2006 New Jersey State Government shutdown

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The 2006 New Jersey State Government shutdown was the first shutdown in the history of the state of New Jersey.^[1] It occurred after the New Jersey Legislature and Governor Jon Corzine failed to agree on a state budget by the constitutional deadline. It began at midnight on July 1, 2006, when Corzine called for an orderly shutdown of non-essential government services, and officially concluded after the legislature adopted a budget on July 8, 2006. All government services were restored by 8:30 a.m. on July 10, 2006.

Contents 1 Background 2 Causes 3 The shutdown 4 Post-shutdown governmental action 5 Effects 6 Political influences 7 References

[edit] Background

The New Jersey State Constitution, under Article VIII, Section II, paragraph 2, requires that the state's expenses for "as far as can be ascertained or reasonably foreseen" (i.e., the fiscal year) be provided for in a single budget act. If this does not occur before the previous budget lapses, the same section also outlaws any expenditure of money. The constitution also contains a provision in the previous paragraph preventing appropriations from going into red ink; the New Jersey Supreme Court has interpreted this to exclude loans made to cover shortfalls, and Corzine has claimed that the state has a poor credit rating anyway. Because the President of the New Jersey Senate, former Governor Richard Codey, has stated his support for Corzine's tax raise most of the negotiations have been with the New Jersey General Assembly, whose Speaker, Joseph J. Roberts, strongly rejected the Governor's plan.^[2]

[edit] Causes

Corzine, in attempting to pass his conceptual budget, came into conflict with fellow state Democrats in the New Jersey General Assembly, particularly over their refusal to implement his proposed increase of the state's sales tax from 6% to 7%^[3] to fill a budget gap. The gap could not be filled by any other means due to the state's constitution and a ruling of New Jersey's Supreme Court. Long before the deadline date, Corzine had stated that he would not accept a budget that did not include a sales tax increase. Due to Corzine's insistence, the state's General Assembly, which was dominated by Democrats, refused to pass a budget before the deadline.

[edit] The shutdown

After the legislature failed to pass a budget by midnight July 1 when the old budget ended, the governor signed executive order № 17^[4] that immediately stopped numerous non-essential government functions, with more to come after the Independence Day holiday on July 4, 2006.

State functions that ceased immediately included the New Jersey Lottery, the New Jersey Motor Vehicle Commission, MVC offices and inspection stations, the New Jersey Department of Education and parts of the New Jersey Judiciary.^[5]

Approximately 45,000 state employees who were listed as "non-essential" were told to stay home.^[6]

Later (post-July 4th) shutdowns included state beaches, public parks, historic sites, gambling at Atlantic City casinos and horse racing in the Meadowlands Sports Complex.

Both of the latter two were due to the official monitors from the New Jersey Casino Control Commission being listed as non-essential. Since gambling establishments cannot legally operate without state oversight, both were forced to close.

Originally, races were to close with the first wave on July 1, but a State Court order allowed them to close later. The casinos attempted a similar case, arguing that the state monitors overseeing the casinos were not paid by the state but by the casinos themselves, but the appeal was rejected at the New Jersey Supreme Court; therefore they were forced to close.

According to The Philadelphia Inquirer, "NJ Transit, prisons, state police, developmental centers, veterans' homes, mental hospitals, health and disease-prevention offices, child welfare, work on transportation safety, response to environmental contamination, [and] inspectors of amusement parks" were not affected by the order to shutdown.^[7]

[edit] Post-shutdown governmental action

On July 4, Corzine called an unprecedented Independence Day session of the General Assembly to work on presenting him with a budget.^[8] Immediately after listening to the governor's speech, the legislature voted by voice vote to adjourn the session. The General Assembly met again, without proposing a budget, on July 5.

On July 6, 2006, Democratic factions within the General Assembly reached a compromise budget. That tentative budget proposed an increase in the state sales tax from 6% to 7%, which is estimated to generate an additional $1.1 billion in revenue. The plan also included a requirement to use half of that for direct relief toward New Jersey's property tax — highest of all states. The plan also called for the same dedicated purpose for all of the money raised by this sales tax increase in subsequent years. The new budget law includes a provision for a constitutional amendment which must, like all such amendments in the state, be approved in an Election Day referendum, to be held on November 7, 2006.^[9] New Jersey voters approved this measure by a 2-1 margin statewide. ^[10]

On the morning of July 8, 2006, both houses of the legislature passed the proposed budget. At 6 a.m. that day, Corzine signed executive order № 19^[11] to restore government services. The casinos in Atlantic City opened for business at 7 a.m. Remaining government services, including race tracks and the state lottery, also reopened on July 8, 2006. State courts and motor vehicle offices resumed normal operations on July 10, 2006, fully ending the shutdown.

Corzine utilized his line-item veto authority to reduce the budget by over $51.3 million by eliminating or reducing over 50 spending items.^[12]

[edit] Effects

During the casino shutdown, 36,000 casino workers were given leave. The shutdown of casinos was thought to have hurt the state as an estimated $1.3 million per day is collected in gambling taxes by the state.^[9] However, the sum of revenue not collected during the shutdown from gambling amounts to less than a fraction of one percent of the state's annual budget.

All driver's licenses and vehicle registrations that were to expire at the end of July were extended one month.^[13]

The increase in the rate of the state sales tax from 6% to 7% took effect on July 15, 2006, and also increased the sales tax rate in the state's Urban Enterprise Zones (UEZs) from 3% to 3½%. A significant change was made in the payment of sales taxes by businesses operating in the UEZs in that they would be required to pay the entire amount of the full tax rate to the state on all appropriate purchases, and wait for the state to rebate them the difference.^[14]

The budget also included changes to products and services that are subject to the sales tax, effective October 1, 2006. The newly taxable items included downloaded music, ringtones, movies and books; shipping and handling; drapery and carpet dry cleaning; floor installation; contracted landscaping; self-storage; tanning; massages; tattooing; magazines; investigation and security services such as armored cars and alarm systems; limousines, except for those used in funerals; memberships in health, athletic and shopping clubs; and parking, except for employee parking, parking at municipal meters and parking already subject to municipal parking taxes.^[15][16]

Other immediate tax increases in the budget included an increase in the cigarette tax by $0.175 per pack; a 0.4% surcharge on automobile purchases of over $45,000.00 and on vehicles with an average combined city highway miles per gallon 19 or less; a new 6% tax on fur clothing^[17]; an increase in the rental-car tax from $2 to $5 per day^[18]; and increases on several business taxes.^[19]

These additional revenues were expected, when combined with spending cuts including a reduction of $200 million in higher education spending, to meet the state's balanced-budget requirement. A clause was also inserted into the budget cutting state aid for schools that hold over $1 billion in endowments. The only school in New Jersey that falls into this category is Princeton University, which has an endowment with assets over $11 billion. The university that has the largest endowment next to Princeton is Drew University with a $225 million endowment fund.^[20]

[edit] Political influences

Corzine's shutdown of state government had some effect on New Jersey's or even national politics. According to Clay F. Richards, assistant director of a poll by Quinnipiac University, Corzine had a 44% approval rating, his highest since January 2006. 71% of respondents to the poll disapproved of the legislature's handling of its job. According to Richards, "New Jersey voters clearly blame the state legislature for the budget crisis, and say the property-tax relief that the legislature insisted on in the compromise is more politics than real reform." Of those polled, 23% indicated that they will not vote for those representatives who voted for the sales-tax hike in the future. The state legislature's next election will be in November 2007, but Corzine does not face another election until 2009^[21].

Besides the influence for politics within New Jersey's borders, speculation was rife that the U.S. Senate race, already seen as tight, would be affected. Republican candidate Tom Kean Jr. said Democratic Senator Bob Menendez did not oppose Corzine's tax hike because Corzine appointed Menendez to serve out the remainder of his own term in the Senate. According to Peter Woolley, director of Fairleigh Dickinson University's PublicMind poll, the situation of the election was similar to the 1990 election, when underdog Senate candidate Christie Whitman, a Republican, nearly defeated well-known Senator Bill Bradley due to Democratic Governor Jim Florio's sales- and income-tax increases.^[22]

[edit] References