NJ Business Matters: The Blog of the CIANJ

Meet the New Tax Hike; Slightly Better Than the Old Tax Hike

Both budget committees passed a much smaller version of the proposed $75 million tax increase on health insurance premiums yesterday. The new hike will be closer to $13 million, and will remove one particularly harmful provision that could have forced an insurer out of the New Jersey marketplace. CIANJ's testimony in opposition to S-2016/A-4108 is available at this link. The committee statement on the legislation is available here.

Both houses of the legislature are expected to vote on the revamped budget - complete with partial property tax rebate restoration - on Thursday.

Budget Committees Reconsider Health Insurance Tax Hike Today

The Assembly and Senate budget committees will meet today to discuss where to appropriate the newly-found $400 million within the FY '10 budget. CIANJ is urging the legislature to use part of the money to offset the more than $75 million in tax increases that would be applied to health insurance premiums in New Jersey.

A-4108/S-2016 would more than double the tax rate on group accident and health insurance premiums from 1% to 2.25%. It also applies the 2.25% premium tax to dental service corporations. Many large companies self-insure, meaning small businesses and individuals would pay the largest share of resulting higher premiums. The state Mandated Health Benefits Advisory Council estimates a 1% increase in premiums results in 4,800 - 14,000 individuals being priced out of the market.

In the last three months, 20,000 lives have lost their health insurance coverage. The legislature needs to avoid exacerbating that problem, and it can do that today by rejecting A-4108/S-2016. Look for an update on this bill's status later today.

Breaking: Budget Vote Postponed

Your blogger came to Trenton with all of the appropriate intros written. The gloomy day as metaphor for the gloomy budget was atop the list. It looks like all of those have to go back into the can, as today's legislative vote on the budget has been postponed.

Governor Corzine just announced that the tax amnesty program has collected $600 million, which is $400 million more than expected. The legislature will re-commit the spending bill, and all related bills (including the $1 billion in tax increases) to committeeee. The full budget is now expected to be voted upon next week.

A balanced budget must be approved by June 30, according to the state constitution.

Look for the State House to resemble Bloody Kansas between now and then.

Lingo

Some budgetary diction for our new readers:

A diversionis the taking money that would have gone to a specific fund, and sending it someplace else in the New Jersey bureaucracy.

A raid is taking money already in a dedicated fund's balance sheet, and removing it for another purpose.

A budget session uses both tactics.

Got it? Good. So does today's Philadelphia Inquirer, which outlines some of the budgetary diversions and raids that have come back to punish New Jersey individual and corporate taxpayers in the past, and what the raids in this year's budget could mean.

Transfers in amounts ranging from $2 million to $75 million will be part of votes set for tomorrow.

Critics in both parties say the money shifts - often characterized as "raids" - helped create the state's financial morass. They deplete reserves that may be needed later and usually serve as short-term fixes that leave holes in later budgets.

The most glaring example is New Jersey's unemployment fund, which helps workers when they lose their jobs.

For years the program, supported by taxes on businesses and employees, was flush with cash. Lawmakers and governors tapped it for $4.7 billion, using the money for other spending. But when the economic crisis struck, the program was too depleted to meet rising unemployment claims.

And because of that mismanagement, employers now face a $350 million tax increase to replenish the Unemployment Insurance (UI). What the Inquirer does not mention is that a Constitutional Amendment (SCR 60) to prohibit future raids of employee benefit funds received unanimous support from the New Jersey Senate, but has languished on the desks of an Assembly Committee this year.

So this summer, when legislators make their case as to why they deserve re-election, be sure to ask them if they support a Constitutional lock on TDI and UI, and why they voted for budgets that raided one or both funds.

Just Another Manic Monday

After hours of testimony and debate, the Senate and Assembly Budget panels voted mainly along party lines to approve the FY'10 spending proposal and $1 billion in related tax increases. The one exception to the party-line vote was Senator Joseph Vitale (D), who voted "NO" over objections to cuts to NJ FamilyCare. Final legislative votes are scheduled for Thursday.

Hitting the links:

• Yesterday, we outlined the proposed tax increases, which have now been advanced

• The Record focuses on cuts required of colleges and health aid

• The editoral board of the Star-Ledger cheers the fact audits will now be required for towns requesting "Special" municipal aid.

• The Asbury Park Press is the only paper to note this is the seventh straight year that medicaid prescription co-payments have been proposed by a governor and scrapped by the legislature.

Once on Governor Corzine's desk, he has until June 30th to sign the budget into law.

Board of Ed to Consider SRA Elimination

Long-time blog readers know CIANJ has advocated for the elimination of the Special Review Assessment - the alternative high school graduation test that has been been used heavily in under-performing school districts.

To graduate from a NJ public high school, a student is expected to pass the High School Proficiency Assessment (HSPA), which has been described by the Education Commissioner as one of 8th grade skills. Students who fail the HPSA three times are allowed to take the SRA, which is a subjective test graded by teachers in a student's home district.

Today's Star-Ledger notes,

Critics have long assailed the integrity of the test -- known as the Special Review Assessment or SRA -- for its questionable scoring and the fact that nearly everyone passes it.

"The SRA has morphed into a culture of low expectations," Newark School Superintendent Clifford Janey said. "We're losing sight of its original purpose. If I had my druthers, I would eliminate it or make sure that we don't have more than 10 percent of students ... taking the SRA."

That is certainly not the case in many urban districts, including Newark, where 36 percent of high school seniors took it this year. In some school districts, upward of 60 percent of students use the alternative test to earn a degree.

"It's a way of moving somebody out ... putting them in the work force where they can't compete adequately," said Joseph Del Grosso, president of the teachers union in Newark.

The State Board of Education is scheduled to meet later this week to consider serious reforms or the dismissal of the SRA.

There is no point in having a test that inflates graduation rates to tell everyone that everything is ok, when we know it is not.

Budget Committees Set to Approve Spending Plans

It's budget committee day at the State House - one of the last legislative days before the Assembly and Senate meet their Constitutional obligation and go home for the summer. The plan spends more than $28 billion ($42 billion if you count federally financed spending) and raises about $1 billion in taxes.

Among the tax hikes CIANJ opposes are,

S-2013/A-4104 – Increases the tax on liquor from $4.40 per gallon to $5.50 per gallon and the tax on wines from $.70 per gallon to $.875 per gallon. (Estimated Total: $22 million)

 

S-2014/A-4105 – Extends through the next fiscal year, the 4% surcharge on the Corporate Business Tax that was supposed to sunset in 2009.

 

S-2015/A-4102 – Increases the income tax for New Jerseyans earning more than $400,000 annually. Rates are increased from a range of 6.37%-8.97% to a new range of 8%-10.75%. The bill also applies the state income tax to certain lottery winnings.

 

S-2015-A-4108 – Increases tax rates on group accident and health insurance premiums from 1% to 2.25%, among other changes in the tax law regarding insurance.

 

Look for continuing updates throughout the day. The Assembly budget panel meets at 9:00 a.m., while the Senate commences at 2:00 p.m.

Bottoms Up; Bottom Lines Down

Now that a deal has been struck with public worker unions, the budget is steamrolling along, and the state's restaurant owners are worried they will be caught in the path because of a proposed 25% hike in the tax on wine and liquor.

As restaurant owners explained yesterday, their operations have proportionally more money invested in their workforce than other industries. They also operate on margins of about 3%, meaning this entire tax hike must be passed on to customers and/or to workers who would lose their jobs.

From NJ Restaurant Association President Deborah Dowdell,

We know when this tax was increased last in the early 1990’s it had a negative impact on the state.It cost jobs for the drivers who deliver the product, reduced tips for bartenders and waiters who serve the product, and reduced consumption by our patrons who purchase the product in our restaurants and liquor stores, all resulting in an increased the burden on unemployment, reduced payroll taxes, and more money out of our customers pockets.

They also dropped 6,000 signed petitions against the tax increase on Governor Corzine's desk. To voice your opposition, visit NJRA's liquor tax website at www.AxeTaxesNotJobs.com.

If this really is the worst financial crisis in 70 years, shouldn't New Jersey be doing everything it can to help the economy? Does this tax do that?

Punt Play?

While you may have spent the weekend enjoying the June weather, the state's major papers spent it throwing tomatoes at Governor Corzine's latest deal with the CWA. The plan may save the state between $300-$400 million in the next fiscal year through wage freezes and ten (not 12) furlough days, but after that...

The across-the-board increase will be deferred until July 1 of next year. But on Jan. 1, 2011, union members will receive an additional 3.5 percent increase. So, in fiscal 2010-11 their pay will be boosted 7 percent — not counting step increases.

That is troubling because in that fiscal year, the state's budget shortfall may be as high as $6 billion with the state contractually obligated to a double pay increase for state workers. And regardless of the economic conditions, the deal also prohibits layoffs between now and the end of 2010. Workers will also receive seven bankable paid days off in exchange for accepting 10 furlough days next year. In short, the deal exchanges short-term savings for solidifying medium-term increased costs.

Of course, the wage freeze does not actually mean state workers will not receive more pay next year than they did this year. It is only a 3.5% across-the-board increase that is frozen; step increases remain in tact.

With an economic forecast that is cloudy and a budget forecast that is downright gloomy, why are fixed costs in the immediate future good for NJ's fiscal and economic health?

Microsoft: Tax Hikes Would Force Jobs Overseas

From Bloomberg,

Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.

“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

This of course runs counter to the Administration's rule-change goal of keeping these jobs within America's borders. However, tax law cannot repeal the law of supply and demand, and if government chooses to make American jobs more expensive, companies will not be able to hire as many people. Look for more CIANJ commentary on this issue in the near future.