[light upbeat music] - [Announcer] Funding for "Governors' Perspectives with Kent Manahan" has been provided by NJM Insurance Group, serving the insurance needs of residents and businesses for more than 100 years; Seton Hall University; Seton Hall School of Law; and by Connell Foley, LLP.

[light upbeat music] - This is the time to look ahead.

This is the time for us to lean into the policies that can fix our decades-old, or in some cases, century-old inequities.

This budget lives up to our stronger and fairer mission, stronger to come out of the pandemic with an economy that works for every New Jersey family.

This budget will continue to stabilize property taxes for hardworking families.

This budget will continue the hard work of moving forward, not only from the pandemic, but from years of neglect.

- New Jersey's fiscal outlook has surely changed from predicted near dire financial straits last summer to now flush with cash, even during a pandemic.

Governor Murphy's proposed 2022 budget is good news for the state and the Democrats in this gubernatorial and legislative election year.

Welcome to "Governors' Perspectives".

I'm Kent Manahan.

We're going to discuss New Jersey's newly proposed $45 billion budget and what's at stake with billions more in federal funds coming to the state with two former governors, Tom Kean and Jon Corzine.

But first, let's hear more of what Governor Murphy laid out in his annual budget address.

- We expanded the Earned Income Tax Credit, both in terms of the amount and the number of families receiving it.

And we restored the Millionaires Tax to ensure that our wealthiest pay their fair share.

Because of this, not only have we secured the resources to invest even more deeply into our communities, we're able in this budget to provide checks totalling nearly $320 million in direct tax rebates to hundreds of thousands of working and middle-class New Jersey families.

The problems in our pension system rather have everything to do with past administrations of both parties, and going back at least 25 years, who simply and shortsightedly decided not to pay.

Well, we won't go back to those failed old ways.

That's why in this budget, we will achieve full funding of our annual obligation for the first time since 1996, a total payment of nearly $6.4 billion.

And we will achieve this goal a year earlier than planned.

The budget I am proposing would increase our investment in our public schools by $700 million.

- Governor Kean and Governor Corzine, so good to have you with us to discuss the state's proposed Fiscal '22 Budget.

Given the year plus and all the challenges that we've all been through, we really welcome your perspective.

Governor Kean, if I could start with you, this is a $45 billion budget, a 10% increase over the current budget that we're in in New Jersey.

I'd like to ask you, is this a budget that all of the money should be spent, should be saved, and what does it bode for the future?

- It's a budget that makes me nervous because as Governor Corzine and I both remember, budgets were difficult, period.

You have to really try everything you could do to meet the needs of the state, and you usually had a very small margin for error in trying to balance the budget and still meet the needs.

This one is just spending.

I mean, this is 30% more than the last budget by Governor Christie, 10% more than last year.

This is a budget that's awash in money.

I don't think any governor's had as much money to spend certainly in the history of the state as this governor does.

And it's a little bit disturbing because it's based on borrowed money.

We're even borrowing money to pay back money.

We're paying back the pensions who have borrowed more money, and that's not wise.

And it's putting off the problem, putting off the problem for our children.

I don't know how we're gonna do it next year.

There's a lot of one-shot budget increases in here.

That's not wise.

So it's, look, I understand the problems.

It was a badly predicted budget.

The revenues were underestimated badly, but we're in a place now that's not good because we're borrowing a lot of money, and nobody has any idea how we're gonna pay it back.

And that's unwise.

We're gonna be awash in money now.

The federal government's putting in a whole bunch of more money.

And already in New Jersey, we're getting $6 billion more, I mean, but nationwide.

And so we're gonna have an economic boom, I think, for the next year or so, but then as it always does, it's gonna go the other way.

And when it does go the other way, New Jersey is gonna be faced with a huge debt that we're required to pay back, and that's gonna be on our children and ourselves if we're young enough, probably my children, grandchildren, and that's not good.

That's unwise policy.

So I wish, I wish we'd restrained spending a bit.

- Governor Corzine, do you agree?

Do you think this is a spending plan that can put New Jersey's economy on a responsible course going into the future?

- First of all, I think when you look at the budget, you have to look at it in the context of the crisis times in which we live.

This is an unusual period by any standard.

The pandemic, I think, frames the needs of the people of New Jersey in a much, much more serious way than a lot of us have had to deal with.

And as a consequence, I think the values that the Governor Murphy has expressed through that budget, and all budgets do express priorities and values, is designed to try to meet those needs.

It's also framed in a period when it was very hard to predict what the economic environment was going to produce as far as revenues from taxes.

And therefore with hindsight, maybe he wouldn't have wanted to borrow the 4 billion last November, but I think it actually was the conservative thing to do in the sense that you're gonna want to keep the schools running.

You're gonna wanna keep hospitals and our medical care system fully funded to deal with the pandemic.

And if you didn't know whether the revenues were gonna be there, you had to do something, so they made a decision.

I think that, and I agree with Governor Kean on this, we have a real challenge on how you use this good tidings of revenue, federal government aid, and the borrowing to make sure that we're setting up how we're gonna pay off some of that debt, how we're going to address future fiscal needs, and not just spend it all today.

By the way, I think that is highly probable if I had been governor at this time when they had to make the decision and they didn't know that revenues were going to flow as effectively as they've come into the state and when they didn't know what the outcome of debates, they didn't know what the outcome of the election was, let alone how the federal government was going to respond to state needs, maybe the conservative approach was take the money when you could get it at the very low interest rates.

But I think it creates the situation where the governor has to allow for, how are we going to finance that debt going forward?

- Hindsight, of course, is always 20/20.

Governor Kean, last year Governor Murphy estimated that the state would be 20 to $30 billion in debt.

I guess my question is, was that just an overestimation?

We look back at the Senate President Steve Sweeney.

He says that borrowing the $4 billion was really the wrong thing to do at the wrong time.

What are your thoughts on that, and where it's put the state in terms of future debt?

- Well, revenue estimates, you know, you do your best, and I'm sure the governor's people did their best, but nobody agreed with them.

Legislation and agree with them.

Republicans didn't agree with them.

I don't know any other body that looked at the budget and thought anywhere close to the kind of revenue estimates that the governor made.

And they put the state in a hole, but they did enable him in an election year.

They have a huge amount of money to spend based on borrowing.

And of course, we know what happens.

We know what happens in your own home If you want to borrow a lot of money right now, you could live well for a year or so.

You can have a wonderful, wonderful time, but you know what's coming in the future.

You know the debt is gonna come down on your head, and you know that your family is gonna be in trouble.

And I know our New Jersey family is gonna be in trouble.

And so I would love to see, I mean, we know what the priorities of the state are.

For instance, none of this money is being used, for instance, to help bring down the taxes.

And we know that people moving out of the state, that families can't afford to stay here anymore.

The property taxes, which are now, and the tax as a whole are now probably as much as any other state in the country.

We've gotta deal with that problem.

We've gotta get them, the state's down so we're more competitive with Pennsylvania and our neighboring States.

That's another priority.

- In fact, there are Republicans right now predicting that New Jersey will be facing tax increases next year in order to pay for this borrowing.

What are your thoughts on that, Governor?

- Well, I don't think we can afford any more new taxes because right now the people who pay all of those taxes, we got one of the highest progressive income taxes now in the country.

So the people at the top end are paying most of those income taxes, as they should be.

It's the graduated tax, that's fine.

Except they're also the most mobile people in the country, and they're leaving at a very rapid rate.

And I'm sure I've got friends who have left.

I'm sure Governor Corzine has friends who have left, and that's increasing.

We won't find the full impact of that for a year or so.

It takes a year or two for people to plan and move out of the state, but I'm sure the latest, I mean, I've got a Millionaires Tax on top of the Millionaires Tax, and those people are gonna leave.

And when they leave, you and I end up paying those taxes, if we stay.

And so there's a problem there, and there's a problem we got to address.

And the tax problems is real.

And we just have gotta be more competitive with the states around us.

We can gonna have high tax rates, but not higher than the states around us.

That's when we get into trouble.

- So we're talking about a lot of money in the state budget for the upcoming fiscal year and also a great deal money coming in from the federal government through the American Rescue Plan.

New Jersey stands to get over $10 billion.

Some of that money, about 3 billion or so, goes to the local municipalities, but the rest of it's coming to the state.

What is the responsibility in terms of the legislature working with the executive branch in making sure that this money is well spent and that we have money to pay back the debt that we owe on the borrowing?

Governor Corzine.

- Kent, let me just, I wanna respond just quickly to one thing that Governor Kean mentioned.

And I do think high taxes for high-end folks does encourage, particularly older individuals, to think about mobility.

But the fact is that we have the best educational system in the country, and that takes a lot of resources to be able to provide.

I think our test scores are better than any place in the country.

And generally people feel good about living in New Jersey, and we've responded very aggressively to the pandemic.

Many, many issues that make sure that everyone has had access at the healthcare system require a lot of resources.

So I think when we talk about spending, we have to look at how are we both preparing the quality of life in New Jersey as we go forward, how are we investing, and how are we dealing with the immediate problems, which are very, very serious to all individuals?

From my view, we've actually taken that into account in the budget.

I think, go back to, I don't think we need to raise taxes.

We need to make sure that this set of resources that we're gaining because of the stronger economy that people expected because of the Federal Reserve or federal resources and the borrowing is properly structured so that it pays off some of those future liabilities.

And the governor actually in this budget did something that none of us ever did at the degree that he did, which is put full actuarial payment into the pension system.

I think it's $6 billion, a pretty extraordinary step.

And I think that if I'm not mistaken, it's been $19 billion put into the pension system, which is one of our biggest debts on the books for the State of New Jersey.

I think the governor should get some good marks for his fiscal responsibility in actually dealing with that, including by the way unfunded health care benefits as well through a restructured system.

So yes, there is a real issue, but I think the governor has both attempted to deal with structural issues and acknowledged that we live in a very, very difficult time.

- Well, there's no doubt that this pension payment, which is included in this upcoming fiscal budget, is the largest that's been done, what, in the last more than two decades in the state in terms of contributing to the pension fund.

But Governor Kean, let me ask you, is what's really needed in terms of the pension is real reform as Senate President Steve Sweeney has called for any number of times, but we haven't made progress on that front?

Is that what's really needed is reform of the pension system to keep it stable into the future?

- Yeah, we'll never pay off the pension funds and the debts we have now.

Maybe we can do it maybe one year when we just put all this wash of money into a budget, but it's not gonna happen unless we were reform the pensions.

Sweeney is right.

A number of other people are right.

And to keep those pensions funded, we gotta do that for our ex-state employees.

That's only fair.

You gotta reform them in some way or another.

And by the way, I would correct this one thing, people who put payments in the pension fund the governor didn't go back far enough.

I put every payment needed in the pension fund.

In fact, I left the state with a AAA bond rate, which no governor since has been able to match.

So yes, we did used to pay it off in the past, and you should pay it off now.

But you can't pay it off to the extent it is now on an ongoing basis without doing some of the forms that have been suggested.

And I think Sweeney's recommended, but the governor's gotta recognize at some point, and I like this governor, I always have, but at some point, you gotta take on the labor unions.

Some points, you can't do everything they want.

You've got to do some things that may be good for them, but they're not gonna want you to do politically.

And one of the things is to reform the pension funds and health benefits, because unless you do that, in the long run, the employees are the ones who are gonna be hurt.

- Let's just look at a couple of other things that are in this budget.

The $500 rebates for middle income New Jerseyans, no longer raiding the Affordable Housing Trust Fund.

We have more money going to education, two-year college tuitions, part of it expanding the prescription drug program, and a no fare increases for New Jersey Transit, although no more money for the capital budget.

What are your thoughts on that?

Governor Corzine, let me ask you, these things that are included in the budget.

- Well, this ties back to the comment that I made at the start.

I think these reflect the values and the needs of the people of New Jersey.

And I think the governor has attempted to address those.

I don't think that if you look at the increase in the budget expenditure this year a big proportion of that is because they addressed in a way that hadn't been the pension system.

There is increases.

It's about a 10% increase if you looked at the total budget.

But a lot of that is driven by taking on the responsibilities of the pension requirements that is paying down debt.

And I think they're gonna have to do the same thing.

Again, and I will repeat, the $4 billion of borrowing, some of that needs to be set aside for debt service, just as could have been set up and by making the bonds callable and other technicalities, but you need to set up a sinking fund so that money is set aside for reserves so that that can be paid off in due course.

But I think that there's more fiscal responsibility in this budget while not turning back on those valued kinds of expenditures that I think you're talking about.

Everybody believes that we need to be spending the kind of money that keeps our educational system as the number one system in the country.

- Any number of political analysts who have said that this is a good election year budget because, of course, this is a gubernatorial and legislative election year.

All 120 seats are up for grabs, and there's a primary coming up for the Republicans.

And it looks like the governor will not be challenged in a primary effort, but Governor Kean, let me ask you, for the Republicans, is there a message in this election year?

- Well, Republicans have gotta get out the hard facts.

They can't demagogue it because you can't do that responsibly.

What you can say, for instance, this budget has got about $500 million in one shot funding in it.

It means you can't do that next year.

Well, the programs are still gonna be there.

Are you gonna have more taxes to fund those things next year or cut those programs out next year?

I mean, you gotta point that kind of thing out.

There's a $500 increase in everybody's payroll tax, which nobody's talking about.

That's gonna cost everybody.

And there's no real addressing, like I say, the main problem New Jersey has is it's becoming too expensive for families to live here.

And so I think the Republicans responsibly have gotta look at this budget and say, all right, what changes would we make to make it more responsible, to make sure our children not paying all these debts that we're running up, and taking it to the people and being honest about it.

- Governor Corzine, you have said that the budget is basically a political document.

Just briefly, what do you mean by that?

And are you referencing some of what we've heard in any number of recent budget addresses over the years where other administrations have been blamed for the debt that New Jersey is carrying forward and is being inherited by the the current governor or whoever that current governor is?

- Listen, budgets are political documents.

They are a statement of the values and the priorities that an administration, a governor carries.

I stated very clearly, and there's plenty of politics involved in it on both sides of the aisle.

And that's healthy if it is done in the way that I think this conversation is actually taking place.

You can have a real argument about two or three of the things that Governor Kean mentioned.

Non-supported expenditures on a recurring basis are a challenge.

And they should, you have to meet a very high standard to be able to put those into a budget.

And that's how we've gotten into this problem over many, many, many years.

I'm sure that wasn't the case when Governor Kean was the governor, but there were plenty of in-between examples on both sides of the aisle where people spent ahead of any kind of revenue coming in.

There were borrowings to put money into pension systems.

There were lots of things that in hindsight people could be easily, easily critical of.

I believe that for the most part, given the circumstances you have, and I'm sure there are things that, such as Governor Kean identified, that should be challenged and debated.

And that's why there's a, should be a legislative process that is really full blown and shouldn't just the governor proposes and everybody accepts it.

It's a debate.

But I don't think that Governor Murphy proposed something that was not consistent with the needs of the times.

And I actually think that people underestimate how important it is for both to have a rainy day fund at the end that is budgeted and allowed for in this proposal and that major, major contribution to the pension system, which I think are very, very fiscally responsible.

- What should the state learn about the unforeseen and future planning?

- Well, Governor Corzine is absolutely correct that we should have a rainy day fund.

I mean, that should be part of every budget plus a surplus in every budget.

No question about that.

But you also have to learn you've gotta plan for the future and planning for the future isn't putting a great huge debt on our children and grandchildren.

You can't borrow money, as I said, that you don't know how you're gonna pay back.

And nobody has even suggested a way of paying back the kind of enormous borrowing we're suggesting in this budget and have already made and went to the Supreme Court to get approval.

Because as you know, we're supposed to have voter approval for this kind of borrowing, and said it's such an emergency, we don't need voter... Well, it wasn't an emergency.

They got the figures wrong.

So we borrowed under false pretenses.

I don't think the governor did intentionally at all, but he did, borrowed under false pretenses.

Now we've got this enormous debt that we're gonna have to pay it back or our children are gonna have to pay it back.

And we've got these one-time things in a budget, which isn't right either.

And we've got hard times ahead.

I mean, there's huge washing of federal money that's gonna come through the next year or two, $6 billion probably next year coming into the state.

It's gonna be wonderful.

There's gonna be very happy times.

They're gonna be very short-lived.

And when they're over, God help if we have a recession.

But even without a recession, we're gonna have more money to pay back and we don't have any idea of how we'll possibly do it.

- Well, the state budget is certainly one that looks ahead for the year ahead and what government promises to do for the people of our state.

And we all have a vested interest in that.

Governor Kean and Governor Corzine, thank you so much for sharing your views on this important subject.

- Thank you for having us.

- Thank you, Kent, and thank you, Governor.

- Good to see you again, Tom.

[light upbeat music] - [Announcer] Funding for "Governors' Perspectives" with Kent Manahan has been provided by NJM Insurance Group, serving the insurance needs of residents and businesses for more than 100 years; Seton Hall University; Seton Hall School of Law; and by Connell Foley, LLP.

[light upbeat music]