By Edith Honan
TRENTON, New Jersey (Reuters) - New Jersey Governor Chris Christie proposed a $29.4 billion budget for fiscal 2012 on Tuesday that spares cities from cuts but extracts savings at the expense of the state workforce to help pay for tax reduction.
New Jersey has captured national attention as part of the fiscal crisis facing state and local governments, which has led to massive demonstrations by public-sector workers in Wisconsin who are challenging their Republican governor's plan to restrict collective bargaining rights.
Christie, a rising star in the Republican Party, took credit for setting an example for other states, saying Republican and Democratic governors elsewhere have followed New Jersey in cutting spending while reducing taxes or limiting tax increases.
Christie's budget plan projects overall spending cuts of 2.6 percent and forecasts a 4.3 percent increase in tax revenue thanks to economic growth. The plan would help close a budget deficit that had been projected at $10.5 billion.
"Today, states as diverse as California and Wisconsin, Ohio and Florida, New York and New Mexico, are following the New Jersey model," he told state legislators.
In a show of support for embattled Wisconsin Governor Scott Walker, he praised Wisconsin and Ohio, states where "they have decided there can no longer be two classes of citizens: one that receives rich health and pension benefits, and all the rest who are left to pay for them."
With state governments facing combined budget deficits of at least $100 billion for the next fiscal year, other governors will closely watch what happens in New Jersey, in part because Christie is seen as a potential presidential contender who might bridge the Tea Party movement and mainstream Republicans.
Christie said the state pension fund faced a $54 billion funding shortfall in future years -- up from a previous estimate of $46 billion -- and that figure would grow to $183 billion within three decades unless there was reform.
"We must act now to make sure a pension is there for them after their years of service are completed," Christie said.
The budget for the fiscal year beginning July 1 must pass the Democratic-controlled Senate and Assembly, which have accommodated Christie in the past. He may face more opposition this time.
"This governor's assault on the middle-class knows no bounds," Assembly Majority Leader Joe Cryan said.
The budget maintains spending levels for distressed cities and towns, some of which have had to lay off police officers due to reduced aid from the state.
"It's just fantastic news in these otherwise very desperate times," said Chuck Chiarello, the mayor of Buena Vista Township and the president of the New Jersey State League of Municipalities.
Education spending would increase by $250 million.
Spending for Medicaid -- the health plan for the poor, disabled and elderly -- would increase by $1 billion, and Christie planned to find $250 million in savings through management efficiencies and fraud enforcement.
But the governor expects to help balance the budget in part by asking state workers for sacrifices.
Christie, who skipped a $3 billion payment to the pension fund last year, promised to make a $506 million payment to the state pension fund only if the state legislature approved a plan that would increase the pension and health care contributions required from state employees.
Christie's budget plan calls for using about $300 million of increased contributions from state employees to help pay for an estimated $1 billion in property tax relief for homeowners.
Businesses would get a further $200 million in tax cuts.
(Reporting by Edith Honan; Writing by Daniel Trotta; Editing by Kenneth Barry)