New Jersey is headed by a governor who is elected to a four-year term and eligible to serve two terms. The governor proposes the annual budget, oversees agencies, signs bills into law, and may call a special session of the legislature. New Jersey has a part-time legislature comprised of a 40-member senate, and an 80-member general assembly. The legislature enacts laws and may amend the constitution. The governor appoints judges, subject to approval by the senate. Judges serve seven-year terms. If reappointed, a judge serves until the age of 70. There is a State Superior Court and a Supreme Court, which is the highest court in the state, ruling on constitutional matters.
New Jersey’s guiding document is its constitution, which may be amended by the legislature with a three-fifths vote of both houses, or a majority vote in two consecutive terms. Voters must approve the amendment in a general election. There is no citizen initiative or referendum process in New Jersey. In 2001, the New Jersey legislature considered bills to introduce a “limited initiative” process for the state.
New Jersey has a complex local government structure consisting of 21 counties, which contain in total 566 municipal governments and 611 school districts. A Board of Chosen Freeholders composed of between three and nine elected members governs the county, overseeing county departments. Municipalities are established in one of five corporate types—borough, town, city, township, or village—and operate in one of two governmental forms—statutory or optional—determining the number of elected officials and method of appointment.
New Jersey has a tradition of “home rule,” relying on the county and municipal government to provide local needs. The state constitution and the Home Rule Act of 1917 (N.J.S.A. 40:42 et. seq.) permit municipalities certain powers to enable self-government. These powers are granted by the state and may be altered by state law. In practice, municipalities exercise some control over local policies but are responsible for implementing and funding state mandates.
New Jersey’s budget is displayed in terms of the funds the state dedicates to various uses (see figures 11 and 12). These expenditure categories represent how the state finances its policies and aspects of New Jersey’s tax system.
Direct State Services
This category represents discretionary spending. It includes salaries and pensions for public sector employees, public facilities maintenance, and expenses related to the operation of government. Growth in this portion of the budget has fallen in real terms from $7 billion in 1996 to $6.5 billion in FY 2009, representing about 20 percent of the total budget. The public sector workforce has quadrupled since 1950 to 82,989 employees in 2007 (excluding K-12 teachers). Eighty-seven percent are represented by one of 12 unions. Average salaries for full-time employees nearly doubled, in nominal terms, to $43,565 per capita between FY 1991 and FY 2007.
The on-budget cost of pensions and health benefits for state employees increased in real terms from $1.5 billion in FY 1996 to $1.78 billion in FY 2009. This obscures the true cost of the pension plan. Over the decades, pension benefits have been expanded, increasing the state’s future pension obligations. This was coupled with contribution deferrals, or “pension holidays,” by state and local governments. Changes in valuation and the fall in the value of the stock market leave the pension plan currently underfunded by $34 billion.
These include payments made by a third party (mainly the federal government) to the state to pay for programs and payments to individuals, including welfare, education, public safety, health, and transportation. Medicaid is the biggest cost driver, representing nearly 60 percent of grants-in-aid. Grants-in-Aid have doubled in real terms since 1996, to $9.3 billion in FY 2009, or 28 percent of the budget. State spending on Medicaid doubled during this period, from $1.8 billion in FY 1996 to $3.34 billion in FY 2009.
Property Tax Relief Fund
Created in 1976 to comply with the state Supreme Court’s ruling on education funding, New Jersey’s Constitution requires that all state income-tax revenues be dedicated to “indirect property tax relief.” Funds are distributed as aid to school districts (73 percent), aid to municipal governments (17 percent), and property tax rebates to individuals (8.4 percent).
The Property Tax Relief Fund represents 41 percent of New Jersey’s total budget. The fund has more than doubled in real terms from $6.2 billion in FY 1996 to $13.5 billion in FY 2009. Revenues from income taxes are distributed to lessen local reliance on property taxes. However, in the same period, property taxes have risen substantially. Most of the fund is awarded to 31 court-designated K-12 school districts (known as Abbott districts). Court rulings on the amount and scope of funding and curriculum composition have contributed to increased costs per pupil in these districts.
Providing aid to colleges, hospitals, and municipalities, state aid remained stable in real terms from $1.91 billion in FY 1996 to $1.88 billion in FY 2009. While spending on state aid represents only six percent of the budget, the awarding of aid to municipal governments is the basis of a continuing debate over the efficiency of New Jersey’s 566 municipal governments. Municipalities claim aid is typically insufficient to cover the cost of state mandates. The state contends many smaller municipalities have insufficient tax bases and are reliant on state aid to function. The state recommends municipalities merge or consolidate services to reduce the cost of providing aid.
Funds used to finance (primarily through bonds) capital projects include wastewater facilities, public buildings, hazardous waste cleanup, open space preservation, and school construction. The fund totals $1.19 billion in FY 2009. Most of the growth in capital construction is driven by the Transportation Trust Fund, which increased from $196 million in FY 1996 to $895 million in FY 2009 in real terms.
Casino Control Fund
With the legalization of gambling in Atlantic City in 1976, a fund was established to dedicate fees and taxes from casino licensing to provide marketing, police, and services to promote tourism. The fund contained $74 million in FY 2009.
Casino Revenue Fund
Established in 1976, the fund dedicates casino tax revenues to property tax rebates, utilities, health care, and transportation expenses for eligible seniors and disabled residents. Pharmaceutical Assistance makes up the largest share at $215.9 million.
Representing payments on interest and principal to service general obligation bonds, annual debt service has remained steady, amounting to $405 million in FY 2009. Most of the state’s debt is subject-to-appropriation debt, raised by independent authorities, such as the Economic Development Authority and the Transportation Trust Fund Authority, and until November 2008, was not subject to voter approval. The issuance of subject-to-appropriation debt has driven the level of total net taxpayer-supported outstanding debt from $2.5 billion in 1990 to $45 billion in 2009 in real terms.
The Seldon Table as applied to NJ (based on NJ 2009 budget):
|Categories of public spending||Appropriations in Thousands of Dollars||Percent of Operating Budget|
|Category I: Public Goods with Inseparable Benefits||$1,493,984||32.13%|
|Category II: Public Goods with some Separable Benefits||$1,189,005||25.57%|
|Category III: Substantially or wholly separable benefits||$1,485,927||31.95%|
|Category IV: Subsidies, grants, pensions and other (mostly cash) disbursements||$481,210||10.35%|
|Total Operating Budget||$4,650,126||100%|
If one assumes that categories I and II represent the core of government spending, then almost 50 percent of New Jersey appropriations for its 2009 budget is not directly necessary to the well functioning of the economy.
 Effective in 2009, New Jersey will institute a Lieutenant Governor position. Previously, the Senate President assumed the office of Governor when the office was vacated mid-term. This has happened twice in the last decade. Senate President DiFrancesco was appointed to complete Governor Christie Whitman’s term when she was appointed to the head the U.S. Environmental Protection Agency in 2001, and Senate President Richard Codey completed Governor James McGreevey’s term when he resigned in 2005.
 The modern constitution was adopted in 1947. New Jersey’s first constitution was adopted in 1776. The constitution was significantly altered and readopted in 1846.
 Senate Concurrent Resolution No. 8 and Assembly Concurrent Resolution No. 82 proposed to introduce a limited initiative process in New Jersey that would allow citizens to introduce initiatives in areas restricted to governmental reform, and included high thresholds for ballot qualifications and judicial review of initiatives. These measures were intended to avoid the excesses of California’s initiative process.
 Article IV, Section VII (11) of the N.J. State Constitution states, “The provisions of this Constitution and of any law concerning counties, shall be liberally construed in their favor. The powers of counties and such municipal corporations shall include not only those granted in express terms but also those necessary or fair implication, or incident to the powers expressly conferred or essential thereto, and not inconsistent with or prohibited by this Constitution or by law.”
 The Communication Workers of America (CWA) is the largest union in the state, representing the professional, supervisory, clerical, and administrative bargaining units, which account for 47.6 percent of the state workforce. The American Federation of State, County, and Municipal Employees (AFSCME) represents direct care workers in state institutions, mainly health and military and veterans’ affairs, making up 12.2 percent of the state workforce. The Police Benevolent Union comprises 8.2 percent.
 New Jersey State Government Workforce Profile, New Jersey Department of Personnel, 20.
 Homeowner rebates vary from year to year depending on revenue collections and the policy priorities of the governor.