NJ Gov's "cold turkey" budget slashes spending

TRENTON, New Jersey (Reuters) - New Jersey Gov. Jon Corzine on Tuesday introduced what he called a "cold turkey" budget for the coming fiscal year that cuts at least 3,000 jobs, eliminates three departments and slices spending by $500 million from this year's level.

In his presentation of a $33 billion budget for the fiscal year that starts on July 1, Corzine told lawmakers his plan was a "sobering" one that marks a turning point in the state's finances, which he said have been damaged by years of mismanagement and quick fixes based on nonrecurring

revenues. A slowing economy has also damaged the state's tax revenue.

"The budget I present today declares the time of living behind our means is over," the Democratic governor said.

The budget goes beyond Corzine's pledge to freeze spending and imposes the second-largest spending cut in the state's history. Spending would shrink from the previous year for only the fourth time since 1951.

The new budget would eliminate the personnel and agriculture departments and the commerce commission, steps that would result in the loss of at least 3,000 jobs, mainly through early retirement.

The positions will be eliminated so that they cannot be refilled at a later date, Corzine said.

"My budget takes the necessary but painful steps to reconcile years of mismatch between recurring expenditures and recurring revenues by cutting spending," Corzine said in his 25-minute speech.

He said budget negotiators faced mandatory and inflationary spending increases of nearly $2.2 billion beyond expenditures just to keep the budget at last year's level. The $500 million cut reflected a downturn in revenue from income and other taxes because of the slowing economy.

"In light of the ongoing economic downturn, revenue estimates aren't strong enough to support even last year's estimates," Corzine said.

To promote the principle of sustainability, the governor also proposed that only $500 million of a surplus from the current year be used to help balance the coming year's budget. The remaining $300 million will go to pre-fund early retirement and unfunded pension liabilities.

Corzine said he expected that the 2009 fiscal year would be the last year that any surplus is used to balance a budget.

Corzine urged lawmakers to approve a budget that stays within the proposed spending limits; to pass legislation that requires government to limit growth in spending to certifiable recurring revenues in future budgets, and to ask the electorate to vote on a constitutional amendment to limit borrowing.

He also renewed an appeal to legislators to back his efforts to pay down debt and fund transportation infrastructure renewal by handing management of the state's major toll roads to a public benefit corporation that would issue bonds based on sharply increased toll revenues.

Following a storm of public opposition to the planned toll increases, Corzine said he had not expected the plan to be popular, and that he is open to alternative ways of cutting debt and funding transportation improvements.

But he said it was unacceptable for the state to "muddle through with more of the same failed short-sighted fiscal policies that created the mess in the first place."

Republican Assemblyman Joe Malone welcomed Corzine's speech as a "defining moment" for the governor, and said the budget should provide the foundation for an overhaul of the state's finances.

"This is a great beginning for dealing with this issue," Malone said.

Democratic Assemblyman Louis Greenwald, chairman of the Assembly budget committee, said Corzine's plan follows proposals that have been discussed by the committee.

"This embraces concepts that we've been working on for years," he said.

(Reporting by Jon Hurdle in Trenton; Editing by Richard Satran)