NJ Business Matters: The Blog of the CIANJ

$127 Billion in the Big Easy, and The Private Sector Out Performs

Larry Kudlow follows the Hurricane Katrina relief money in his latest blog posting and column for National Review Online. The federal government has thus far spent $127 billion to help rebuild Louisiana. That's more than the Marshall Plan (adjusted for inflation) and nearly the GDP of the entire state. Split evenly among New Orleans residents, they would each have $425,000 in the bank. You get the idea.

Despite the funding, Louisiana remains marred by high crime and lack of housing. As to where some of the money went,

Well, the White House fact sheet says $24 billion has been used to build houses and schools, repair damaged infrastructure, and provide victims with a place to live. But isn’t everyone complaining about the lack of housing?...

The fact sheet goes on to say that $7.1 billion went to the U.S. Army Corps of Engineers to rebuild the levees; that the U.S. Department of Education spent $2 billion on local schools; and that the Laura Bush Foundation for America’s Libraries has awarded more than $2.5 million (the pikers). The administration also provided $16.7 billion as part of the largest housing-recovery program in U.S. history.

So the billion-dollar question becomes: Where did the rest of that money go?

Right from the start, New Orleans should have been turned into a tax-free enterprise zone. No income taxes, no corporate taxes, no capital-gains taxes. The only tax would have been a sales tax paid on direct transactions. A tax-free New Orleans would have attracted tens of billions of dollars in business and real-estate investment. This in turn would have helped rebuild the cities, schools, and hospitals. Private-sector entrepreneurs would have succeeded where big-government bureaucrats and regulators have so abysmally failed.

This is the real New Orleans Katrina story. It’s a pity that the mainstream media isn’t writing about it. Call it one of the greatest stories never told

Meanwhile, yesterday's USA Today points out the accomplishments of the private sector versus government systems in rebuilding the Big Easy.

Calling a Charade a Charade

Kudos to the Star-Ledger this morning for calling the Special Review Assessment what it is - a charade that allows students in failing districts to earn a diploma that is nearly meaningless.

The SRA is given when students cannot pass the standard High School Proficiency Assessment (HSPA) in order to graduate. While the HSPA is given in English, the SRA is offered in multiple languages, not timed and is administered and scored within the same districts students attend. As you might imagine, there is some opportunity for manipulation.

Statewide about 12% of high school seniors rely on the SRA to graduate, but in our poorest districts that number rises to nearly one-third. Therefore, in Camden the "real" graduation rate is only about 15%. And both you regular blog readers know that because we fund Abbott districts at the same rate as our wealthiest districts, NJ spends close to $20,000 per student in those districts for such a low graduation rate.

Meanwhile, languishing on desks in Trenton is a bill that would help 4,000 students. The Urban Schools Scholarship Act would allow corporations to make tax-deductible contributions which students in these districts could use to attend other public or non-public schools. Per student caps would mean that not only would these children get a better education, but it would happen at roughly one-third of the present cost. It would also hold failing districts accountable, as they saw children leave because of the unacceptable status quo.

The problem, the Ledger aptly notes, is not in the test but in the schools,

Ending the SRA outright would have dire consequences. Dropout rates would likely increase, but continuing the charade of awarding diplomas that are hardly worth the paper they are printed on is just as bad.

The use of the SRA is a manifestation of a bigger problem: failing school districts.

Has the need for change ever been so apparent?

We're Number 2

New Jersey's median household income rose $600 last year, but it was not enough to maintain the title of highest income in the nation, according to today's Record. Maryland, which along with Connecticut has been consistently competitive with New Jersey, has now taken over.

While the slip to number two grabs headlines, it should not be as alarming as other economic indicators. The difference between the state with the highest per capita income and the third highest per capita income has always been minimal and the influx of government cash into Maryland and Northern Virginia has helped those economies immensely. Your friendly blogger worked in Northern Virginia (or as the locals call it, NoVA) at a time when that region added more jobs than Los Angeles. When the entire country has the option of sending money into your economy or going to jail, things tend to look good for you.

The more important figures are the state's relatively slow job growth and the fact that despite our wealth, more New Jerseyans cannot afford health insurance.

The data release came amid a growing debate over the state of New Jersey's economy, and whether it can continue to provide the high incomes and quality of life its residents are accustomed to.

Critics say New Jersey's regulations, taxes and red tape put it in danger of losing the competition with other states for corporate relocations and expansions, and the new jobs that go with them. The state has added 15,400 jobs so far in 2007, a slower job creation pace than in 2006.

Hughes and another Rutgers economist, Joseph Seneca, argue that the state is creating higher-paid jobs at a much slower rate than low-paid health, hospitality and other positions.

If you continue to punish success, you will have fewer successful people. A lesson once learned through the millionaire's tax still has not resonated with some in Trenton.

As legislators are working your local parade this Labor Day weekend seeking re-election, be sure to remind them of surveys such as this and ask if the status quo is still acceptable.

Lessons from Massachusetts

Governor Romney's universal healthcare proposal continues to reverberate in statehouses across America. Here in New Jersey, Senator Vitale is working on a plan roughly modeled after the Massachusetts plan.

"RomneyCare", as it's come to be known, begins with an individual mandate that requires every citizen in a given society to be insured. Just as drivers must possess auto insurance, individuals must have health insurance to be responsible citizens. Those who cannot afford insurance are caught in a safety net with free or very inexpensive insurance, and as more young and healthy individuals become insured, premiums are reduced for all. States already spend massive amounts of money on charity care in an attempt to partially reimburse hospitals for their care of the uninsured. That money, the theory goes, would be much better spent covering the individuals.

This morning on TownHall, Sally Pipes, President of the Pacific Research Institute, examines the shortcomings of RomneyCare in the program's infancy.

Pipes (a Guliani adviser whose criticism of RomneyCare began well before the campaign) writes,

In Massachusetts, the initial costs came in higher than expected. Faced with this reality, the bureaucrats in charge of the implementation at the Commonwealth Connector Board decided that universal coverage didn't need to be universal after all, and it promptly exempted 20 percent or one in five uninsured from having to comply with the mandate.

The Connector Board also bowed to political pressure and agreed to reduce the premiums, a move that boosted program costs by $13 million. Some plans are totally free--and have therefore been popular. Other subsidized plans for people earning between 150 and 300 percent of the poverty line will cost people as much as 9 percent of income for just the premium. Not surprisingly, these plans have proven less popular. Of the 79,800 people who've enrolled in the health plans as of June 1 of this year, 59,816 signed up for the totally free plans.

This structure will produce a fiscal disaster. Considering the high premiums for those who have to pay, many will opt to remain uninsured. The fine of $216 will be more attractive than the premium. Politicians will face strong pressure not to enforce the mandate if the fines increase. Indeed, before the program started they exempted 20 percent of the target population.

At the same time, the premium subsidy makes the plans a bargain for individuals who expect to consume large quantities of health care. The insured will be older and less healthy than the average citizen. Spending will skyrocket. The taxpayer will be forced to pay or services will be rationed.

CIANJ supports legislation that creates a climate in which anyone who wishes to purchase health insurance can afford it. As we study the Bay State, it looks as though a universal mandate may not be that answer.

Issuing Debt to Pay for Relief Which Was Funded By A Tax Increase

New Jersey is considering taking out a short-term loan to cover $2 billion in costs as the state awaits expected "revenues" (aka taxpayer money) to come into Trenton. Today's Record reports the loan coincides with the $2.5 billion property tax rebate plan. Senator Lance aptly notes the program is not sustainable following this year,

The fact that the state is borrowing money upfront to cover the costs of the property tax rebates is further evidence that the program is not sustainable, said Senate Minority Leader Leonard Lance.

"I think it's an indication of a much more serious matter next year, when we will not be able to pay for the program because we don't have enough revenue," said Lance, a Hunterdon County Republican.

This year's rebates will be paid for with revenues from last year's 1-cent sales tax hike.

However, a new source of funding has yet to be determined for next year, if the rebates are to be repeated.

Next year the state expects to start off the budget season with a $2.5 billion structural deficit.

We've added a lot of readers since the days of the special session on property tax reform, so here are some of our thoughts on the program:

• Businesses pay the nation's highest property taxes twice - once by virtue of paying about one-third of the state's overall property tax package and then again through higher wages needed to attract and retain talent seeking a high quality of life. Despite paying one-third of property taxes collected, it is seldom noted businesses are ineligible for the program.
• Any degree of property tax relief is appreciated, but short-term relief is no substitute for the long-term reform measures needed.

Of course, all this heightens the need for a new school funding formula and to reduce spending. Before plans such as asset monetization can be considered, spending patterns must be altered. If you're going to sell off the family car to pay off your credit card, you'd better cut up the card. That has yet to happen.

$190 Million In Energy Prices At Stake At Oyster Creek

Closing the nuclear generating station at Oyster Creek, which can power up to 600,000 homes, would cost more than $300 million - with electricity prices rising by $190 million for New Jersey's homeowners and businesses, according to an analysis released to the media yesterday.

A point emphasized in the Bates White, LLC analysis (sponsored by Exelon) is the role the plant plays in reducing greenhouse gas emissions.

If Oyster Creek were retired from service, the electricity it currently provides could not be replaced by generation from other existing carbon-free nuclear plants, which already operate essentially non-stop except for refueling and maintenance outages.  Nor could renewable generation replace a significant amount of Oyster Creek’s power.  Resources such as wind generators cannot produce the round-the-clock baseload output provided by Oyster Creek. 

As a result, replacing the energy produced by Oyster Creek would require increased natural gas-fired or coal-fired generation, producing large quantities of carbon dioxide (CO₂), nitrogen oxides (NOx) and sulfur dioxide (SO₂).  We estimate that, if Oyster Creek’s output were replaced with increased generation from coal, the annual increase in CO₂ emissions would be the equivalent of the output of 920,000 cars.  Replacement with natural gas generation would cause annual CO2 emissions equivalent to that of 460,000 cars.  Furthermore, in a carbon-constrained future, the value of a large greenhouse gas-free baseload generation source such as Oyster Creek will only be enhanced by the recent Supreme Court rulings, which may hasten the retirement of baseload coal plants.

The analysis points out what regular blog readers have read time and again here at NJ Business Matters - one day, nuclear power may become obsolete. However, we currently possess one technology that can generate significant power while producing virtually no greenhouse gas emissions. Utilizing that technology is the only way to responsibly reach goals set forth by Governor Corzine in Executive Order 54 and by the legislature through the Global Warming Response Act. Patting yourself on the back for setting goals is far different than actually taking steps to reach them.

Asbury Park Press coverage here.

The complete report is available by clicking here.

Lawsuits: The Last Frontieer in the Last Frontieer

Apparently, we'll be burning a lot of pixels discussing energy today. While our first two posts concerned filling New Jersey's energy needs through a non-emitting technology and the anti's attempts to stop it, this one focuses on national energy needs which could be met in Alaska and (you guessed it) the anti's attempts to stop it.

Environmentalists in the Last Frontieer are suing to prevent Shell from exploring the Beaufort Sea more than six months after the project was APPROVED by the Department of the Interior. As the Wall Street Journal editorial board aptly notes, Shell was extraordinarily responsible in its approach to this project,

In fact MMS conducts a comprehensive environmental review. Ultimately, it found that the project would have "no significant impact" on the ecosystem. The agency has also spent more than $20 million studying the feeding and migratory behavior of the bowhead whales in the Beaufort Sea. Based on that research, it attached additional approval conditions on Shell beyond the statutory law designed to mitigate any possible effects.

Part of the environmental complaint was that Shell would disrupt the Inupiat Eskimos' annual subsistence whale hunt. But the company brokered a "conflict avoidance agreement" that will stop all work for part of the migration season. As for oil spills, the two drill ships Shell would deploy were specially engineered to operate safely in the conditions of the Beaufort Sea. Plus, they'd be attended by an armada of barges to respond in case of an accident.

Even this painstaking and very expensive process wasn't enough. In short, it's hard to imagine any further precautions that would satisfy the environmentalists--short of a total ban on offshore drilling, which of course is their real objective. The environmentalists are pursuing a litigation strategy against every government agency involved. They have appealed decisions of the Environmental Protection Agency, threatened to sue the National Marine Fisheries Service, among others, and even sued to retroactively roll back all lease sales.

Now, even if Shell is successful, their project will likely be delayed another year as the window for exploration closes with the winter ice that will soon form. An estimated 27 trillion cubic feet of natural gas and 8.2 billion barrels of recoverable oil remain untapped as America clamors for energy independence. Being the only nation to restrict access to our own resources and attempts to blitz nuclear energy are curious ways of reaching that goal.

Ready. Fire. Aim.

The New Jersey Affordable Clean Reliable Energy (NJACRE) Coalition is in its infancy, and already shaking up some of the anti's who are determined to shut down nuclear power in New Jersey. Of course, if 52% of our electricity went offline, it'd get pretty cold and dark around here. Pesky details.

Today our friends at Blue Jersey accuse the Oyster Creek Generating Station of faking grassroots support for relicensing the plant.

Not only have officials at Oyster Creek nuclear plant created a front group to fake grassroots support for renewing the plant, now they've brought on high-powered lobbyists to help seal the deal.

For the record, below are the members of NJACRE. You will see an environmental group, and several labor unions in addition to the business organizations that have already signed up for a group that launched only a week ago. Heck, even the co-founder of Greenpeace is featured on NJACRE's website.

• The Commerce & Industry Association of NJ
• The Chemistry Council of NJ
• The African American Environmentalist Association
• The NJ Alliance for Action, the Southern NJ Developmental Council
• The International Union of Painters & Allied Trades
• The Plumbers and Pipefitters (Union Local 322 and Local 9)
• The NJ Business & Industry Association
• The Fish Hawks (Lacey Township-based organization)

They're Environmentalists, We're Spin Doctors

The Asbury Park Press is running an editorial in today's edition blitzing the New Jersey Affordable, Clean, Reliable Energy Coalition (NJACRE) for hiring lobbyists who will focus on the relicensing of the Oyster Creek Generating Station.

Apparently nervous that their case for license renewal is looking shaky, the owners of the Oyster Creek nuclear power plant in Lacey have turned to two well-connected hired guns to help bolster it.

Two lobbyists with lengthy resumes in New Jersey government set up a conference call with the media last week to announce the formation of a coalition to advocate for nuclear energy and, more specifically, a 20-year license extension for the aging Oyster Creek plant.

A main thrust of NJACRE is to spread accurate information regarding nuclear power in New Jersey. So few people recognize that more than half of New Jersey's electricity is provided by nuclear energy. That, combined with the fact nuclear energy emits virtually no greenhouse gases makes the case for relicensing CURRENT facilities pretty strong. Those facts rarely make it to the editorial pages of newspapers but they are important during public policy discussions.

For someone such as a former President of the Board of Public Utilities and elected official to help communicate that message seems perfectly rational - ad hominem arguments notwithstanding. 

Oysters, Viewpoints and Darkness

Connecticut officials are gleeful this morning after a District Court judge effectively halted the construction of a natural gas transmission line across Long Island Sound. The project would have helped allow Long Island to meet the energy demands of a population and an economy. You know - things like schools, businesses and heating homes. The objections, according to the Hartford Courant,

Connecticut officials have objected to the project because of concerns about what effect dredging operations would have on water quality and on underwater habitats, including those for oysters and clams. At the same time, they've questioned what benefits the state might get from the project, since the pipeline's main purpose is to increase the natural gas supply on Long Island.

The Islander East project has also incited local opposition in Branford's picturesque shoreline communities of Stony Creek, Juniper Point and the Thimble Islands.

In celebratory press releases, the Connecticut officials rallied against the omnipotent "energy interests", failing to note that if those interests were not around we wouldn't be able to enjoy our modern world. In this case, "modern" means post 16th Century.

Property Rights Schmoterty Rights

Cheers to The Record for editorializing on an issue important to property owners everywhere - basic fairness and predictability from the Highlands Council.

About three years ago, the legislature passed a new law aimed at preserving open space - 800,000 acres of it. CIANJ opposed the plan and still finds fault with it. Private property is of great importance in our Constitution and in our economy. Infringments upon the rights of property owners create huge complications and unfairness for those who purchased land only to have its uses severely restricted and rules changed midway. It also restricts (if not outright forbids) economic growth when housing is limited to one home per 84 acres.

As we said, it passed.

Now, the Highlands Council, an unelected government body charged with enforcing the new law, is under increased pressure to develop and release a workable plan. As The Record editorial notes,

There is no plan delineating preservation and growth areas, nor are there sufficient means to compensate restricted property owners. In short, the execution is about what one would expect of a major policy initiative whose chief backer -- former Gov. James E. McGreevey -- essentially vanished two days after he signed it into law, when he announced his resignation.

Today, local governments' preservation efforts are as robust as the state's or more so. Towns and counties in the Highlands region -- including Bergen, Passaic and Morris counties and the towns within them -- have raised $124 million in preservation funds this year, outstripping the state funds available, as The Record's Jan Barry reported this week....

Meanwhile, with its master plan a year overdue and property owners going uncompensated, the Highlands program has fostered mounting confusion and distrust. There have been encouraging signs that, with a new consultant on board, the Highlands Council is on track to finish the plan this fall, a deadline we hope it makes. Time and public opinion are no longer on its side.

Venue Shopping on Global Warming

Your friendly neighborhood blogger spent some quality time at the Jersey shore last week, resulting in some light late-week posting. Well rested and extremely well-fed we return with the usual blogging vigor, starting with a story posted to Planet Gore on Friday...

Advocates of certain causes will jettison the legislative process if they feel it is not working, or if it is doing silly things like gathering the facts about the true cost of legislation.

So, warns Chris Horner of the Competitive Enterprise Institute, Attorneys General are working with environmental groups to create public support for lawsuits to advance climate change policy goals. The ultimate goal would be to have the private sector shoulder the burden of something unattainable through the proper legislative vehicles which are comprised of people who have to answer to the general public.

In anticipation of the same manuever seen during the days of tobacco lawsuits, Horner is filing freedom of information requests in states suspected of engaging in the aforementioned abuses. New Jersey is on the short list.

On the National Review blog, Horner writes, 

We'll see how what we know squares with what is produced, and go from there, though I have little doubt that some stonewalling will make this a more energy-intensive effort than it should be; but as the tobacco AGs learned, there's usually one party who coughs up the documents at which point the games must come to an end.

The complete text of the California version of his letter is available here.

CIANJ Joins Coalition for Affordable, Clean, Reliable Energy

The Commerce and Industry Association of New Jersey today joined fellow business organizations, policy leaders and labor organizations to launch the New Jersey Affordable, Reliable, Clean Energy Coalition (NJACRE) to educate New Jerseyans about alternative sources of energy and the importance of nuclear power in New Jersey's energy future. Former Board of Public Utilities President, Dr. Ed Salmon, chairs the alliance.

Nuclear energy already generates more than 50% of New Jersey's electricity and emits virtually zero greenhouse gases. New Jersey's reliance on nuclear power is the primary reason the Garden State generates some of the lowest CO2 emissions per capita in the United States.

"There is presently one technology, nuclear power, that both generates significant energy and produces virtually no carbon emissions," said CIANJ President John Galandak. "The need to join other nations in maximizing that technology's potential has never been greater."

Both you regular blog readers know that earlier this year, Governor Corzine signed Executive Order 54 and the Global Warming Response Act, which require the state to reduce greenhouse emissions approximately 20% by the year 2020. To meet those goals while producing the energy required to keep the NJ economy growing, nuclear technology must continue to play a significant role.

As CIANJ President John Galandak noted,

Reaching the energy needs that have made modern life and our modern economy possible, and reducing greenhouse gas emissions must not be opposing goals. It is disappointing that some choose to demand goals be met while opposing the best currently available technology to meet them. NJACRE will be an important voice in spreading the truth about nuclear power and I am proud that the CIANJ will once again, be at the forefront.

For more information, visit www.NJACRE.org

NJ Adds to Job Creation and Unemployment

New job numbers were released yesterday and while it was the strongest three months of job growth for the year, it also underlines the stagnant growth our job base has endured. From May to June, NJ added 4,800 private sector jobs and another 600 government jobs, outpacing the national average.

On the downside, unemployment rose to above the national average to 4.7%, and even with a strong quarter NJ still stands to add fewer jobs than last year and grow at a much slower pace than the historical average.

"It's confusing," said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers.

He noted that even as New Jersey added jobs twice as fast as the nation, the state's unemployment rate rose faster than the national rate, which increased to 4.6 percent from 4.5 percent the month before.

His colleague, Joseph Seneca, said the household survey not only depicted unemployment rising but employment declining. Seneca said that in contrast to the May-to-July job increase, the state added just 15,400 jobs in the first seven months of the year.

The business community continues to use its ingenuity and intellect to grow in a competitive economy, but if Trenton continues to punish success and limit growth, remaining on top is going to become an awfully impressive feat.

Natual Gas to 5 Million Customers - and Delaware Says No

New Jersey has hired a special counsel to argue before the US Supreme Court that the Garden State has the right to approve a pier on its side of the Delaware River which would be used as a liquefied natural gas (LNG) terminal.

BP plans to build the terminal in an effort to bring power to up to 5 million customers per day. In April, a court appointed special master found Delaware had the right to veto an application which extends to its side of the river.

COMMERCE Magazine featured the terminal and its benefits in the April edition.

BP plans to significantly expand its current investment in New Jersey through the construction of a $700 million liquefied natural gas (LNG) receiving terminal in Logan Township.The Crown Landing project is expected to deliver 1.2 billion cubic feet of natural gas per day, or enough natural gas to supply approximately five million homes per day in the Mid-Atlantic region. That's roughly equivalent to 15 percent of the region's current average energy demand of 7.8 billion cubic feet per day.

The facility will be capable of storing more than 9.7 billion cubic feet of natural gas (450,000 cubic meters of LNG)—a significant supply buffer against unforeseen
supply problems such as hurricanes or pipeline outages.

If plans such as this continue to be rejected based on parochial interests, it's going to get pretty cold and dark around here.

The Road Less Traveled

The state's debt is the topic du` jour and while our first two posts focused on how government managed to amass such a burden (here's a hint: they were too generous with taxpayer money), the Star-Ledger depicts part of a potential solution - the privatization of toll roads. The paper offers a profile of New Jersey's only privately operated toll road and the benefit it has provided Atlantic County the past 75 years.

At a time when Gov. Jon Corzine is figuring out ways to cash in on state assets such as the New Jersey Turnpike, Roger Hansen, the route's owner, believes the governor should let private firms run New Jersey's toll roads.

"I personally think private industry can do a better job than government," said Hansen, a longtime Atlantic County developer. "We have a tremendous amount of patronage in all the toll roads in New Jersey. I know you could run it much more efficiently if you run it as a for-profit entity, and I think it could be just as safe."

The toll road is a throwback to an era when entrepreneurs, not governments, routinely ran roads, bridges and railroads.

Hansen said early in Atlantic City's history, developers eager to populate the shore ushered tourists to beachfront guest houses on private railroads. Built by Norwegian immigrant Ole Hansen, Roger's grandfather, the Margate bridge opened in 1932 and has been privately run since. The Hansens and another local family, the Capaldis, bought the route in 1964.

The Department of Transportation estimates the bridge handles more than 11,000 cars daily and even provides discounts for elderly and low-income drivers. It is regularly maintained and never suffered a major mechanical failure - while still turning a profit and charging $1 per trip. The private sector providing a quality service at low cost - who'd have guessed it.

Click here for the Ledger's full story. 

Bills In The Drawer

Piggybacking on today's first blog post is another story from the Record which further details New Jersey's mounting debt crisis. Adrienne Lu's article focuses on the pensions and benefits owed state workers and how escalating healthcare costs are burdening taxpayers in ways most do not imagine.

The private sector has moved from a defined benefits system to one of defined contributions. That allows companies to budget properly as they know future costs. The New Jersey government has not changed, leaving taxpayers on the hook for benefits owed with little control over costs. It is a nationwide problem exacerbated by other fiscal issues in the Garden State.

Earlier this year, the Governor successfully negotiated a plan to have new retirees contribute 1.5% of their pensions toward their own health benefits, only to have the state government unable to develop the necessary mechanism by the agreed upon deadline. That plan was nixed and now those same retirees can skip the payments if they participate in a "wellness program" (something the teachers union agreed to earlier this year), but as The Record notes,

It turns out that "wellness program" doesn't even exist yet.

The swapping of a health care contribution for a yet-to-be-created wellness program is the latest example of just how difficult it will be for the state to keep both health care and pension costs for government workers in check on behalf of taxpayers, who pay the highest property taxes in the nation.

Mark Perkiss, a spokesman for the Treasury Department, said the state is waiting to receive proposals from vendors before deciding what the wellness program will entail.

"The problem is the state is in a financial crisis," said Sen. Stephen Sweeney, D-Gloucester, who is also a labor union official. "We don't have the money to pay our bills. It's only going to get worse."

If we fail to change the status quo, then the problem will get much worse. In the interim, the legislature and administration have a slew of proposals developed during the special session on property tax reform that remain idle on their desks. Implementing more of those would be a start, as would a freeze on new benefits - including those with yet unknown costs such as paid family leave.

Must Read: How NJ Got $30 Billion in the Hole

The CIANJ dedicates a large share of its energy at ways to chip away at New Jersey's massive debt - and how to not make it worse. Today's Record features an article with the same title as our blog post which details the many ways in which New Jersey amassed such a large debt. It takes a lot of creativity to dig yourself a $30 billion hole. The financing mechanisms, budget gimmickry and court orders may be complicated but the underlying answer to the $30 billion question is simple: we spent too much. Philosophical points aside, the New Jersey government spent more money than it was collecting and the problems were intentionally left to future legislatures and administrations.

John McAlpin's excellent article as to where the money went and how is available here.

And remember, there are already plans and ballot questions scheduled to issue more debt.

Competing with Tax Rates

Page one of the Washington Post brings some welcome news amidst the slew of tax increases in the recent farm bill and energy bill passed recently by Congress. The President may attempt to cut corporate tax rates in an effort to compete with falling taxes (which have now fallen below America's corporate rate) worldwide.

The administration said the U.S. corporate tax rate, once modest compared with international competitors, is now second only to Japan's among 30 member states in the Organization for Economic Cooperation and Development. Moreover, officials said, Germany, France, Japan, Britain and China have signaled that they will or may cut their rates.

"Our tax structure makes us less competitive, and if we want to be a competitive nation, we've got to analyze a lot of things, including taxes, dependence on oil or good education policy," Bush said. "And so we will work through possible suggestions for Congress."

Welcome news to those with an interest in the American economy doing well. Oh wait, that's all of us.

Speed Dating with the AFL-CIO

Yesterday we teased the multi-candidate "debate" sponsored by the AFL-CIO on Chicago's Soldier Field. A lot of usual pandering occurred and even a threat promise from Senator Edwards of an America where "no scab can walk through a picket line." At least he didn't invoke the Paris Commune.

Seth Borden of Kreitzman Mortensen & Borden posted to the Union-Free employer blog for superb roundup of the event and possible future endorsement decisions.

Look for more of the same as we approach a front-loaded Presidential primary competition.

More Protectionism

The case against protectionism made on this piece of cyber real estate often relates to those trying to protect their jobs or products from competition. Without that competition for prices, talent and resources, the consumer suffers.

Protectionism does not only apply to international trade. Government bureaucracies can also insulate themselves from competition and we the consumer are worse for it. Today, Newt Gingrich addresses the Detroit school system's bureaucracy and the way it has failed consumers: students, taxpayers and businesses. The Motor City graduates only 25% of its entering freshmen on time and has seen that accelerate increased unemployment, crime and sagging population.

The bureaucracy is responding as though their primary concern is self-preservation, even rejecting a $200 million offer of support from the private sector.

There is ample evidence of what works in education, but the bureaucracy has systematically ignored all of it. The innovations include merit-based pay; increasing teacher-to-student ratios; revamping union rules to reward the best teachers; bonuses and incentives for new teachers; charter schools; and offering parents a coupon that allows them to send their children to the school that works best for their children and not the bureaucracies.

I've even suggested rewarding students in the poorest neighborhoods by paying them if they get a "B" or better in math and science.

Ultimately, Detroiters must decide what is in the best interests of their children and the future of their city. They can decide to accept business as usual, or they can demand real change.

But real change requires real change, not new rhetoric while doing more of the same old thing. Propping up the failed past at the expense of future generations leads to prison and poverty vouchers for too many of our children.

Here in New Jersey, we face the same challenges in our inner-cities. The mantra from the NJEA and their allies in government is that an investment in education is an investment in our future. We agree on that point, but then why disallow tax deductible corporate investments through the Urban Schools Scholarship Act? If we are seeking the best interest of the child, does that not mean allowing them to attend the best possible school? Surely that benefits the child more directly than non-merit based pay and free health insurance for retired teachers.

Meanwhile, the children of Newark prepare for another school year, and if the pattern of previous years remains steady, then 38% of seniors will hold a regular high school diploma at the end of the term. Just doesn't seem right.

The MSM Urges Caution on School Spending - Now You Know Things Have Gotten Bad

It's rare, but every so often we here at NJ Business Matters agree with the mainstream media. Today, the MSM was on target when the Star-Ledger urged caution in allocating funds for the New Jersey School Development Authority. You probably remember and may have cursed its predecessor, the School Construction Corporation, which built schools in such a way that they cost 45% more than those funded by local school boards. The $8.6 billion built more than thirty schools, with an original goal of more than 100 above that total.

Before the NJSDA receives its requested $3.25 billion, the Ledger reminds us,

Dewey Street is one of those sites. The once-solid neighborhood was disassembled to build University High, a school that the SCC did not have money to construct. The agency's action left a ghost town of homes -- ideal havens for vagrants and drug dealers. So the state demolished most of the empty houses.

That's good, but what re mains five months later is big piles of rubble and old mattresses. The street is littered with carpets, old furniture, lumber and bags of trash. The NJSDA says other people are throwing trash on the site. The city bears some responsibility for allowing trash to accumulate, but if people are dumping, it may be be cause the authority has turned Dewey Street into what cer tainly looks like a dump.

The agency did not put deadlines into its contracts as a way to require the completion of phases of a project within de fined periods of time. That failure to build in accountability is what caused many of the SCC's problems in the past.

If the Dewey Street demolition was supposed to be an example of how the new school construction agency functions, why should anyone be encouraged?...

But no new projects are planned simply because there is no more money. The authority wants the Legislature to approve another $3.25 billion. And where would lawmakers get the money? From the Economic Development Authority, which has bank rolled the other school construction. And where does the EDA, a supposedly independent agency, get the funds? It goes to the state treasurer.

All of this comes as the governor is talking about the urgent need to reduce the state's debt. His plan to monetize the state's assets -- such as the Turnpike and Parkway -- is intended to provide money to lower that debt. That's all that's known for sure about Corzine's proposal.

Remember that NJ has a cost of living and doing business already ranked in the top 5. In fact, that cost is the chief obstruction to a more prosperous, livable New Jersey. The Ledger is right to urge caution.

Agreeing to Agree Tonight in Chicago

Over on the Labor Pains blog, Bret sets the stage for tonight's anti-business demagoguery AFL-CIO's "debate" on Chicago's Soldier Field with several of the Democratic candidates for President. All of the candidates to appear publicly support the misleadingly-titled Employee Free Choice Act.

Maybe we'll hear something along the lines of what the head of the Postal Workers union told the Associated Press,

"I'm a believer and my union is a believer that we've got to wrest control from the capitalists from the Republicans, from their friends in the White House as well the Congress,'' (emphasis ours).

The love-fest begins at 7:00 p.m. tonight.

Cigarette Tax is Bad Medicine

On PoliticsNJ, Steve Lonegan has used his space to make the case against using an increase in the tax on cigarettes and cigars to fund an expansion of the federal government's State Children's Health Insurance Program (SCHIP). Last week we made first mention of a bill the CIANJ has urged its Congressional delegation to vote against.

The original intent of SCHIP was to provide health insurance to children whose families could not afford coverage, but had too high an income to qualify for Medicaid. As the grant money flowed to states, many had more funds than needy children and some states, such as Arizona, funded the health insurance of those earning up to 300% of the federal poverty level - and not just for children. Now, leadership in Congress is looking to make that type of an expansion the standard across America, and they want to do it by increasing the tax on cigarettes by $.61 and cigars by as much as $10 each.

Lonegan astutely argues,

Excise taxes are bad policy.  To minimize economic distortions, taxes should have a broad base and a low rate.  Excise taxes are the worst departure from this principal, singling out specific products for excessive taxation, substituting coercive government power for free market pricing.

The cigarette excise tax is highly regressive, consistently borne by low-income Americans.  A recent Tax Foundation study found that the burden of the existing federal cigarette excise tax is 7.5 times greater on the bottom income quintile than on the top.  Increasing the tax would therefore undermine the purpose of an SCHIP expansion, because the tax would fall largely on the very families the expansion is intended to benefit.  If the tax is used to finance expansion of the program to higher income families, the end-result would be to tax the poor to pay for government-run health benefits for lower-middle or even middle class.  That’s wrong.

The cigarette excise tax also has contradictory purposes—while one stated goal is to discourage smoking, the tax also makes the government reliant on revenue from smokers—in this case for funding SCHIP.  The tax is an unreliable revenue source, both because smoking is in general decline and because higher taxes tend to reduce sales.

Remember the proposed plan would require 22 million new smokers to fund this expansion. New Jersey's Congressional delegation should consider that when they vote on approving this tax increase.

Update at 2:48 p.m. - Ramapo College professor, CIANJ member and pundit extraordinaire Dr. Murray Sabrin has posted his thoughts regarding the program to ShapTalk.

House Passes Energy Restricting Legislation

chaThe White House has released its Statement of Administration Policy (SAP) indicating a strong possibility the President will veto legislation that would make energy more expensive for American consumers - both individual and corporate. The full SAP is available here and worth reading a line-by-line rebuke of some of the demagoguery being generated on Capitol Hill. Of particular note,

The stated goal of energy reform by the new majority in the House of Representatives was “to achieve energy independence, strengthen national security, grow our economy and create jobs, lower energy prices, and begin to address global warming.” The Administration is disappointed that the House has produced no such legislation, and instead is planning to consider H.R. 2776 and H.R. 3221, two bills that are not serious attempts to increase our energy security or address high energy costs. In fact, the combination of these two bills will result in less domestic oil and gas production, higher taxes to disadvantage a single targeted industry, and duplicative energy efficiency and R&D efforts that are largely underway already.

On Saturday, following twenty-four hours of maneuvering that included closing a vote EARLY to ensure a desirable result on a procedural motion, the House passed both measures on Saturday. Roll call votes available here and here. The latter will impose $16 billion in energy taxes on the American people.

Hold Your Breath

Our legal system has plenty of entry points for "creative" plaintiffs looking to benefit themselves. Given that, and the fact global warming is all the rage these days, UCLA Law professor Stephen Bainbridge warns of the slew of lawsuits directed at business which he expects to be filed based on climate change.

Earlier this year, Texas trial lawyer Stephen Susman told the Dallas Morning News that "You're going to see some really serious exposure on the part of companies that are emitting CO2." He added, for good measure, that "I can't say for sure it's going to be as big as the tobacco settlements, but then again it may even be bigger."

Indeed, trial lawyers are gearing up to turn global warming into their next pot of gold. A coalition of environmental groups and cities are suing the Overseas Private Investment Corporation and the Export-Import Bank of the United States for making loans to finance oil pipelines, oil drilling, and similar projects that supposedly result in a net emission of billions of tons of carbon dioxide. After Hurricane Katrina, New Orleans trial lawyers Gerald Mapes and Timothy Porter sued dozens of energy companies, claiming they had contributed to global warming.

More than 2 percent of America's GDP is spent on litigation, and Bainbridge warns settlements on tobacco, obesity may have paved the way for global warming suits. Breathers beware.

Tale of Two Cities

Despite the benefit of an Abbott designation, a $15,000 per pupil investment and state control, the Paterson school district is still failing the majority of its children and will not be granted local control. The New York Times reports,

The 28,000-student Paterson district, which has been under state control since 1991 because of fiscal mismanagement and poor academics, failed to show satisfactory progress over the last year in any of the five main areas being evaluated: instruction and programs, school board operations, personnel, building maintenance and school safety, and budgetary issues.

State education officials said they would work with Paterson’s state-appointed superintendent and nine-member elected school board, which serves in an advisory capacity, to come up with a plan for improving the district’s performance.

Investing more money in education does not necessarily yield better results, while competition is proven to bolster achievement. On the same day the New York Times reported on the situation in Paterson, the Times Picayune was reporting that in New Orleans,

In a ranking of the city's schools by percentage of students scoring at basic or above in English and math, the state's barometer for acceptable performance, 17 of the top 20 New Orleans schools are charters.

Among schools controlled by the School Board or the state-run Recovery District, charters posted the highest scores in every grade level. On both the fourth- and eighth-grade LEAP tests, eight of the top-10 schools in both grades are charters, a mix of schools overseen by the Orleans Parish School Board, the Recovery District, the Algiers Charter School Association and the state board of education.

In the aftermath of Hurricane Katrina, New Orleans became the first American city to offer school choice on such a large scale. Unfettered competition is working while unfettered spending is offering more of the same. Go figure.

Court Orders and Education Costs

The Tax Foundation has compiled an excellent report on the cost of education mandates passed down by the judiciary to taxpayers across America. Courts rarely mandate specific spending plans, leaving legislative reactions to the rulings to determine the final price tax for taxpayers.

Twenty-seven states must account for judicial mandates when spending on education, and New Jersey spends more than anyone else with per-pupil expenditures topping $6,600. Again, that's just to comply with court decisions. The total nearly doubles second-place New York ($3,633 per pupil) and far exceeds the $974 weighted average.

The study explains annomolies in New Jersey versus the national average and the relative (in)effectiveness of attempting to secure funding through litigation. Click here for the full report.

Thank You for Smoking

Columnist Robert Robb discusses the much-ballyhooed State Children's Health Insurance Program (SCHIP), how the program expanded beyond its original intent (surprising, we know) and the risky way in which Congress hopes to fund yet another expansion,

SCHIP was intended to provide federal subsidies to insure children up to 200 percent of the federal poverty level, or a family income of about $40,000 a year. The program expires this year and needs to be reauthorized.

No one opposes reauthorization for its intended purpose. The Bush administration has proposed reauthorization for this targeted population with an extra $5 billion in funding over the next five years, over the current base of $25 billion.

The problem is that SCHIP has expanded beyond its original scope, as so often happens with federal programs. In the early years, many states couldn't use all their SCHIP money, so the feds permitted excess funds to be used by other states to extend coverage to children beyond 200 percent of the poverty level and even adults....

Congressional Democrats propose not only to fund these existing expanded programs but provide enough funding for other states to substantially expand eligibility, as well. In all, Democrats are proposing to more than double SCHIP funding, allowing universal coverage up to 300 percent of the federal poverty level, as Gov. Janet Napolitano has proposed for Arizona.

That would provide coverage up to a family income of about $60,000 a year. Since the median family income in the United States is just over $46,000, this reaches well into the middle class.

The expansion would be funded by a 61 cent per pack increase in the cigarette tax and a tax increase on cigars. The Tax Foundation estimates the increase would cost NJ $365 per household while the Heritage Foundation notes Congress needs 22 million new smokers by 2017 to fully fund the expansion.

Smoking: Do it for the kids.