THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, January 31, 1995 TAG: 9501310257
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY WARREN FISKE, STAFF WRITER
DATELINE: TRENTON, N.J. LENGTH: Long : 199 lines
They were not Bill Clinton's crowd to begin with, these 500 or so Republican stalwarts crammed inside the ornate chambers of the New Jersey General Assembly last Tuesday night with no alternative but to view the State of the Union speech from six blaring televisions.
At first, they listened politely. At the 40-minute mark, a murmur pervaded the room. At 60 minutes, there were groans. Toward the end of the 84-minute oratory, many began to wave white handkerchiefs in a sign of surrender.
No, the crowd belonged to Gov. Christine Todd Whitman, who had the plum assignment of delivering the nationally broadcast Republican rebuttal to Clinton's speech. Only one year in office, Whitman's aggressive tax-busting agenda has become the mantra of Republican governors throughout the country, including Virginia Gov. George F. Allen.
Amid standing ovations from the home crowd, Whitman told the nation how her plan to slash state income taxes by 30 percent and cut governmental spending has created 60,000 new jobs in New Jersey.
``There's nothing virtuous about raising taxes,'' she said. ``And there's nothing high-minded about wasting other people's money on big government-spending sprees.''
But behind the hype and the hopes that Whitman will emerge as the vice presidential candidate on the 1996 Republican ticket - or even walk away with the presidential nomination at a deadlocked convention - New Jersey Democrats are offering a few simple facts that they say should dissuade any governor from emulating her:
The overall tax burden on state residents actually increased during the first year of the Whitman administration as localities, struggling to make up for state aid lost to the income tax cuts, have dramatically increased real estate levies. While an average family of four paid $49 less in state income taxes last year, their property tax increased by $176 - a net loss of $127.
State debt increased by $753 million when Whitman balanced her budget by refinancing 10-year road bonds to a 20-year maturity.
Overall state spending continues to increase. Whitman's proposed $16.5 billion for 1995-96 reflects a $500 million increase over current state outlays.
Although private-sector employment in New Jersey did expand by 60,000 positions last year, independent studies show that the state ran slightly below national trends in the creation of new jobs.
``Every state needs to look very closely at New Jersey,'' said state Rep. Wayne Bryant, a Democrat from Camden. ``The governor looks good saying she has reduced taxes, but in reality she has not. She's merely picked one pocket to put money in another.''
So goes a fight in New Jersey that is strikingly similar to political debate in Virginia where Allen, a Republican, is proposing to cut state taxes by $2.1 billion over the next five years. Allen wants to cut not only the income tax but also a levy on gross business receipts that provides localities with $300 million a year.
The states are similar statistically in that both are wealthy and have relatively low tax burdens compared to the rest of the nation. New Jersey residents pay state and local taxes of $195 for every $1,000 earned in salary; Virginians pay $192 per $1,000 earned.
Virginia Democrats, pointing to the New Jersey experience, say Allen's plan would force localities to raise property tax rates.
As in New Jersey, Democrats in Virginia are accusing their governor of borrowing money to finance proposed tax cuts. At the same time Allen is seeking to reduce levies, he wants to sell bonds to finance a $2 billion prison-building program.
And, as in New Jersey, Virginia Democrats are accusing their governor of offering an irresponsible but politically popular series of tax cuts to enhance his national ambitions.
Both Allen and Whitman are adherents to supply-side economic theories that lower levies help create jobs, which ultimately expand the tax base. There is, however, one key difference in the situations the governors confront. The New Jersey legislature is controlled by Republicans who have been proud to support Whitman. The Virginia General Assembly is run by Democrats who are openly revolting against Allen.
``The program doesn't work,'' Virginia House Speaker Thomas W. Moss, D-Norfolk, recently grumbled about Allen's proposal. ``All you have to do is look at New Jersey.''
Independent analysts, however, suggest that it is too early to form a conclusive judgment on New Jersey. The impact of Whitman's agenda can only be assessed for the first 5 percent reduction in income taxes, enacted in January of 1994. An additional 10 percent cut went into effect at the beginning of this year, and the final 15 percent, if approved by the New Jersey legislature, would not be enacted until July.
An average family of four with an income of $70,000 would save $502 a year under Whitman's plan.
It may seem unusual that Whitman, 48, would emerge as a champion of the middle class. She is, after all, the daughter of a wealthy businessman who built Rockefeller Center and Radio City Music Hall in New York City. She grew up in the rarefied horse-breeding setting of Somerset County, N.J. Her husband, an investment banker, reported $3.7 million in income in 1992.
``Funny as it seems,'' she once said, ``$500 is a lot of money to some people.''
But if Whitman was reared in wealth, she was also brought up in politics. Her father was a former chairman of the New Jersey Republican Party; her mother was a GOP national committeewoman. Her occasional gaffe notwithstanding, Whitman is an accessible, determined and charismatic pol with a radiant smile. She was elected as a Somerset County freeholder, the equivalent of a county commissioner, in 1981, and in 1992 came within 60,000 votes of unseating U.S. Sen. Bill Bradley, a popular Democrat.
It was her tax-cutting proposal that put her over the top in the 1993 race for governor. Whitman pledged to slash income taxes by 30 percent that fall, when polls showed Democratic Gov. Jim Florio with a double-digit lead. Florio, who had raised taxes by $2.8 billion, dismissed the promise as a hoax. The voters disagreed. And in November, Whitman became New Jersey's first female governor while Florio became the first incumbent governor in state history to lose his seat in a general election.
What irks Whitman most these days is the argument that her tax cuts are responsible for the jump in property tax rates. Inefficient local governments must shoulder that blame, she insists.
``There is nothing in the state budget that requires property taxes to go up,'' she said at a news conference last week. ``The state doesn't collect a penny in property taxes and it doesn't spend a penny in property taxes.''
Democrats say her response is disingenuous. After all, they argue, New Jersey instituted its income tax in 1975 specifically as a ``property tax reduction'' fee. Almost every penny of the $4.5 billion in annual collections from the levy are passed on to localities to pay for public education. And a recent study by a Rutgers University economist concluded that local rates over the years have risen or fallen in inverse proportion to fluctuations in the state income tax.
Many mayors complain that by shifting the burden to homeowners, Whitman has created a regressive tax plan that hurts people living on a fixed income.
``A lot of our residents are elderly people who don't benefit from the governor's cuts because their pensions aren't taxed,'' said Mayor Jack Zisa of Hackensack, whose city raised property levies by an average of $145 per home. ``But when their property taxes are increased, there's a real risk that they can be priced right out of their homes.''
Whitman responds that the very structure of local government in New Jersey is wasteful and in need of reform. The state, with a population of 7.8 million, has 611 school systems and 586 municipal governments - all with the ability to raise property taxes. Each school system has its own administrators and buses, each local government has its own police and firefighting forces.
In contrast, Virginia, with a population of 6.5 million, has only 135 school systems and 135 local governments. And in the Old Dominion, only the local government is empowered to raise property taxes.
As a result, New Jersey's average state and local expenditure of about $9,000 per public school student is the highest in the nation. Virginia, which spends $5,700, ranks 27th.
Whitman has insisted that local governments in her state must economize by pooling their resources. She has promised to cut school aid to any system that spends more than 30 percent over the state average on administration. She offered to send a team of state auditors to examine the books of any local government seeking ways to cut costs. And she has vowed to reform a binding-arbitration procedure that in recent years has awarded local police and firefighter raises at twice the rate of inflation.
Two accounting maneuvers have enabled Whitman to cut the first 15 percent in income taxes without slashing aid to localities or noticeably reducing the size of the state government. She saved $1.3 billion by reducing the state's contribution to its overfunded pension system and another $250 million up front by extending the payment schedule on state road bonds.
Democrats say her savings have been short-sighted. They note, for example, that the first payment on the extra $753 million of debt the state has incurred by extending the life of road bonds won't be due until 2001 - Whitman's last year as governor if she is re-elected.
``She'll be out of office and our children will be holding the bag,'' said state Rep. Joseph Roberts, a Camden Democrat.
But Carl Golden, the chief spokesman for Whitman, shrugged his shoulders at the criticisms. ``So what if we picked up a few one-time revenues?'' he said. ``If you see a way to pick up a few bucks, you do it. It's silly not to.''
And last Monday, Whitman had few tricks up her sleeve as she unveiled to the legislature her plan for financing the final 15 percent in tax cuts. For the first time, she proposed hard cuts in state programs: $314 million less for human services and $119 million less for environmental protection. She also called for reducing the state payroll of 64,000 by 3,000 jobs - 800 through layoffs and attrition and the rest through the privatization of governmental services.
Despite the 30 percent overall cut in income taxes, Whitman forecast that total collections of the revenue would increase by $40 million in the coming fiscal year. Her prediction was based on assumptions that the national economy will continue a robust recovery and that lower state levies will create jobs in New Jersey and expand the tax base.
After the budget presentation, Bryant, the Camden Democrat who is deputy minority leader of the General Assembly, stood by his desk and predicted that property taxes will rise to unprecedented levels. He expressed bewilderment over polls showing that 64 percent of New Jersey's voters approve of Whitman's job performance.
``The public doesn't get it yet,'' he said. ``They feel good when the governor cuts their income taxes. When their property taxes go up, they blame the mayor. The governor is hoping to disguise the connection long enough to run for another term.''
Down the hall in the governor's office, Golden waved his hand at the criticism and suggested that a majority of Democrats would wind up supporting Whitman's plan, just like they have in the past.
``It's what the voters want,'' he said. ``I've yet to see the phrase `I voted against a 30 percent income tax cut' in a campaign brochure. But I have seen it appear in opposition research.'' ILLUSTRATION: Color photo
Photo
Gov. George F. Allen wants to cut a levy on business receipts that
provides localities with $300 million a year.
by CNB