Governing Magazine’s blog has two great posts about why New Jersey’s finances have tanked. It’s eerily familiar. I’m probably excerpting way too much, so I hope they’ll forgive me.

From Part One, we pick up the story after Democratic Gov. Jim Florio is drummed out of office for raising taxes and Republican Christy Todd Whitman is elected on a promise to cut income taxes by 30 percent.

Cut taxes she did, becoming a national star for her party in the process. To pay for the cuts, she took up the bad fiscal habits of prior governors (including Florio). For one thing, she emptied out a retirement health trust fund, taking some $300 million out of the kitty and turning it into a pay as you go program. She also eliminated the state’s annual billion-dollar appropriation to pay for pensions.

During her second election year, in 1997, the pension fund needed money, but rather than reverting to the habit of making contributions from the state budget, Whitman sold some big pension bonds — and also got legislation allowing surpluses from pension investments to be used to cover the state’s ongoing obligations.

More tax cuts were in store, notably property tax cuts. All the cutting left the state without the funding necessary to comply with a state Supreme Court decision on school finance. New Jersey eventually floated a $12 billion school construction bond. As with the pension bonds, though, legislators and the governor failed to set aside enough cash even to make payments on the debt they incurred.

That meant that Jim McGreevey, the Democrat who opposed Whitman in 1997 and succeeded her in 2001, inherited a deficit of $6 billion. During that latter election year, the legislature gave a 9 percent pension increase to retired and current workers — shades of a pension bonus Kean doled out on his way out of office.

McGreevey raised some taxes and made some spending cuts, but for the most part resorted to a variety of new gimmicks to fill the gap. For instance, he twice borrowed money against tobacco settlement dollars. The state was still neglecting its required payments to the pension system, so it continued its neat trick of taking money out of the system to make payments back into it. Eventually, the state Supreme Court ruled that the state had to stop borrowing money to pay for operating costs.

Read the whole thing. Part Two can be found here.