"As much as I prefer another course, I propose this deferral simply as a practical bridge over today's economic circumstances while reflecting the state's obviously reduced fiscal capacity for direct aid."

But talking to reporters afterward, Corzine took pains to distinguish this deferral from the "pension holiday" that allowed state and local governments to avoid fully funding the state pension system between 1997 and 2003.

He said that proposed legislation would require full funding of the pension system by 2012.

Corzine repeated that tax increases in a down economy were unhelpful, saying that 84 percent of New Jersey municipalities had raised spending more than the mandated 4 percent maximum in the current year, while 31 percent had increases of 10 percent or more.

Corzine's speech came as the state Treasury announced that the state pension was worth $61.9 billion Oct. 31, having declined $15.8 billion since July 1, mostly through stock losses.

Estimates earlier this year pegged the state's unfunded pension liability in excess of $28 billion.

It also comes as the state has announced that a $1.2 billion gap in the current budget as a result of the worsening economy may grow to $5 billion in the coming year.

In his speech, Corzine said the state was preparing for similar problems for the next 18-24 months. As a result, he expected to have the packet of economic stimulus bills he called for last month signed by the end of the year, while looking for other cuts.

He said the state will spend no more than $31.7 billion this year and may drop below $30 billion next year.

He called for reducing personnel costs, while saying "I can only hope that the state will not be forced into a last minute position of layoffs."

Republicans quickly criticized the plan. Sen. Tom Kean, Jr., R-Union, Morris, Somerset, Essex, said it would result in a higher burden on local taxpayers in the future. Kean said, "This is just not good fiscal policy."

Sen. Kevin O'Toole R-Bergen, Essex, Passaic, similarly said that property taxes would skyrocket - conveniently after next year's gubernatorial election.

Corzine discounted the criticism, saying the plan was needed and any action taken between now and November 2009 would be seen in an electoral light.

Local officials said they would consider their options Thursday after hearing of the proposal.

"I guess this leaves us an option on the table," Buena Vista Mayor Chuck Chiarello said, but he said the state had to do something. "What goes around comes around; what they don't give us, we have to come back and get from the taxpayer."

Hamilton Township Mayor Charles Pritchard said he was leaving the conference discouraged, but said, "I think the economic status of the state has managed to unite local officials in both parties in mutual distaste over for what the state has done over the past few years."

Woodbine Mayor William Pikolycky said, "Any relief is good relief," saying it seemed to him Corzine had a clear understanding of municipal budget pressures.

In his town, the payments would amount to about $30,000, while a one-cent property tax increase would equal about $18,000.

But Vineland's chief financial officer Roxanne Tosto said she had mixed thoughts about the plan.

She said the city would owe $3.7 million and city-owned utilities would owe $1.1 million on pension payments, while being able to raise $203,000 with a one-cent increase.

"We're still going to owe the money," Tosto said. "It's not like we're going to get permanent relief."

Stafford Township Mayor Carl Block said deferring pension obligations would make 2009 budgeting easier, but he said he hoped the eventual paybacks would not be too onerous.

Even that, he said, would be determined by the state, which controls the program costs.

E-mail Derek Harper:

dharper@pressofac.com