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Governors and State Finance: Kean Administration

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A transcript of all interview excerpts on this page is available here. Links to full interviews are also available.

 

Election of 1981

Due to term limits stipulated in the State Constitution, Gov. Brendan Byrne was not eligible to run for re-election in 1981, but the campaign still featured two familiar names. Former Assemblyman Thomas Kean, who had lost to Ray Bateman in the 1977 primary, emerged as the clear choice for the Republicans. The Democrats also nominated a candidate who competed in the 1977 primary: Congressman Jim Florio. While the income tax itself, now 5 years old, was not as divisive an issue in 1981 as it had been previously, the candidates presented clear differences in their economic visions for the state. In particular, while Florio campaigned against President Reagan’s supply side economic theory, Kean embraced it, pledging that he would not raise the income tax and proposing a deduction in the sales tax. In the end, it would be the closest gubernatorial election in New Jersey history. The result was deemed too close to call on Election Day itself, leading to weeks of recounts and uncertainty. On November 30, 1981, Congressman Florio officially conceded the election, making Kean the governor-elect. In the final count, Kean won the election by 1,787 votes.

 

Governor Tom Kean recounts his positions on taxes, jobs, and the economy in the 1977 gubernatorial campaign, including his view of the applicability of supply-side economic theory at the state level. Interview on June 23, 2010. (5:43)

Budget and Tax Policy in the Kean Administration

As Governor Kean took office, the nation was in the midst of a significant economic recession. Like Governor Byrne before him, Kean quickly concluded that, despite his campaign promises, some tax hikes would likely be necessary. Preferring not to raise the income tax, Kean, in his first budget address, proposed a hike in the gas tax coupled with a half-point reduction in the corporate tax. Legislative Democrats, however, favored increases in the income and sales taxes. Unable to reach a compromise before the budget deadline, Kean aggressively used the line-item veto to alter the budget bill passed by the legislature, dramatically reducing appropriations. The battle continued as the budget gap grew throughout the fall of 1982. With the state facing shortfalls, on New Year’s Eve 1982, Kean and the legislature finally reached a compromise on a bill that raised income, sales, and the gas tax, and which the governor famously signed while holding his nose to demonstrate his reluctance.

 

Chief Counsel (1982-1986) Cary Edwards discusses Kean's first budget; negotiations with the legislature on tax policy; and the importance and power of the line item veto. Interview on December 22, 2008. (7:35)

Governor Tom Kean on economic policy; disagreements with the legislature over tax hikes; and signing the tax increase legislation while holding his nose. Interview on July 12, 2010. (10:14)

Governor Jim Florio on no-new-tax pledges; the importance of timing; and the reason he did not run for governor in 1985. Interview on August 6, 2012. (1:49)

Former State Treasurers Richard Leone (1974-1976) and Cliff Goldman (1976-1981) on the political benefits of being dragged into a tax increase and on Kean administration spending after the economic recovery. Interview on July 9, 2015. (5:29)

New Jersey Economy in the 1980s and Gov. Kean’s Legacy

As Governor Kean’s term continued, the economy rebounded and state revenues grew. Kean used those funds to initiate a number of projects, including the establishment of the Transportation Trust Fund, the funding of arts and urban programs, and increasing the minimum pay for teachers in the state. He won re-election in 1985, defeating Democrat Peter Shapiro by the largest margin in New Jersey history. By 1988, however, the national economy slowed and in the wake of a projected budget shortfall, Kean froze state employee hiring. As Kean approached the end of his second, and final, term, significant budget deficits were projected. The state economy—like the national economy—was entering a precarious phase.

 

Chief Counsel (1982-1986) and Attorney General (1986-1989) Cary Edwards on difficult choices, possible mistakes, and the use of surplus revenues in the Kean administration. Interview on December 22, 2008. (4:22)

State Treasurer (1986-1990) Feather O'Connor Houston on the state's economic trends in the 1980s and Governor Kean's economic intuition. Interview on August 9, 2010. (3:45)

Former State Treasurers Richard Leone (1974-1976) and Cliff Goldman (1976-1981) on the State and Local Expenditure and Revenue Policy (SLERP) Commission and the differences between Kean's fiscal approach and that of Governors Florio and Byrne. Interview on July 9, 2015. (3:25)

State Treasurer (1986-1990) Feather O'Connor Houston on budgeting challenges; recognizing mandated retiree health benefits as part of the pension fund accounting; and the health of the pension fund at the conclusion of Kean's second term. Interview on August 9, 2010. (6:38)

Links to full interviews:

For more information on the Thomas Kean Administration, click here.

Continue to Florio Administration

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