of both houses of the U.S. Congress, the anger at the state level knows no party; whoever is in power is fair game.

A list of governors who may be in trouble in 2010 compiled by the Cook Political Report in Washington includes Democrats Corzine, Bill Ritter of Colorado, Pat Quinn of Illinois, Chet Culver of Iowa and Jim Doyle of Wisconsin, along with Republicans Jan Brewer of Arizona, Jim Gibbons of Nevada, Tim Pawlenty of Minnesota and Charlie Crist of Florida. Democrats currently hold 19 of the 36 governorships that will be up next year.

High Visibility

?People are following what?s going on in their states pretty closely,? says Michael Dimock, associate director of research at Washington?s Pew Research Center. ?What they get out of their local government is often so much more visible.?

Like many governors, Ritter, 52, is struggling with the current year?s deficit. He instituted a hiring freeze, delayed construction projects for new schools and proposed the elimination of a planned expansion of health-care for children, among other steps likely to be noticed by his constituents.

Quinn, 60, last week proposed a $3.15 billion increase in personal and corporate taxes as he struggles with an $11.6 billion budget deficit in Illinois. He also asked lawmakers to cut pension contributions and increase fees for items such as car registrations.

Doyle, 63, last month called for state workers to accept wage freezes and pay more for health insurance and retirement even as he decided to leave one in 10 state jobs, or about 3,600 positions, unfilled. Brewer, 64, who took over from now-U.S. Homeland Security Secretary Janet Napolitano in January, plans to raise taxes and slash $1 billion from state agency spending.

Furloughs and Freezes

While furloughs and hiring freezes have helped some states avoid massive layoffs, the preservation of jobs isn?t likely to last. In the aftermath of the last recession, state-employee payrolls dropped by about 75,000, says Nicholas Johnson, who directs the State Fiscal Project at the Washington-based Center on Budget and Policy Priorities.

?It?s a problem we haven?t fully seen the ramifications of yet,? Johnson says. Local governments are also likely to suffer more than in the last recession as they lose state funds and face an economic collapse without a corresponding real-estate boom to provide property-tax revenue, he says.

In Ohio, where Governor Ted Strickland?s budget director in January released a 15-page list of program cuts, Columbus Mayor Michael Coleman was forced to send layoff notices to a class of police cadets poised to graduate.

Obama?s $787 billion stimulus package saved the jobs of those 25 recruits. ?You have studied hard, you have trained tirelessly, and there is no longer any doubt that you will be employed as officers of the law when you leave here today,? Obama, 47, said at their graduation during a March 6 visit.

Life Preserver

Still, those jobs may be in danger again a year from now. Coleman, 54, says the one-time government grant was a ?life preserver,? without which ?we would have sunk or drowned.? But the city still must attract new business and take further steps to close its budget gap.

Before the economic crisis, ?I never would have in a million years thought of laying off police or fire,? the mayor says.

In California, which last month faced a largest-ever $42 billion deficit, the state scuttled thousands of construction projects and forced more than 200,000 employees to take one day of unpaid leave every month, amounting to a 5 percent pay cut.

Teachers affected by budget cuts took their concerns local on March 13, organizing protests in more than a dozen cities. Some 26,000 have been told they might lose their jobs even though schools are set to get about $8.6 billion from the federal stimulus money, according to the California School Boards Association.

?A Finger in the Dike?

?It?s like a finger in the dike,? says Rick Pratt, the group?s assistant executive director for governmental relations.

While Republican Governor Arnold Schwarzenegger isn?t running for re-election, candidates looking to succeed him will have to address his record, says Jennifer Duffy, who tracks statehouse races for the nonpartisan Cook Political Report.

That?s also true in Virginia, the only state other than New Jersey with a 2009 statehouse election. Governor Tim Kaine, who is also chairman of the Democratic National Committee, is barred by law from seeking re-election.

?Virginia is going to be very typical of a lot of these open seats,? says Duffy. ?You?re going to see candidates running from what the sitting governor did.?

Moving Target

As the first governor forced to defend his response to the crisis, New Jersey?s Corzine finds his situation complicated by the rapid and continuing deterioration of the economy, presenting a moving target.

The state?s estimated fiscal 2010 deficit rose to $7 billion this month from the $5 billion projected as recently as January. That represents more than a fifth of this year?s budget. Only seven states face bigger shortfalls, according to the Center on Budget and Policy Priorities. New Jersey, the nation?s 11th largest state by population, had the third-biggest debt load relative to personal income as of last year.

?All the tax revenues for the state are collapsing? as the recession deepens, says Rutgers?s Seneca.

Corzine says he?s trying to bring in revenue by creating jobs with programs such as $120 million in incentives for businesses to expand. That program has drawn more 27,000 job- creation applications, he says. ?We?ve come to what are tough decisions but the right decisions,? Corzine told reporters on March 18.

Trailing

Less than eight months before Election Day, Corzine trails Republican challenger Christopher Christie, 46, a former U.S. attorney in New Jersey, by 9 percentage points, according to a Quinnipiac University survey released March 12. In November, Corzine had a 6-point lead. The Cook Report?s Duffy says the governor -- a former U.S. senator who survived a near-fatal auto accident two years ago -- is also suffering from his ties to Goldman, as Americans blame Wall Street for the economic crisis.

Still, say experts, his situation is far from hopeless. Democrat Obama carried New Jersey with more than 56 percent of the vote last November, and Republicans -- who haven?t won a statewide election since 1997 -- are facing a primary fight that could leave the party divided and divert resources needed for the Nov. 3 general election. Moreover, Corzine?s personal fortune assures he will be able to outspend the Republican nominee; he put more than $100 million into his previous Senate and gubernatorial campaigns.

History offers a mixed verdict on Corzine?s prospects. Early in 1977, Democratic Governor Brendan Byrne had an approval rating in polls as low as 22 percent after enacting the state?s first income tax; he came back to win re-election in November.

On the other hand, fellow Democrat Jim Florio was ousted in 1993 after pushing through tax increases. No Democratic governor has won a second term since.

To contact the reporter on this story: Kristin Jensen in Washington at kjensen@bloomberg.net
Last Updated: March 22, 2009 20:00 EDT
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