NJ is Ground Zero in the fight between taxpayers and unions

New Jersey is ground zero in the national fight between taxpayers and government unions, with new Republican Governor Chris Christie trying to pull the state from the brink of tax-and-spend bankruptcy. This week he struck a budget deal with Democrats that makes modest progress, but the real game is now afoot over his proposal to impose a cap on property taxes.

The budget deal for fiscal 2011 closes a $10.7 billion gap, and the overall spending level of $29.4 billion is the lowest in five years. Democrats had said Mr. Christie's budget was dead on arrival in March, but in the end they agreed to most of his spending cuts. The Governor also vetoed a "millionaire's tax" that would have raised the top marginal income tax rate to 10.75% from just under 9%, though he did accept some new fees on insurance and hospital beds.

The budget's biggest weakness is its lack of long-term structural reform, as the state's labor agreements are left untouched. It also kicks to future years a $3 billion payment to a state pension fund that is underfunded to the tune of $46 billion. Mr. Christie says he won't put more money into pensions without reforms in overgenerous benefits, but sooner or later the state will have to come up with more pension money.

All of which makes the showdown over property taxes especially important for reform prospects and Mr. Christie's political future. The Governor wants to cap annual property tax increases at 2.5%, on the model of the successful cap that Massachusetts imposed in 1980. Over the next 27 years, property taxes in the Bay State rose 22% compared to 68% nationwide and 102% in New Jersey.

The cap is crucial to preventing local Garden State school districts, which are dominated by teachers unions, from raising taxes and thus defeating whatever spending restraint Mr. Christie can impose on Trenton. The unions know this, which is why they've spent some $7 million in TV ads portraying Mr. Christie as the scourge of police, firefighters and children. The Governor's approval rating has held up well despite the onslaught, which may reflect that voters understand the state's new fiscal reality. New Jersey's property taxes and its overall state and local tax burden are the nation's highest, and the state hasn't created a single net new private job in a decade.