Governor Chris Christie: GOP Darling

New Jersey Governor Christie is a rising national star. By taking on his state's bloated budget, he embodies the New Austerity. Will voters hate him for it?

Christopher Griffith

By Peter Coy

This Issue

Chris Christie is the lead actor in a new movie. It's a short film, no more than 20 minutes or so, yet its backer—the Republican Governors Assn.—expects to reap millions in donations from his brief appearance. The moody film features black-and-white images flashing by—storm clouds, campaign rallies, and urgent news clips from election-night broadcasts. A Republican has won the governor's race in New Jersey, a Democratic stronghold, and the party of Barack Obama has been rendered powerless by his take-no-prisoners style.

In less than eight months in office, Christie, a 47-year-old former prosecutor and lobbyist, has risen from an unknown to a signal attraction in the fund-raising and messaging wars. "I think he's a star," says Ed Rollins, who directed campaigns in 1984 for President Ronald Reagan and in 1993 for Christine Todd Whitman, the last Republican elected governor of New Jersey. (Rollins bragged of suppressing the anti-Whitman vote, then retracted the claim.)

When he moved into the New Jersey governor's office on Jan. 19, Christie faced a budget crisis of almost Greek proportions: Projected revenues for the coming fiscal year were nearly $11 billion short of what it would cost to fully fund every authorized program. Since then he has impounded more than $2 billion in unspent funds, fought off legislators' attempts to raise taxes, pushed through a budget that slashes spending, pressured schoolteachers to pay for their health-care benefits, and taken a first crack at fixing one of the nation's most underfunded pension systems. Christie says he's been contacted for advice by GOP gubernatorial candidates Meg Whitman of California, Tom Corbett of Pennsylvania, Bill Brady of Illinois, Chris Dudley of Oregon, Robert Ehrlich of Maryland, and Charlie Baker of Massachusetts. "People say to me, 'Can you really get it done in Massachusetts given that the overwhelming majority of the legislature is Democratic?' " says Baker. "I say, 'Drive down the Turnpike. Eventually you'll get there. That's exactly what's happening in New Jersey.' "

Christie's campaign to fix the finances of the state with the highest property taxes in the nation, and a $46 billion underfunding of its pension system, is still in its early stages. Victory is far from assured. Barbara Buono, the State Senate's second-highest-ranking Democrat and its top female, complains that the governor has been "brash and confrontational." Columnist Tom Moran of Newark's The Star-Ledger calls him "Governor Wrecking Ball." Democrats, who control both houses of the legislature, are resisting Christie's effort to reshape the state's Supreme Court by refusing to approve his nominee. The Communications Workers of America tried to add a special assessment to union dues in New Jersey specifically to combat him (the rank-and-file voted no). And with schools opening, parents who welcome fiscal austerity in the abstract are about to see first-hand evidence of the impact of reductions in state aid to education, which could weaken support for further cuts. Even now, before the belt-tightening has been fully felt, support is lukewarm; three public opinion polls taken over the summer had Christie's job approval rating at 44 percent to 51 percent.

Investors in the credit-default swap market aren't yet persuaded that Christie has found the key. The cost of insuring New Jersey government bonds against default for five years has risen to 2.17 percent of the bonds' face value annually from 1.56 percent when he was inaugurated. Swaps on New York and Pennsylvania have performed about the same. His administration's reputation for competence took a hit on Aug. 24 when New Jersey barely missed out on $400 million in federal Race to the Top grants, possibly because of an error in its application.

"There are so many political minefields in New Jersey," Christie said a day earlier in his high-ceilinged office in the State House. "If you spend your whole time looking down for mines, you can't see the future." Christie says he's determined to govern as if he didn't care about winning a second term.

(Reelection is something he claims not to have thought about.) That strength could turn into a weakness if his farsightedness causes him to lose near-term public support—a critical ingredient in his recipe for success; wrecking balls do swing both ways. Steve Malanga, a public policy expert whom Christie cites as one of his intellectual influences, warns that the governor's job will get harder as financial necessity forces him to go beyond politically easy targets like public-employee unions and take on programs that are popular with the taxpaying middle class. Thirty-eight percent of registered voters gave him a D or F on property tax relief in a Monmouth University/Gannett New Jersey Press Media Poll on July 7-11.

Says Malanga, a senior fellow at the free-market Manhattan Institute who spoke with Christie repeatedly during the 2009 campaign: "The tightrope that he has to walk, which I don't think a lot of his admirers across the country understand, is that he has to retain a certain amount of popularity with the electorate, because as soon as the legislature thinks he's no longer popular, they'll stop cooperating with him. They'll smell blood in the water. He can't just start putting through deep, slashing cuts that upset even his own constituents, or he really will have a problem."

On the Budget Deficit Front Line

Where Christie is out in front of his political peers is in the realization that the status quo is a dead end. Talking about austerity and then trimming around the edges won't do the trick. Like Washington, states as a group are on an unsustainable path in which rising spending on retirement and health-care benefits will exceed the revenue available from taxation. In March the Government Accountability Office warned that unless taxing and spending policies change, the combined deficits of federal, state, and local governments will hit 20 percent of gross domestic product by 2060. By comparison, their combined deficits in 2009, the worst recorded since the Great Depression, were just a little more than 10 percent.

On Aug. 18, without admitting wrongdoing, Christie's administration settled claims that between 2001 and 2007, the state misled investors in $26 billion of municipal bonds by masking the chronic underfunding of its two biggest pension plans. Christie says the settlement shows why the pension changes he seeks are essential. "In that respect it's a good thing." In his office—where he is surrounded by baseball memorabilia, a blue-and-white Fender guitar signed by Bruce Springsteen, and a blender he uses to mix weight-loss shakes—the governor laid out a long-term plan for shrinking government, lowering taxes, fixing pensions, and making New Jersey a friendlier place for business. He dismisses suggestions that a misstep could be dangerous. "Every day in this job there is a problem that if you don't handle it correctly could prove to be your undoing," he says. "If I step on a mine, I step on one." The greatest danger, he says, is in underestimating the scope of the crisis. "With all this national attention, [the risk] is somehow people thinking that we've fixed the problem. We haven't. But we've made progress toward fixing the problem."

The progress is real, says Richard Keevey, who was budget director for Democratic Governor James Florio and Republican Governor Thomas Kean. "The problem he inherited is very large, and his approach to the problem has been the right approach," says Keevey, who was impressed enough to accept a seat on the governor's council of economic advisers.

Christie's political ascent has been recent and rapid. He grew up in a relatively apolitical household, with a Republican father and a Democratic mother who worked in a school office. At age 18, he was inspired by Reagan's first successful campaign for President in 1980 and embraced conservatism. In 1994, as a corporate lawyer, he won a seat on the Morris County Board of Chosen Freeholders, his county's legislature.

When he ran afoul of the Republican Establishment for challenging a powerful incumbent in the General Assembly and failed to win nomination for a second freeholder term in 1998, his political career appeared over. But in 2000, as a registered lobbyist whose firm's clients included the securities industry, a hospital, and a utility, he became a fund-raiser for the Presidential campaign of George W. Bush and achieved Pioneer status by bringing in $100,000 or more.

Two years later he was named U.S. Attorney for the District of New Jersey—a plum job that provided abundant opportunities to prosecute public corruption. From 2002 through 2008 his office won convictions or guilty pleas against 130 public officials without losing a case. Those convictions left some of the state's ruling Democratic party machines in disarray. That's helping him now that he's running things in Trenton, although there's no evidence that Christie engaged in any prosecution for political reasons.

In 2009, Christie ran for governor against the one-term Democratic incumbent, Jon Corzine, a former senator from New Jersey and ex-CEO of Goldman Sachs (GS). Pounding home the message that Corzine was ineffectual, Christie won with 48.5 percent of the vote, vs. about 45 percent for Corzine and 6 percent for independent Chris Daggett. In March he proposed a $29 billion budget for the fiscal year beginning July 1 that imposed no new taxes, cut aid to municipalities and schools, and skipped a $3 billion pension contribution. Corzine's last budget was just over $32 billion.

What earned Christie national fame wasn't the magnitude of the cuts but the way in which he picked a fight with public-employee unions. When he announced this spring that he was skipping the pension fund contribution, he made it a symbolic act, too, vowing not to put more money into the system until the legislature agreed to reforms necessary for long-term solvency. Christie also pressured teachers, who don't work for him, to agree to contribute 1.5 percent of their pay toward their health-care benefits. He warned them that if they didn't go along, he would campaign against passage of school budgets in their districts. Most teachers refused to contribute, Christie did as he had promised, and voters rejected a record 59 percent of school budgets. At the end of June, the Democratic-controlled state senate and assembly passed Christie's budget almost unchanged from his proposal.

Property-Tax Cap

Christie's most astute move was to curtail future local spending by cramping the primary means of funding it. After seeking a strict limit in the state constitution on increases in local property taxes, he settled for a law that held property tax hikes to 2 percent annually with few exceptions. The cap gives mayors and councils an incentive to support changes in civil-service rules sought by Christie that make it easier to lay off or cut employee pay.

The sequencing was masterful: Christie says he probably would not have the mayors' support for those cost-saving measures if he hadn't first gotten lawmakers to pass his cap. Next up is pension reform. "I'm working on all of these things at once because they're all interconnected," Christie says. "I don't see how any responsible governor has a choice anymore not to take on the public-sector unions." Says Tom Corbett, Pennsylvania Attorney General and Republican nominee for governor in this November's election: "He certainly sets an example I think other governors can follow." Even David Paterson, the Democratic governor of New York, has praised New Jersey's property-tax cap.

Despite his admirers, the Christie formula isn't easily transported to other states. Like an LBO specialist sent in to unlock the value of a badly managed company, Christie is working with a state that has great underlying strengths. Contrary to the image projected by MTV's Jersey Shore, New Jersey is educated and prosperous.

It ranks second in the nation in per-capita income (behind Connecticut) and fifth in the percentage of people 25 and older who have bachelor's degrees, according to the Census Bureau. It's in the nation's densest urban zone, with New York City on one border and Philadelphia on another. Jersey City, across the Hudson from lower Manhattan, has sprouted a forest of tall buildings filled with financial firms like Goldman Sachs and Morgan Stanley (MS). The center of the state has vast campuses of pharmaceutical companies such as Bristol-Myers Squibb (BMY), Johnson & Johnson (JNJ), Roche, and Merck (MRK). And even though it's no longer the headquarters of the Bell System, New Jersey still has a web of telecom and data center infrastructure.

From the 1960s through the mid-1990s, New Jersey used lower taxes and cost of living to lure jobs out of New York City. But steadily rising taxation has lessened its allure, says the Manhattan Institute's Malanga. Much of the spending increase has occurred at the local level. In the well-to-do New York City suburb of Closter, N.J., which has a below-average crime rate, all but two of the 20 members of the police force are earning more than $100,000 this year, not including benefits or overtime. To blame: Arbitration rules that are tipped in unions' favor—and that Christie is trying to change. New Jersey ranked last in a Tax Foundation survey of states' business-tax climates. "What's particularly disturbing to us is that we have now fallen behind our regional competitors such as New York and Pennsylvania and Delaware and Connecticut," says Philip Kirschner, president of the New Jersey Business & Industry Assn.

Verizon New Jersey President Dennis M. Bone, interim chairman of a new public-private partnership called Choose New Jersey, says Christie has energized businesses by working to hold down their taxes, streamline regulation, and keep jobs in the state. Christie says when he heard that Honeywell International (HON) was about to move its 1,200-employee headquarters from Morris Township to Pennsylvania, he told CEO David M. Cote, "Give me a week." Christie offered tax credits that persuaded Honeywell to stay—and expand.

Confrontational Style

The friendly face Christie shows to business isn't in evidence in his confrontations with the New Jersey Education Assn. and other public-employee unions. His method is divide and conquer. On pensions he formed an alliance with Democrat Stephen M. Sweeney, the state senate president and treasurer of an Ironworkers union local in South Jersey. (It was Sweeney who began pushing pension reform in 2006.) Christie has also exploited regional divisions between Democrats in the legislature.

Party discipline is much tighter among the Republicans in Trenton and tighter still in the Christie administration. Some 24 of his appointees worked under him in the U.S. Attorney's office, including his attorney general, his chief counsel, his press secretary, and the head of the school development authority.

Being a Republican in a state with a Democratic legislature is not the handicap it might seem. While Corzine and other Democratic governors felt they needed to accommodate the wishes of the powerful county Democratic leaders to keep peace within the party, Christie feels no such compunction, says Ross Baker, a Rutgers University political scientist. "He just doesn't give a damn," says Baker. "One should never underestimate the value of fortitude in a politician. Chris Christie's got fortitude in abundance."

The rap on Christie from his sometime-ally Sweeney and others is that he can be gratuitously confrontational. His riffs go over big on YouTube (GOOG) but not in Trenton. State Senator Buono accuses Christie of "scapegoating and demeaning anyone who disagrees with him. That drowns out thoughtful, honest discussion and debate about the issues. All it really does is further undermine the public's confidence in its government."

The senate and assembly haven't fought back hard because their standing with the public is lower than his. They might discover some backbone if the people of New Jersey—like, say, the people of Greece—start chafing under austerity. The state Civil Service Commission says 132 local governments have filed applications since January seeking to fire as many as 2,674 workers. In Newark, Democratic Mayor Cory Booker closed city pools in August and put nonemergency workers on 19 days of furlough. "We're going to stop buying everything from toilet paper to printer paper," Booker said. "Call me Mr. Scrooge, if you want, but there'll be no Christmas decorations around the city."

No Christmas decorations! That's just the type of thing that has wrecked the careers of previous governors who went to Trenton with the best of intentions. Then again, New Jersey's financial situation is more dire now, and people know it. The time may be right for Jersey's new action hero to kick down a few doors.

Coy is Bloomberg Businessweek's Economics editor. With Terrence Dopp and Dunstan McNichol in Trenton, N.J., and Laura Litvan in Washington D.C.