This article was first published by The McAlvany Intelligence Advisor on Friday, May 23, 2014:
Thanks to the current age of skepticism, aided and abetted by the internet, the “lipstick” strategy being used by Chris Christie is about to fail, revealing instead the economic pig that New Jersey has become during his administration.
Back in March 2012, Christie touted his budget that would only balance if a miracle occurred: He predicted that revenues would grow by 10 percent, the highest of any other state, and far above those states nearby (i.e., New York and Pennsylvania) on whom much of New Jersey’s economy depends.
Last November, he bragged at the New Jersey Chamber of Commerce annual dinner (held in Washington, not Trenton, interestingly):
When we think back on what’s gone on for now nearly five years, the recovery that we have made has been truly exceptional. It’s not complete, but it’s been exceptional.
More people are employed. Revenue in the state budget is higher. Businesses are looking to grow and expand. New businesses are coming into New Jersey.
Reality is catching up with the man. First of all, there’s the $807 million shortfall in his $33 billion budget that he must somehow finagle by June 30. If one looks out one more year, the deficit approaches $2 billion.
There’s his state’s credit rating, which has just been downgraded by Moody’s, marking the third one this year (Fitch and S&P announced their downgrades earlier this year) and the fifth since Christie became governor. Said Moody’s:
With the ongoing pressure of … pension contribution increases and lagging economic performance, the state will be challenged to improve its weak liquidity position.
“Challenged” is, in this case, synonymous with “impossible,” as Sarah Arnett pointed out in her working paper for the Mercatus Center published in January. She measured every state’s “liquidity position” – short-term, intermediate-term, and long-term – and found that New Jersey’s indices placed it dead last among the fifty states. In other words, New Jersey is the state least likely to pay its current bills on time, create and stick to a balanced budget, or meet all of its long-term costs and commitments into the future.
In her analysis, Arnett failed to account for two additional factors that will surely keep New Jersey at the bottom of her list: rising health care costs under the Unaffordable Healthcare Act, and the demand for risk premium from bond investors buying the state’s now nearly junk bonds.
His administration is being sued by unions over his proposal to drastically cut the amount the state would pay into the state’s pension and healthcare programs. Why the unions would be concerned now is a conundrum: past administrations (i.e., Corzine et al) for the past 15 years have failed to make proper and sufficient payments, so why all the fuss now?
There are the resulting shortfalls in those plans, which are rapidly approaching $100 billion, and the recent very unhappy comparison of how Christie’s state stacks up against the economic performance of other Republicans who might be in the hunt for the presidential nomination in 2016: Rick Perry in Texas, Scott Walker in Wisconsin, John Kasich in Ohio, Mike Pence in Indiana, and Bobby Jindal in Louisiana. In five out of six categories, New Jersey comes in dead last.
In private sector jobs created since February 2010, New Jersey’s rate is half that of the lowest of the others and one-quarter of those in Texas. In total jobs lost or gained since the start of the Great Recession, New Jersey underperforms all of the competition. In increase in exports over the last four years, New Jersey remains at the bottom and barely one-quarter of those generated in Bobby Jindal’s Louisiana. New Jersey’s housing prices remain 20 percent below where they were before the housing crash, while housing prices in Texas have actually increased five percent in that period.
Only in household median income has New Jersey held its own, down just 0.5 percent from 2007-2012, compared to an 18 percent decline in John Kasich’s Ohio.
Arnett has looked at New Jersey from another point of view: that of the poor taxpayer who is about to get poorer. On a per-capita basis, the state’s budget deficit in 2012 was $727, the worst in the country. The average of all states combined was a per-capita surplus of $364. On a per-capita basis, the state’s unfunded liabilities come to just under $8,000, three times the national average. She noted that in the past, Christie has used balance sheet shenanigans to balance previous budgets:
tax revenues … have not kept up with expenditures, [while the] use of budget practices … only appeared to balance the annual budget….
Christie has other problems, as well. The Bridge Gate scandal from last September simply will not go away. Christie has lost five top aides already, due either to be being fired or by resigning under threat of same, and there are still three serious investigations of the incident continuing: one each by the U.S. Attorney, the state’s legislature, and by the Port Authority. The state’s own attorney general has refused to say if he’s going to enter the fray.
A key marketing principle taught in nearly every college in the land is this one: the more aggressively a bad or defective product is promoted, the faster it is removed from shelves, never to be seen again. Christie was voted in as chairman of the Republican Governors Association last fall, and is busy flying around the country trying to raise money for the upcoming elections. Along the way, he continues to tout the New Jersey “comeback” that got him reelected in January. The more the reality of the economic disaster that he has failed to reverse is uncovered, the faster will he lose his credibility, along with any chance to be considered seriously as a presidential candidate in 2016.
The lipstick is wearing awfully thin in New Jersey.
A graduate of Cornell University and a former investment advisor, Bob is a regular contributor to The New American magazine and blogs frequently at www.LightFromTheRight.com, primarily on economics and politics. He can be reached at BobAdelmann@msn.com.
Mercatus Center: State Fiscal Condition Ranking the 50 States