October 4, 2016 10:45 AM, EDT

Chris Christie Announces Deal for 23-Cent Gas Tax Increase for N.J.

Andrew Harrer/Bloomberg News

New Jersey Gov. Chris Christie on Sept. 30 announced a deal with Democratic legislative leaders to add 23 cents per gallon to New Jersey’s 14.5-cent gasoline-tax levy and reduce consumer taxes elsewhere.

The extra revenue would pay for $2 billion in the state's Transportation Trust Fund road and rail projects in each of eight years, and lawmakers will ask voters to restrict the revenue to those uses.

Christie told reporters in a hastily arranged press conference late on Sept. 30 that he insisted on a trade-off: a reduction in the 7% retail sales tax to 6.6% by 2018; the end of the estate tax; and an earned-income tax credit of 35% rather than 30%. With a vote set for Oct. 5, though, lawmakers said they lacked details on the consequences.

“You don’t announce this kind of proposal at 5 o’clock on Friday if you think it’s going to be met with people dancing in the street,” said state Sen. Jennifer Beck, a Republican from Red Bank, who estimated at least a $550 million annual loss in general-fund revenue. Her district office, she said, was flooded with complaints from constituents who objected to paying $200 or more annually for gas. “It will be a blemish on his legacy.”

Brian Murray, a spokesman for Christie, didn’t immediately respond to an e-mail asking for comment on any revenue loss.

The transportation impasse was weighed with the state’s pension obligation in reports issued in August by Fitch Ratings and Standard & Poor’s Global Ratings. Though they left New Jersey’s credit rating unchanged, at sixth highest, each rating agency warned that the state appeared unable to resolve its chief financial troubles, including an $83 billion unfunded pension liability. Only Illinois has lower credit scores.

“This is a good start in the right direction,” said Matt Dalton, chief executive of Rye Brook, New York-based Belle Haven Investments, which has about 5% of its $5.5 billion in assets in New Jersey debt. Still, he didn’t know whether the gas-tax maneuver would offset the other tax cuts for “a net-net positive.”

The gasoline tax will bolster a fragile balance sheet. Former Democratic Gov. Jim Florio, voted out of office in 1993 in response to broader, higher sales taxes, said that “there’s no other solution.” In July, as the state was one month from exhausting its most recent $8 billion multiyear transportation fund, Christie halted work on $3.5 billion in road and rail improvements. Still, Florio said, it was reckless to promise other breaks to restart the projects.

“The net result of this is going to be tremendously difficult,” Florio said by telephone. You’re already on the minus side in terms of fiscal integrity.”

Since he took office in January 2010, Christie has fought to strip New Jersey of its distinction as the U.S. state with the highest property taxes. Amid his ill-fated presidential campaign in August 2015, he signed a pledge, sponsored by the fiscally conservative Americans for Tax Reform, to “oppose and veto any and all efforts to increase taxes.”

In September, the Washington group pointed out that the governor favored balancing the gasoline-tax increase with cuts elsewhere, and said that lawmakers’ voting for it “would clearly constitute a violation of the Taxpayer Protection Pledge.”

Grover Norquist, founder and president of Americans for Tax Reform and a Trump backer, said Christie remains true to the pledge because permanent, broad cuts would bring relief in many areas.

“It’s a constitutional requirement that transportation money be spent on transportation, and other states are moving toward that,” Norquist said. Politically, he said, it would be difficult for future administrations to do away with the estate tax and earned-income credit.

The higher gasoline costs would be immediate after the governor signs the measure, as early as Oct. 5, after the Senate and Assembly vote.

“It’s a bait-and-switch,” state Sen. Michael Doherty, a Republican from Warren County. “Everything delivered to stores and supermarkets has to go in a truck, and you’ve got to pay for those gas costs somehow. We’re going to lose a lot of businesses.”

Christie has said the other changes to the tax code balance the gasoline-tax increase.

The plan “represents tax fairness,” Christie said at the Sept. 30 press conference. “This is the first broad-based tax cut for all New Jerseyans since 1994, which is much needed. At the same time, we are going to have constitutionally dedicated revenue to improve roads, bridges and the mass transit systems.”

Thomas Kean, the Republican governor who established the trust fund as a pay-as-you-go account in 1984, said the gasoline-tax increase was necessary because both political parties “screwed it up over the years.” He said it would make more sense, though, to skip Christie’s trade-offs and go for a per-gallon increase of as little as 16 cents.

“It’s too small to make a difference,” Kean, speaking by telephone, said of consumers’ benefit from the retail sales-tax decrease. “Any difference it makes is going to put a hole in the next governor’s budget.”