2006 New Jersey State Government shutdown
Encyclopedia
Government shutdown
In U.S. politics, a government shutdown is a situation in which the government stops providing all but "essential" services. Typically, services that continue despite a shutdown include police, fire fighting, postal service, armed forces, utilities, air traffic management, and corrections.- Causes...
in the history of the U.S. state of New Jersey
History of New Jersey
The history of New Jersey began at the end of the Younger Dryas climate, about 10 millennia ago. Native Americans moved into New Jersey soon after the reversal of the Younger Dryas, which had made the area uninhabitable and, during the preceding ice age, unreachable.European contact began with the...
. The shutdown occurred after the New Jersey Legislature
New Jersey Legislature
The New Jersey Legislature is the legislative branch of the government of the U.S. state of New Jersey. In its current form, as defined by the New Jersey Constitution of 1947, the Legislature consists of two houses: the General Assembly and the Senate...
and Governor
Governor of New Jersey
The Office of the Governor of New Jersey is the executive branch for the U.S. state of New Jersey. The office of Governor is an elected position, for which elected officials serve four year terms. While individual politicians may serve as many terms as they can be elected to, Governors cannot be...
Jon Corzine
Jon Corzine
Jon Stevens Corzine is the former CEO of Goldman Sachs and of MF Global, and a one time American politician, who served as the 54th Governor of New Jersey from 2006 to 2010. A Democrat, Corzine served five years of a six-year U.S. Senate term representing New Jersey before being elected Governor...
failed to agree on a state budget by the constitutional
New Jersey State Constitution
The Constitution of the State of New Jersey is the basic governing document of the State of New Jersey. In addition to three British Royal Charters issued for East Jersey, West Jersey and united New Jersey while they were still colonies, the state has been governed by three constitutions...
deadline. Furthermore, Corzine and the Legislature clashed on the issue of raising the state sales tax to help balance budget. Exercising his constitutional powers as governor, Corzine ordered the shutdown as a means of pressuring the Legislature to pass a budget. The shutdown began at midnight on July 1, 2006, when Corzine called for an orderly shutdown of non-essential government services, which was followed by a second round of shutdowns three days later on July 4.
The shutdown 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.
Background
During the 2005 gubernatorial electionNew Jersey gubernatorial election, 2005
The New Jersey gubernatorial election of 2005 was a race for the Governor of New Jersey. It was held on November 8, 2005. Incumbent Democratic Governor Richard Codey, who replaced Governor Jim McGreevey in 2004 after his resignation, did not run for election for a full term of office.The primary...
Corzine, a former executive at Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, claimed he was "not encumbered by an old culture, historical entanglements and the status quo" and had a plan to use his experience to overhaul the budget process and trim spending. When he introduced his first budget as governor, the $30.9 billion plan included $2 billion in spending cuts as well as increases in taxes on tobacco, alcohol, and luxury cars. The most controversial item in the budget was an increase in the state sales tax.
The President of the New Jersey Senate
New Jersey Senate
The New Jersey Senate was established as the upper house of the New Jersey Legislature by the Constitution of 1844, replacing the Legislative Council. From 1844 until 1965 New Jersey's counties elected one Senator, each. Under the 1844 Constitution the term of office was three years. The 1947...
, former Governor Richard Codey
Richard Codey
Richard James Codey is an American Democratic Party politician who served as the 53rd Governor of New Jersey from November 2004 to January 2006. He has served in the New Jersey Senate since 1981 and served as the President of the Senate from 2002 to January 2010. He represents the 27th Legislative...
, had stated his support for Corzine's budget including the tax increase. The stalemate in the negotiations had been with the New Jersey General Assembly
New Jersey General Assembly
The New Jersey General Assembly is the lower house of the New Jersey Legislature.Since the election of 1967 , the Assembly has consisted of 80 members. Two members are elected from each of New Jersey's 40 legislative districts for a term of two years, each representing districts with average...
, whose Speaker
Speaker (politics)
The term speaker is a title often given to the presiding officer of a deliberative assembly, especially a legislative body. The speaker's official role is to moderate debate, make rulings on procedure, announce the results of votes, and the like. The speaker decides who may speak and has the...
, Joseph J. Roberts, strongly rejected the Governor's plan. At the time Roberts said, "Our caucus feels overwhelmingly that there are much more appealing alternatives to balance the budget than a sales tax increase."
The New Jersey State Constitution
New Jersey State Constitution
The Constitution of the State of New Jersey is the basic governing document of the State of New Jersey. In addition to three British Royal Charters issued for East Jersey, West Jersey and united New Jersey while they were still colonies, the state has been governed by three constitutions...
, 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 includes a provision in the previous paragraph preventing appropriations from going into red ink; the New Jersey Supreme Court
New Jersey Supreme Court
The New Jersey Supreme Court is the highest court in the U.S. state of New Jersey. It has existed in three different forms under the three different state constitutions since the independence of the state in 1776...
had interpreted this to exclude loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s made to cover shortfalls, and Corzine claimed that the state had a poor credit rating anyway.
In three of the previous five years, the legislature had failed to meet the June 30 deadline. On each of those occasions an agreement had been reached by the morning of July 2. Aides to Corzine claimed that the governor felt he had no choice but to order the shutdown under the state's Constitution.
Causes
New Jersey General Assembly
The New Jersey General Assembly is the lower house of the New Jersey Legislature.Since the election of 1967 , the Assembly has consisted of 80 members. Two members are elected from each of New Jersey's 40 legislative districts for a term of two years, each representing districts with average...
, particularly over their refusal to implement his proposed increase of the state's sales tax from 6% to 7% to fill a $4.5 billion budget gap. Corzine maintained that 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.
The shutdown
After the legislature failed to pass a budget by midnight July 1 when the old budget ended, the governor signed executive order number 17 that immediately stopped numerous non-essential government functions, with more to come after the Independence DayIndependence Day (United States)
Independence Day, commonly known as the Fourth of July, is a federal holiday in the United States commemorating the adoption of the Declaration of Independence on July 4, 1776, declaring independence from the Kingdom of Great Britain...
holiday on July 4, 2006.
State functions that ceased immediately included the New Jersey Lottery
New Jersey Lottery
The New Jersey Lottery is run by the government of New Jersey. Its games consist of Powerball, Mega Millions, Pick-6, Jersey Cash 5, Pick-4, Pick-3, and scratch tickets. The Lottery is headquartered in the One Lawrence Park Complex in Lawrence Township, Mercer County.New Jersey Lottery players must...
(the interstate Mega Millions
Mega Millions
Mega Millions is a US multi-jurisdictional $1 lottery game. Since it replaced The Big Game in May 2002 , Mega Millions' advertised jackpots have started at $12 million, paid in 26 yearly installments , increasing when there is no jackpot winner...
game continued although players temporarily could not buy tickets in New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...
), the New Jersey Motor Vehicle Commission
New Jersey Department of Transportation
The New Jersey Department of Transportation is the agency responsible for transportation issues and policy in New Jersey. It is headed by the Commissioner of Transportation...
, MVC offices and inspection stations, the New Jersey Department of Education
New Jersey Department of Education
The New Jersey Department of Education administers state and federal aid programs affecting more than 1.4 million public and non-public elementary and secondary school children in the state of New Jersey. The department is headquartered in Trenton.The Department is responsible for ensuring that...
and parts of the New Jersey Judiciary. Approximately 45,000 state employees who were listed as "non-essential" were told to stay home.
Later (post-July 4) shutdowns included state beaches
Jersey Shore
The Jersey Shore is a term used to refer to both the Atlantic coast of the U.S. state of New Jersey and the adjacent resort and residential communities. . The New Jersey State Department of Tourism considers the Shore Region, Greater Atlantic City, and the Southern Shore to be distinct, each having...
, public parks, historic sites, gambling in New Jersey
Gambling in New Jersey
Gambling in New Jersey includes the New Jersey Lottery; the Meadowlands Racetrack; and casino gambling in Atlantic City.-History:The Monmouth Park Racetrack operated from 1870 to 1894. In 1894 New Jersey banned gambling...
's casinos in Atlantic City
Atlantic City, New Jersey
Atlantic City is a city in Atlantic County, New Jersey, United States, and a nationally renowned resort city for gambling, shopping and fine dining. The city also served as the inspiration for the American version of the board game Monopoly. Atlantic City is located on Absecon Island on the coast...
as well as horse racing in the Meadowlands Sports Complex
Meadowlands Sports Complex
The MetLife Sports Complex is a sports and entertainment facility located in East Rutherford, Bergen County, New Jersey, United States, owned and operated by the New Jersey Sports and Exposition Authority...
and Monmouth Park Racetrack
Monmouth Park Racetrack
Monmouth Park Racetrack is an American race track for thoroughbred horse racing in Oceanport, New Jersey. It is owned by the New Jersey Sports and Exposition Authority and is operated under a five-year lease as a partnership with Resorts Casino Hotel in Atlantic City.Monmouth Park's marquee event...
.
Both of the latter two were due to the official monitors from the New Jersey Casino Control Commission
New Jersey Casino Control Commission
The Casino Control Commission is a New Jersey state governmental agency that was founded in 1977 as the state's gaming control board, responsible for administering the Casino Control Act and its regulations to assure public trust and confidence in the credibility and integrity of the casino...
being listed as non-essential. At the time, New Jersey law stated that gambling establishments could not legally operate without state oversight. Originally, the race tracks were scheduled 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
New Jersey Supreme Court
The New Jersey Supreme Court is the highest court in the U.S. state of New Jersey. It has existed in three different forms under the three different state constitutions since the independence of the state in 1776...
; therefore they were forced to close.
According to The Philadelphia Inquirer
The Philadelphia Inquirer
The Philadelphia Inquirer is a morning daily newspaper that serves the Philadelphia, Pennsylvania, metropolitan area of the United States. The newspaper was founded by John R. Walker and John Norvell in June 1829 as The Pennsylvania Inquirer and is the third-oldest surviving daily newspaper in the...
, "New Jersey Transit
New Jersey Transit
The New Jersey Transit Corporation is a statewide public transportation system serving the United States state of New Jersey, and New York, Orange, and Rockland counties in New York State...
, prisons, state police
New Jersey State Police
The New Jersey State Police is the state police force for the state of New Jersey. It is a general-powers police agency with state wide jurisdiction when requested by the Governor, designated by Troop Sectors.-History:...
, 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 shut down.
Post-shutdown governmental action
To restore government services, on July 3, 2006, Corzine signed an executive order calling for an unprecedented Independence DayIndependence Day (United States)
Independence Day, commonly known as the Fourth of July, is a federal holiday in the United States commemorating the adoption of the Declaration of Independence on July 4, 1776, declaring independence from the Kingdom of Great Britain...
session of the General Assembly to work on presenting him with a budget. 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, the following day.
Meeting on the third day of the special session, 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 was 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
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
—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 included a provision for a constitutional amendment which was required, like all such amendments in the state, to be approved in an Election Day
Election Day (United States)
Election Day in the United States is the day set by law for the general elections of public officials. It occurs on the Tuesday after the first Monday in November. The earliest possible date is November 2 and the latest possible date is November 8...
referendum
Referendum
A referendum is a direct vote in which an entire electorate is asked to either accept or reject a particular proposal. This may result in the adoption of a new constitution, a constitutional amendment, a law, the recall of an elected official or simply a specific government policy. It is a form of...
. On November 7, 2006 New Jersey voters approved this measure by a two to one margin statewide.
Early in the morning of July 8, 2006, both houses of the legislature passed the proposed budget. At 6:00 a.m. that day, Corzine signed executive order number 19 to restore government services. The casinos in Atlantic City opened for business at 7:00 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 used his line-item veto
Line-item veto
In United States government, the line-item veto, or partial veto, is the power of an executive authority to nullify or cancel specific provisions of a bill, usually a budget appropriations bill, without vetoing the entire legislative package...
authority to reduce the budget by over $51.3 million by eliminating or reducing over 50 spending items.
Effects
During the casino shutdown, 36,000 casino workers were given leave. The shutdown of casinos resulted in lost revenue for the state, as an estimated $1.3 million per day was collected in gambling taxes plus an additional $2 million per day due to the closure of the lottery system. However, the sum of revenue not collected during the shutdown from gambling amounted to just a small fraction of the state's annual budget. Atlantic City's 12 casinos suffered losses estimated at $16–20 million per day during the shutdown. Revenue losses to lottery vendors and casino employees have not been calculated. Legislation signed by Governor Corzine in June 2008 would keep casinos and racetracks open in the event of a future budget showdown, with the Governor noting that the casino industry is vital to the New Jersey economy and that it should not operate under the threat of closure as it did in 2006.All driver's license
Driver's license
A driver's license/licence , or driving licence is an official document which states that a person may operate a motorized vehicle, such as a motorcycle, car, truck or a bus, on a public roadway. Most U.S...
s and vehicle registration
Vehicle registration
Vehicle registration is the compulsory registration of a vehicle with a government authority. Vehicle registration's purpose is to establish clear ownership and to tax motorists or vehicle owners....
s that were to expire at the end of July were extended one month.
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 Zone
Urban Enterprise Zone
In the United States, Urban Enterprise Zones , also known as Enterprise Zones, are intended to encourage development in blighted neighborhoods through tax and regulatory relief to entrepreneurs and investors who launch businesses in the area. UEZs are areas where companies can locate free of...
s (UEZs) from 3% to 3.5%. 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.
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.
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
Fur clothing
Fur clothing is clothing made of the fur of animals. Fur is one of the oldest forms of clothing; thought to have been widely used as hominids first expanded outside of Africa. Some view fur as luxurious and warm; others reject it due to moral beliefs...
; an increase in the rental-car tax from $2 to $5 per day; and increases on several business taxes.
These additional revenues were expected, when combined with spending cuts including a reduction of $200 million in higher education
Higher education
Higher, post-secondary, tertiary, or third level education refers to the stage of learning that occurs at universities, academies, colleges, seminaries, and institutes of technology...
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
Financial endowment
A financial endowment is a transfer of money or property donated to an institution. The total value of an institution's investments is often referred to as the institution's endowment and is typically organized as a public charity, private foundation, or trust....
. The only school in New Jersey that fell into this category was Princeton University
Princeton University
Princeton University is a private research university located in Princeton, New Jersey, United States. The school is one of the eight universities of the Ivy League, and is one of the nine Colonial Colleges founded before the American Revolution....
, which had an endowment with assets over $11 billion in 2006. The university that had the largest endowment next to Princeton at the time was Drew University
Drew University
Drew University is a private university located in Madison, New Jersey.Originally established as the Drew Theological Seminary in 1867, the university later expanded to include an undergraduate liberal arts college in 1928 and commenced a program of graduate studies in 1955...
which had a $225 million endowment fund.
Political influences
Corzine's shutdown of state government had some effect on New Jersey and national politics. According to Clay F. Richards, assistant director of a poll by Quinnipiac UniversityQuinnipiac University
Quinnipiac University is a private, nonsectarian, coeducational university located in Hamden, Connecticut, United States at the foot of Sleeping Giant State Park...
, Corzine had a 44% approval rating, his highest since January 2006. The poll also indicated that 71% of respondents 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 would not vote for those representatives who voted for the sales-tax hike in the future. The legislature's next election was in November 2007, but Corzine did not face re-election until 2009.
There was also speculation that the U.S. Senate race
New Jersey United States Senate election, 2006
The 2006 United States Senate election in New Jersey was held on November 7, 2006. Incumbent Democrat U.S. Senator Bob Menendez will represent New Jersey in the United States Senate for a six-year term ending January 2013. The seat was previously held by Democratic Governor of New Jersey Jon Corzine...
, already seen as tight, would be affected. Republican candidate Thomas 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
Fairleigh Dickinson University
Fairleigh Dickinson University is a private university founded as a junior college in 1942. It now has several campuses located in New Jersey, Canada, and the United Kingdom.-Description:...
's PublicMind poll, the situation of the election was similar to the 1990 election, when underdog Senate candidate Christie Whitman
Christine Todd Whitman
Christine Todd "Christie" Whitman is an American Republican politician and author who served as the 50th Governor of New Jersey from 1994 to 2001, and was the Administrator of the Environmental Protection Agency in the administration of President George W. Bush from 2001 to 2003. She was New...
, a Republican, nearly defeated well-known Senator Bill Bradley
Bill Bradley
William Warren "Bill" Bradley is an American hall of fame basketball player, Rhodes scholar, and former three-term Democratic U.S. Senator from New Jersey. He ran unsuccessfully for the Democratic Party's nomination for President in the 2000 election.Bradley was born and raised in a suburb of St....
due to Democratic Governor Jim Florio's sales- and income-tax increases. By August, Woolley concluded that the tax increase had had no effect on Menendez's re-election chances.