How a budget dispute became a brawl

(Published July 9, 2006)

By Jeff Whelan, Josh Margolin and Mark Mueller

The Delaware River rose and rose, spilling into Trenton, cascading across roads, nipping at the lower level of the Statehouse. The National Weather Service said it could be a big one, a 50-year flood. In his wood-paneled office, Gov. Jon Corzine declared a state of emergency.

It was a fitting backdrop to the events in the Statehouse, for on that wet Wednesday, June 28, New Jersey’s government was sinking into a deep and unprecedented crisis. The state constitution required the approval of a balanced budget by midnight on June 30. Without one, New Jersey no longer could spend money.

But Corzine and his splintered Democratic Party were nowhere near a budget agreement. The stalemate would lead, three days after the flood’s onset, to the first government shutdown in state history. No lottery. No new drivers licenses. No courts. No state parks or beaches. No work for 45,000 state employees. For a time, no horse racing and no casinos.

JON S. CORZINE
New Jersey Gov. Jon S. Corzine

Corzine lifted the shutdown order yesterday morning, one costly and tumultuous week after it went into effect. In a compromise with the Assembly Democrats who opposed him, Corzine won his penny-per-dollar increase in the sales tax. The Assembly members ensured that half of the new revenue would be earmarked for property tax relief.

But if the settlement sounds simple enough, the path to it was not. Interviews with those involved in the fight paint a disturbing portrait of how a disagreement on policy became a perfect storm, fed by misunderstandings, mistrust, behind-the-scenes maneuvering and hardheaded stands on principle.

To that volatile mixture add two strong-willed men, both rookies at their jobs: Corzine and Assembly Speaker Joseph Roberts (D-Camden). Neither wanted to be pushed around by the other.

“It was a blood bath,” Senate Majority Leader Bernard Kenny (D-Hudson) said yesterday after the budget had passed the Legislature. “Careers were at stake. It was war. It reminded me of one of those local elections where you feel that your whole self-worth is endangered if you lose. People are going for your jugular. They are going to destroy you.”

Those involved in the struggle say mistakes were made all around.

Roberts is faulted for taking a rigid stand against the governor, then ultimately accepting a deal similar to the one he rejected before the shutdown.

Democrats in the Assembly believe some administration officials were condescending and arrogant, acting as if the lawmakers had never before put together a budget.

They also found Corzine’s approach to the process autocratic, confirming their assumptions about a man who served as a chief executive on Wall Street. Some complained they were treated like “junior traders.”

Senate President Richard Codey, who helped shepherd Corzine through the crisis, said he was impressed by the governor’s attention to detail on budget matters but conceded Corzine wasn’t as inclusive as he should have been.

“Unfortunately, he didn’t study the politics of the budget at all,” Codey said. “He should have realized early on that it’s not Goldman Sachs. You can’t do a budget by yourself. Other people have opinions and values. There’s nothing wrong with that. The more ideas you have, the better off you are.”

But for all their complaints about Corzine, his opponents appeared to underestimate him.

“Nobody thought the governor was as strong-willed as he is,” said Assemblyman Albio Sires (D-Hudson), a former Assembly speaker. “I don’t think people measured the intensity. They never thought the governor would go through with (the shutdown).”

Sires was less surprised.

“That guy made $500 million among the biggest sharks in the world on Wall Street,” Sires said. “He’s no slouch.”

THE CRISIS TAKES SHAPE

Throughout his self-financed campaign for governor, Corzine pledged to fix New Jersey’s financial problems, which he said had been spurred, in part, by years of copious borrowing and budget “gimmicks.”

When it came time to craft his own budget, Corzine faced a $4.5 billion deficit. Part of the solution he proposed in his March 1 spending plan was an increase in the sales tax from 6 percent to 7 percent, which would raise $1.1 billion.

Democrats in the Assembly, where Election Day comes every two years, worried about making their constituents dig deeper while living in a state that already carried one of the nation’s highest tax burdens. Gov. Jim Florio had raised taxes by $2.8 billion in 1990, and voters responded by eviscerating the Democratic majority.

Those opposed to Corzine’s sales tax hike didn’t want to see an encore. Their stance would harden in June, when a poll showed voters opposed a sales tax increase by a 2-1 margin.

Assembly Speaker Roberts, a veteran lawmaker and longtime proponent of property tax reform, also thought it was the wrong fight at the wrong time. The public had long been in a froth about spiraling property taxes, and if a sales tax hike were to be enacted at all, Roberts wanted every cent of it to go toward that problem.

On June 16, Roberts and other leaders met with Corzine in the governor’s Statehouse office. Their message was blunt: The sales tax increase was dead in the Legislature’s lower house.

Corzine held firm, lobbying privately with Assembly members and warning publicly that failure to increase the sales tax would result in “draconian” cuts elsewhere.

By June 28, as the rain-engorged Delaware began flooding the Statehouse garage, the crisis was at full throttle and quickly approaching the surreal.

In a fourth-floor committee room, Louis Greenwald (D-Camden), the chairman of the Assembly Budget Committee, dispatched the burly sergeant-at-arms to fetch the state treasurer, Bradley Abelow. The night before, Corzine had threatened to veto any budget that didn’t include a sales tax increase, and a furious Greenwald wanted an explanation.

An equally furious Assemblyman Joseph Cryan (D-Union), a Corzine ally, poked Greenwald in the chest and shouted profanities at him for orchestrating the political theater.

Abelow, on Corzine’s orders, refused to show.

Corzine had put in place contingency plans for a shutdown, and as he toured a flooded neighborhood in Trenton, he warned he would act on them unless “people come to their senses.”

In an interview later, Corzine said he didn’t want to order a shutdown, nor did he anticipate he would have to. But he said he was adamant about following the law, and the law in New Jersey was clear: no budget, no authorization to spend.

“The rule of law actually means something,” he said. “Constitutions were written . . . for a reason, and they lay down the basic framework in which we make decisions. They’re the rules for the game, and they’re not that hard to read in New Jersey.”

But to Corzine, the crisis had larger ramifications. In a state notorious for its political bosses and backroom deals, Corzine was making a point.

“I do believe we are in the midst – actually in the early stages – of change that will end up making the state government a more credible circle of people,” he said. “For too long we have allowed short-run considerations and individual preferences and special interests . . . to dictate what policies should be.

“There’s a recognition that the public has had it with this,” he added. “You’re seeing one incarnation in that conflict. It’s not about individuals. It’s about how business is done. It’s an issue of change.”

As time slipped away, rhetoric escalated. On that Friday, the constitutional deadline for a balanced budget, Roberts thundered that Corzine was “trying to strong-arm a tax increase upon the citizens of this state.”

At 10 p.m., two hours before the deadline, the Assembly still had not produced a budget. Instead, Roberts offered another angry press conference.

“Governor, we have no interest in having a gun placed to our head and passing a sales tax for a state budget that doesn’t need it,” he said.

Corzine stayed at his desk until the midnight deadline before heading to Drumthwacket, the governor’s mansion in Princeton, for a few hours of sleep.

THE SHUTDOWN BEGINS

At 9:40 a.m. on Saturday, July 1, Corzine signed an executive order calling for the “`orderly” shutdown of nonessential state operations.

With the shutdown order, 45,000 state workers were immediately furloughed. Most road construction projects came to a halt. Motor Vehicle Commission offices closed. New Jersey’s two state-run horse-racing tracks, Monmouth Park and the Meadowlands, went dark at 6 p.m. The lottery stopped selling tickets two hours later.

The order included Atlantic City’s 12 casinos because state-employed casino inspectors were not deemed “essential.” The matter ended up in court. Administration officials said that was fine with Corzine, who was in no rush to see the casinos close. State lawyers asked an appellate division judge for 24 hours to submit legal papers.

The maneuver was part of the strategy worked out between Corzine and Codey, both well aware of the financial impact of the shutdown. The casinos produce $1.3 million a day in gaming revenue for the state. Over the busy holiday weekend, they were projected to produce up to $7 million.

“The only issue was fudging it so (the casinos) wouldn’t be closed until after July 4th,” Codey said.

Corzine knew Roberts and his allies were “dug in,” Codey said, but he also knew he could bank on the pressure created by the shutdown. Closing the casinos, especially, could be catastrophic to the Assembly Democrats, many of whom represent South Jersey districts.

“With each day, it would be harder for them to survive the onslaught,” Codey said.

In essence, Corzine was playing political chicken.

While administration officials felt the state could not withstand a shutdown for more than two weeks, they say Corzine was betting the Assembly Democrats would fear voter reaction to the shutdown more than they feared the sales tax.

Roberts spent most of that Saturday in his Statehouse office, a bottle of Tums atop his desk. He called the shutdown order “enormously unfair” to state workers.

He spoke to Corzine only briefly, to arrange a meeting for the next day. A NEED TO BE FIRMFor four hours Sunday, Assembly leaders huddled with Codey and Corzine in the governor’s mansion. And for four hours, neither side budged.

Roberts and his allies proposed a broad mix of new taxes to replace the sales tax increase. Tom Shea, Corzine’s chief of staff, said the governor rejected the ideas because they had not been vetted with the public.

Codey emerged from Drumthwacket pessimistic.

“I don’t know the recipe,” he said. “Simple as that.”

Looking back, Codey said Corzine’s reluctance to firmly reject proposals he didn’t like proved an obstacle.

“I would say, `Jon, say yes or no,'” Codey said. “I would say to him, `You’re just encouraging them to put things on the table that you know you’re going to reject.'”

Assembly members shared that assessment, according to a lawmaker active in the negotiations. The lawmaker, who asked his name be withheld to avoid additional difficulties with the governor, said Corzine liked to say yes but seldom offered a flat-out no.

“He was wishy-washy,” the lawmaker said.

THE FEAR FACTOR

The din of bullhorns echoed outside the Statehouse as the shutdown entered its third day. State employees were rallying, demanding an end to the impasse. Their union leaders were calling working conditions chaotic, with too few people to get anything done.

The unions were squarely in Corzine’s corner, largely because his budget included $1.5 billion for the state employees’ pension fund, which had been raided repeatedly by previous administrations to plug budget holes.

The unions demanded Roberts acquiesce, but they might as well have been whistling in the wind.

After a 30-minute meeting with Corzine, Roberts emerged from the governor’s office frustrated by what he called Corzine’s “singular focus” on the sales tax.

“It is almost as if his position is, `If there is no sales tax, there is no state of New Jersey,'” Roberts said.

Corzine countered by signing an executive order requiring lawmakers to appear at the Statehouse the next day, July 4th, for a historic special joint session that would continue until a budget was in place.

He also pushed for a compromise offer put up by Codey weeks earlier. Under that deal, the sales tax would increase, but half of the revenue would be dedicated to property tax relief – essentially the same compromise that would end the deadlock days later. Corzine embraced the Codey plan. Roberts rejected it.

To Kenny, the Senate majority leader, the unfolding events seemed “unreal.”

“People are starting to become concerned,” he said. “People are getting afraid.”

For lawmakers from South Jersey, it would get even scarier.

Late Monday night, a single justice of the state Supreme Court backed the administration’s view that casino inspectors were nonessential state workers. Barring a last-minute settlement, the casinos would close Wednesday, July 5. It would be the first time they were not open since 1992, when gambling in Atlantic City was expanded to 24 hours a day.

A CRITICAL MISTAKE

Standing before a packed chamber at the Statehouse, Corzine spoke for 20 minutes Tuesday morning. The situation, he said, had gone from “unfortunate to unacceptable.” People were being hurt, he said.

The dramatic Independence Day speech dominated newscasts and headlines, but the real fireworks would come later, out of public view.

In the Assembly majority’s caucus room, in the Statehouse basement, Roberts asked his members to raise their hands if they supported Corzine’s sales tax hike. Only 15 of the 49 Democrats did.

For the administration, the show of hands looked like a serious setback. For weeks, Corzine’s allies had been counting on 24 to 30 votes. Clearly, there had been defections.

“It was a critical time,” Codey said. “If you’re an Assembly member, you’re thinking, `Maybe I’m on the wrong train here.'”

Several lawmakers from Bergen and Passaic counties were among those who bolted.

An emboldened Roberts reiterated his opposition to the sales tax increase, declaring it “dead.”

The momentum for the Assembly quickly dissipated, however, after what Codey described as a tactical error.

Assemblyman Lou Manzo (D-Hudson) floated a proposal to replace the sales tax increase, in part, with an income tax hike on families earning between $200,000 and $500,000.

“That turned out to be a disaster (for the Assembly),” Codey said.

The Corzine administration quickly ran numbers that showed just 10 percent of the money raised from such a tax would come from South Jersey, while 90 percent would come from the North.

Codey worked the phones, calling North Jersey lawmakers, saying it would hit their constituents hardest.

“I said, `Do you want an income tax hike in Bergen County in an election year? I don’t think so,'” Codey said. Bergen County lawmakers said the proposal swung them firmly back into Corzine’s camp.

Roberts didn’t know it yet, but the momentum was beginning to swing against him.

THE PRESSURE BUILDS

In Atlantic City’s casinos, the most unusual sound of all – silence – supplanted the humming of slot machines just before 8 a.m. As the shutdown entered its fifth day, state parks, beaches and historic sites also closed, but it was the casinos that would cause the most economic and political pain.

The gambling halls employed 36,000 people, and 20,000 were immediately out of work. Casino executives, urged on in personal phone calls by Corzine and Codey, in turn worked the phones themselves, pressuring South Jersey lawmakers aligned with Roberts.

“People were reaching out, obviously,” state Sen. William Gormley (R-Atlantic) said. “The governor was very attentive to that. Clearly the calls were going out, and they were supporting the governor.”

That night, Corzine made a last-ditch effort for a compromise at another meeting with Roberts and Codey. Roberts, in an interview yesterday, said Corzine made the sales tax increase more attractive by pledging to earmark half the revenues for property tax reform for a decade instead of a single year. Corzine and Codey dispute that, saying the offer had always been geared toward the long term.

If Roberts was intrigued, he didn’t show it.

At a press conference afterward, he vowed to introduce an alternate budget that did not include Corzine’s sales tax increase. Later that night, he did, but he wouldn’t keep the spotlight for long.

UNUSUAL PASSION

Corzine has never been called a master orator. He sometimes drones on, lost in the particulars of policy and financial minutia. But as he stood before the Legislature for a third day on Thursday, July 6, his emotions did the talking.

He chastised the Assembly Budget Committee for failing to take action. He said the state was drowning “in a recurring sea of red ink.” And he outlined for lawmakers what he had told Roberts the night before – that half the revenue from a sales tax increase would be dedicated to property tax relief for a decade.

In his most dramatic moment, he pounded the podium and declared, his voice booming, “We can do this today. Today! Today!”

Weary lawmakers, suddenly energized, jumped to their feet to applaud.

“When I saw people start to stand up to give the governor a standing ovation, my instinct told me it was over right then and there,” said Sires, the Hudson County assemblyman, who had sided with Roberts in the fight. “I knew we had lost the Assembly. It was time to cut a deal.”

Sires said he sought out Roberts and bluntly told him it was over.

Roberts already had lost the support of another key ally, Assembly Speaker Pro Tempore Wilfredo Caraballo (D-Essex), that morning. Caraballo defected after receiving a visit from Essex County Executive Joseph DiVincenzo, a longtime friend and ally.

“We talked,” DiVincenzo said. “Then he came in to see the governor, by himself. Freddy made a commitment to the governor that he was going to support the governor’s plan.”

In the hours that followed Corzine’s speech, lawmakers joined Corzine’s side one by one.

When Roberts addressed the caucus, “it was a concession speech,” said Assemblyman Upendra Chivukula (D-Somerset).

At noon, Corzine walked into Roberts’ office. Together, they worked out the details in time for the evening news.

A PRICE TO PAY

The slots are singing again in Atlantic City. State parks and beaches will reopen today. And tomorrow, state employees will report to work. It is unlikely, however, voters will quickly forget the shutdown or the intraparty fight that led to it.

Casino workers lost wages and tips. Vacationers had their plans scuttled. Convenience stores suffered with the cutoff of lottery tickets. Over and over during the week, New Jerseyans affected by the shutdown asked whether it had to happen.

Though Corzine is widely viewed as the winner in the battle, the victory didn’t come without serious costs, and Republicans are certain to use the shutdown and the sales tax hike as a campaign issue when they seek to retake the Legislature next year.

In an interview at the Statehouse last night, Corzine acknowledged his popularity will suffer. It concerns him, but not very much.

“It’s not like the end of the world to me,” he said. “I don’t mean it because I’m a rich guy. I’m not going to define myself only in life by whether I get re-elected, and I’m just not going to make decisions in that context. I’m not sitting around quivering in my boots because my poll numbers are going to go down.”

Indeed, more tumult could be on the way. Corzine has called the budget fight the first step in his effort to strip Trenton of special interests and backroom politics. He plans to also take on property tax reform and ethics reform.

Kenny, the Senate majority leader, said he hopes the party first gets a chance to heal.

“I wish we had a month off for everybody to just calm down,” he said. “We can’t carry this tumult into this next opportunity to do state business.”

Roberts, badly bruised, said the conflict “took a real toll on everyone involved and certainly put a lot of people who depend on state government in harm’s way.” But he said he believes the Assembly did the right thing.

“If you look at where we started and where we ended up,” he said, “it’s clear the fight achieved substantial progress, and it was a fight worth fighting.”

Staff writers Deborah Howlett and Joe Donohue contributed to this report.


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