California Not Alone

California, Illinois, New York, New Jersey, Florida, Pennsylvania - the tax base is collapsing on both the federal and state levels. Like the workhorses of animal farm, the middle class is collapsing under the burden of taxation and will be sent to the glue factory to extract any remaining value. Feeling like the buffalo in the picture above with Taft on its back?

Why New Jersey is in worse shape than Gov. Arnold Schwarzenegger's California
Paul Mulshine - The Star Ledger

The news is filled with accounts of California's budget crisis. It seems that Gov. Arnold Schwarzenegger is reduced to handing out IOUs.

That may sound shocking, but I've spent the past couple of days perusing financial statistics and I've got some bad news. California may have a problem with IOUs, but Jersey's got an even worse problem: We-owe-youse. The "we" in question is all of us taxpayers here in the Garden State and the "youse" is all youse current and future public retirees as well as the Wall Street investors who hold our bonds.

When you compare our situation to California's, it's pretty depressing. California's economic situation is very similar to ours. As in Jersey, the Californians made the mistake of implementing a very progressive income tax system, one that gets almost half its revenue from a handful of rich people at the top of the earnings scale.

And like Jersey, California gets lots of revenue in the boom years followed by big declines in the bust years. This wouldn't be a problem were it not for the fact that the boneheads in both Sacramento and Trenton have a habit of making future commitments during the boom years that must be met in the bust years.

Those commitments consist of long-term bonding, often for various pork projects, as well as lavish pensions for public employees. Both states let many public workers retire at age 55 and even earlier, drawing not just a pension but health benefits for decades to come.

And in both cases, our situation is worse than theirs. When it comes to long-term bonding, California's on the hook for about twice as much debt as we are. But it has more than four times as many people to pay off that debt.

Similarly, their public-employee pensions and benefits system has about twice as big a hole in it as ours, but again with four times as many taxpayers to fill that hole.

So why is Sacramento in a budget crisis while New Jersey recently adopted a budget that got us into the current fiscal year intact?

This is the dirty little secret of Trenton politics, one that neither Gov. Jon Corzine nor his Republican opponent in the governor's race wishes to discuss. But I will.

The difference between California and New Jersey is simple: The Trenton crowd can always balance their budget by passing the tax burden down to the local level. The Sacramento crowd can't. That's why the Golden State is running out of gold while the Garden State remains fertile ground for the big spenders.

If you want to see this in action, consider those unfortunate residents of the tiny Shore town of Loch Arbour that I wrote about last week. Thanks to one line in last year's School Funding Reform Act, their property taxes more than doubled overnight. Someone who went to bed paying $11,000 a year on June 30 woke up on Fiscal New Year's Day with a property-tax bill of more than $22,000 a year.

State officials defended this on the grounds that the tax hike was needed to defray the expenses of the local school district. That couldn't happen in California.

Let's move that same house 3,000 miles west and put it along the Pacific. Thanks to a referendum passed by California voters in 1978 called Proposition 13, the taxes on that house could not be raised by more than 2 percent a year. Ever. For any reason. So where would the local schools get the money to operate? Glad you asked. Another referendum passed 20 years later compels the state to spend 40 percent of its budget on education.

This, of course, means the California state government, unlike our state government, has to live within its means. Those means are quite considerable. California collects more than five times the tax revenue of New Jersey. But their pols, like ours, made lots of promises they can't keep.
The difference is, our pols can always balance their budget by cutting aid to towns and school boards. State aid to Ocean Township, the school district into which Loch Arbour was merged against the residents' will, has been decreasing for the past three years. How to make up the difference? This is Jersey. Just tax some people out of their homes.

Instead of Proposition 13, we have the dubious proposition that homeowners can absorb infinite tax hikes. That's why we rank No. 1 in property taxes while California ranks No. 28. It can only get worse. Our pension and debt shortfalls will require an ever-larger share of the state budget for what amounts to eternity.

So don't pity Californians. Envy them. Their governor may be sending out IOUs. But your governor is sending out checks to be paid by taxes that you'll be coughing up until that lucky day when you move either out of the state or under the ground.