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Mr. BURTON. Thank you Governor, and I think your record speaks for itself. When you were running, I believe, in 1993, during the campaign it was stated that if you were able to cut taxes as you had promised, the property tax rates would go through the ceiling. You mentioned that you are cutting property taxes, but can you tell us what happened immediately after you started implementing your tax cuts? What kind of effect did it have on the property taxes?

Governor WHITMAN. Well, the property taxes in the State of New Jersey have gone up every year since we have kept records, save one. The 1 year where we didn't see a large increase was the first year after the $2.8 billion tax increase, but the very next year it started to go up again and went up at a rate faster than it has gone up over the 6 years of my administration.

What we have done, we have increased municipal aid; we have also, more importantly, been giving the school districts and municipalities and counties more tools to help them be smarter on how they spend their money and try to keep those costs under control. In the State of New Jersey, we don't collect the property tax; we don't spend the property tax; that is local decisionmaking, but, obviously, State spending patterns have an impact. That is why we have taken over, for instance, in the course of my administration, the full responsibility for funding the county courts, taking a major burden off the counties, something they had to pay for before. We have increased dramatically our funding for schools and school districts, again, to help with the burden. We passed a State mandateState pay piece of legislation, so we now very carefully consider anything we send down to the municipalities, much as you have done here, and provide State dollars if, in fact, it is a mandate.

And because of all those, while property taxes have continued to go up, the rate has been better controlled, and with the legislation I signed yesterday, with the relief that we are going to be providing tomorrow and with future legislation that I hope to sign, we will continue to give local entities of government more opportunity to be smarter on how they spend their dollars and encouraging them to regionalize and to share services.

Mr. BURTON. During your remarks, you made a point that cutting taxes challenge government to spend more efficiently. We passed, here in Congress, what is called the Results Act where we are trying to get each agency of Government to come up with a business-like plan, and one of the problems we have had is that the bill we passed did not have a lot of teeth in it, so some of the agencies of Government, while they feign making some changes and coming up with a business plan, they are really not doing it, because we haven't put the teeth in it. Now, the chairman of the Appropriations Committee and I have sent a letter to all of the agencies saying that if they didn't comply with the Results Act that they might run the risk of having their appropriations cut. How did you implement spending cuts in various agencies of government to go along with the tax cuts in your administration? What kind of teeth did you put in that?

Governor WHITMAN. Well, I have a distinct advantage over you in that; I am the teeth. I put the budget together, and I can tell the departments what it is that I think is appropriate after listening to them, obviously, and taking in all their concerns, and if the legislature determines to put more money in, I have the line item veto, and I have exercised it on numerous occasions.

What we did and the first thing we looked at was controlling the rate of growth. We were spending faster than we were seeing revenue grow. We have now changed that. Our revenue stream is now growing faster than increases in expenditures. A lot of the expenditures we saw in State government were formula-driven over which we have no control. In fact, as we look at the pie of State government spending, the part over which the administration has control is ever shrinking, because so much of it comes with strings attached to either government strings that we have to match in order to be able to keep our dollars or it comes from negotiated contract settlements that have automatic escalator clauses in them, things over which we have very little control, but we look there first. And then I ask every department to go back and redefine their core mission, then to look at every program that they support and tell me and defend to me how that meets their core mission. And, as they come forward with new expenditure programs, they have to go back and do the same thing, and when I present the budget to the legislature, one of the agreements that we have come to is that, obviously, they can add things in spending, and that is fine, but where they start to impact on total spending, they have got to find commensurate cuts. If they want to change priorities and spend on a different program, I am willing to listen to that, obviously; they have a responsibility and right to do that, but they also have to understand the need to control spending overall, and we will set the ceiling and ask that they maintain that and that they find commensurate cuts if they want to increase expenditures in some other area.

Mr. BURTON. One last question, and then I will yield to my colleague from California. When you were running for Governor, you made one of the issues that Governor Florio's tax increases were hurting economic growth and revenues coming into the State, and you have cut taxes—he had increased taxes to bring in more revenue—and you say the revenue stream has increased, while after he increased taxes, the revenue stream went the other way. Can you explain that?

Governor WHITMAN. Well, one of the problems that we faced after the increase of taxes added to an already bad situation; we were still in a recession. New Jersey, which traditionally had done better than the Northeast under any economic circumstances-if the Nation was doing well, New Jersey, generally, did a little bit better than the other States in the region, but when the Nation was doing badly, we still did a little better. We suddenly fell off a cliff after the tax increases. We started to lag behind our neighbors in the Northeast in the recovery. We were the slowest to come out of that recovery.

By cutting the taxes, but sending the message that we were, in fact, interested in promoting business and giving taxpayers more of their dollars to spend or invest as they saw fit, we sent a very clear message that things were going to be changing, and people responded. They responded very well, and businesses responded, and we saw a change in that cycle of businesses closing and leaving, particularly small business, and, therefore, we were getting more revenue. I mean, the economy in the Nation was coming back, but we hadn't been benefiting from that end of the recession until we started to cut taxes and the regulatory burden we were placing on businesses, and that has made a real difference, and people have saved, and they have invested. We now, as I say, we have created over 330,000 more jobs. We have over 330,000 more jobs today than when I took office. It has been dramatic, the change has been dramatic, and we are once again, as WEFA has pointed out, leading the mid-Atlantic States in the recovery, and that is an even bigger jump than it might seem from our past history.

Mr. BURTON. Very good. Mr. Waxman.

Mr. WAXMAN. Thank you, Mr. Chairman. Governor Whitman, I want to welcome you here today. The majority of people in New Jersey, when they were polled, believe that the cut in income taxes in your State was the cause for a dramatic increase in their property taxes, and, in fact, the average residential property tax increased, during the time that you were Governor, $698 which is more than a 20 percent increase, and the study by the Institute on Taxation and Economic Policy concluded New Jersey's per capita property tax bill is the highest in the country. The same non-partisan New Jersey Office of Legislative Services said "While they got a reduction in income taxes, there was an increase in property taxes that weren't really offset;" that the average household saved $410 in 1998 due to the income tax cut while its property tax in- . creased $698.

Now, you are proposing a $1 billion rebate to help deal with the problem that some people think was caused by the State income tax cut, and you are going to give some kind of rebate to property taxpayers for the future, but it doesn't really do anything about taxes paid between 1993 and 1997.

What is going on here? It seems like government's taking with the one hand and giving with the other or giving with one hand and taking it away with the other. People see taxes going up on property, and that is more regressive than the income tax. Why is this-what do you think about that?

Governor WHITMAN. Well, Congressman, as I indicated in my original answer, property taxes have been a problem in the State of New Jersey from the beginning, and, in fact, the overall rate increase was higher under my predecessor who raised every other tax, including a tax on toilet paper, $2.8 billion in the State.

We, unfortunately, at the State level don't control local government spending. We have an impact. This year, for instance, we have $8.4 billion in property tax relief. That includes a $5.4 billion in school aid; $1.6 billion in municipal aid going back to our municipalities, but if I were take the money that we are proposing and that I will actually sign tomorrow in the billion dollar Property Tax Relief Program and send that to the local districts, they would spend it. In fact, interestingly enough, we have school districts right now that are going to their public with their school bond issues and say “Go ahead and vote for increasing spending for the school district, because the State is going to give you money back. So, you are going to be OK even if you increase this spending." We have

Mr. WAXMAN. Well, you would think that they would be led to believe that is because that is what is happening. You lower the tax rates at the State level; to make up for the money for services, the property taxes are increased. You say you don't have a connection to it, but now you are going to give a rebate to those taxpayers

Governor WHITMAN. We are going to give a rebate to the people, because we can't control the local spending. We took over the county court system, literally tens of millions of dollars. Unfortunately, the counties did not respond by lowering property taxes to their constituents; they increased spending, and that is the concern that we have. The only way to get directly to the taxpayer to provide the relief they need is to send the check directly to them.

Would I rather see property taxes overall decrease? Yes, but I will tell you that I would far rather decrease every tax that I can than to see what happened during the Florio administration where we increased taxes $2.8 billion on everything else, and property taxes went up faster than they have gone up in the last 6 years, and property values were going down at that time, so you have got a double whammy there.

Mr. WAXMAN. I am not a citizen of New Jersey; I don't follow it all that carefully. Some of your critics said that you have scaled back on State contributions to State pension plans and unemployment insurance funds, from reimbursing hospitals for medical care for the uninsured, and that funding for transportation and child welfare was cut, and the debt was increased. I don't know if this is happening or not

Governor WHITMAN. Sure, may I answer that?

Mr. WAXMAN (continuing). But I want you to answer this question, and you can elaborate on it. Your presentation to us sounded wonderful. You lowered taxes; there are more jobs; people have got money in their pockets; the economy benefited from it. Yet, in 1997, when you ran for reelection, you had one of the closest elections in the country; it was 47 percent to 46 percent. What was going on in New Jersey to make people not appreciate all the wonderful things you have done for them? Or did they have some questions as to whether we're going as well as you presented it?

Governor WHITMAN. Well, Congressman, you understand politics, and in the State of New Jersey where we have a registration that is overwhelmingly independent and then more Democrats than Republicans, we are a very competitive State. Auto insurance has always been a problem in the State of New Jersey, and we have now I have signed legislation that has provided a 15 percent reduction in auto insurance to the people of the State; all good drivers get 15 percent off of the mandated policy, but that hadn't happened before the election, and people were really angry over auto insurance. Because everything else was going well enough, they were now focusing on other issues.

But I would like to respond to some of what you had in your question about debt, because this is something I hear about a great deal. We have maintained our general obligation debt at approxi. mately 3 percent of our appropriations. In fact, when you put all debt in, and I believe in acknowledging all debt, and the situation I walked into, I found a lot of debt that was off the books as well as debt on the books. We have kept all the debt-it is lower now as a percentage of the budget itself.

Debt has increased overall debt has increased $146 million in the 6 years that I have been Governor of the State of New Jersey. That has gone to build roads; it has gone to build jail cells; it has gone to help with construction for educational facilities; it has gone for the appropriate things.

I faced a $400 million unanticipated spike in debt service left by the previous administration, about $8 million in debt that was not on the books. We have saved the taxpayers in pension costs about $46 billion in payment. It has been a very successful record. It has taken a lot of work and a lot of effort. We have reduced our reliance on one-shots. When I came into office, it was almost $2 million; it is now down to about 2 percent of the overall budget, a little over $360 million. It is a lot of hard fiscal discipline that is required here, but the truth of the story is that we have reduced expenditures; we have kept debt steady and focused debt on where it needs to be but have recognized all the debt. We are not playing any games here. We have not sold a piece of highway to one of our authorities and somehow recognized the revenue as being good revenue.

So, it is important to understand that we have truly made a difference in the fiscal structure of the State of New Jersey, and I am very proud of that record. It is not to say that we have solved all the problems, and it is not to say that property taxes aren't still too high or that auto insurance doesn't still need a lot of work. They both do, but we have been very aggressive and will continue to be aggressive in dealing with them.

Mr. BURTON. Mrs. Biggert.

Mrs. BIGGERT. Thank you, Mr. Chairman, and, welcome, Mrs. Whitman. I come from Illinois which I think has some similarities to New Jersey in that we are 48 out of 50 States in return of our tax dollars. We also have an overabundance of local government. I think we have the leader in having the most unusual townships, county, and et cetera in local government.

I am interested in your funding of schools. I know that in Illinois we have a primary duty of the State to fund local schools, and, certainly, our property taxes are amongst the highest, and funding comes mostly from the property taxes, although the State does try to—the paramount duty has been thought to be 51 percent, but as the property taxes keep rising, it is very difficult for the State to keep up, and we don't meet that requirement. Do you have the same thing? What is your obligation to fund the schools?

Governor WHITMAN. We are facing the same problem. The proportion of the State budget that goes to school aid now is just about one-third. It is right around $6 billion in school aid. We have increased every year dramatically, and it is still, though, largely funded for most of the districts through the property tax. We have what is known as special needs districts where the State bears up to 70 percent—we pay up to 70 percent or more of those districts, and in others in wealthier districts, we don't maintain the same proportion percentage-wise.

What we have done in changing the structure of funding for education—and for the first time in 28 years the Supreme Court has

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