• This is a rush transcript from "The Journal Editorial Report," July 3, 2010. This copy may not be in its final form and may be updated.

    PAUL GIGOT, FOX HOST: This week on the "Journal Editorial Report," he is a governor in the bluest of the blue states and he is not backing down on his assault on high taxes, out of control spending, teacher pay and union pensions. New Jersey Governor Chris Christie is here.

    The Supreme Court strikes another blow for the Second Amendment. But the gun rights battle is far from over.

    And Democrats use the Kagan hearings to attack John Roberts and other conservatives on the court.

    Welcome to the "Journal Editorial Report." I'm Paul Gigot.

    Well, some said it couldn't be done, but New Jersey Governor Chris Christie signed into law this week the state's smallest budget in five years, starring down a Democratic legislature to enact major cuts in spending to schools, municipalities and mass transit. The plan closes an $11 billion deficit without raising taxes.

    I spoke with Governor Christie earlier this week, and asked him how he did it.

    (BEGIN VIDEOTAPE)

    GOVERNOR CHRIS CHRISTIE, R-N.J.: We did it because we stuck by our principles. We said, in the beginning, we were going to reduce spending and we reduced spending nine percent from last year's budget. We said we would spread the pain evenly. Every department in state government got a cut. Everyone was reduced. We said we would not raise taxes on the people in the state of New Jersey and we vetoed the tax increase that the Democrats tried to push forward. We stayed to our core principles. We stood firmly on them. We negotiated in areas where we had to negotiate but very little, and 99.8 percent of the budget that I presented on March 16th was passed on June 28th.

    GIGOT: And what is your response to those people who say part of that $10 billion deficit you closed, you kicked the can on a $3 billion pension contribution, down the road. That is a not a long-term saving.

    CHRISTIE: What I would say to them is I have already worked toward pension reform, which we passed a good amount of pension reform in March. But until we get all of it, I will not throw good money after bad into the system. I'm certainly not going to raise taxes in order to do it. So we have to bend the benefit curve and get pensions to be more realistic and then I am happy for the state to make their contribution.

    GIGOT: So you will make that contribution but only if they reform of the pension system, which I assume means benefits.

    CHRISTIE: Sure, it means benefits, absolutely. We have to change the way the system operates. Maybe we have to go to a tiered system. There is a bunch of ways to reform this to make our deficit in the pension system, which right now is about $50 billion. We need to do something. We're never going to have enough money to pay that $50 billion debt. We have to bend the benefit curve. And that's what I'll be working on this fall.

    GIGOT: The next big fight coming up very soon here is over the property tax cap that you proposed, 2.5 percent annual increase cap. You are calling the legislature into special session and they're saying, no way. How do you get them to change their minds? It's controlled by the other party.

    CHRISTIE: It is. It will be the same difficulties we have on the budget. But I think when you have the right argument, you can win. The argument is, for 30 years New Jersey has had awful property tax problems. We have the highest property taxes in the nation. People are losing their homes and fleeing the state because of property taxes. We need it to fix it and we need that fix to be a permanent fix, a permanent constitutional cap —

    GIGOT: You're putting this into the constitution? This would just not be a law. This would be a constitutional change?

    CHRISTIE: That's exactly what my proposal is. Change the constitution and cap it and only let there be two exceptions for that 2.5 percent cap, debt service because you want municipalities and counties to pay the debt back to the people that lent the money to them.

    GIGOT: Right.

    CHRISTIE: And secondly, voter override. If the voters want to spend more money on property taxes because they favor a particular project or program that costs more, let them decide. But the professional politician deciding has been a failure for 30 years.

    GIGOT: But here's the Democrats say. They say Governor Corzine had a cap, it was at four percent. And the Democrats now are saying we're doing better than that. We have a proposal for 2.9. Two point nine percent, 2.5 percent, what is the difference, Governor? Why won't you play ball with our cap? Why go all the way down to 2.5 percent?