NJ Business Matters: The Blog of the CIANJ

Why Didn't We Discuss This in 28 Years?

Amidst the fallout of yesterday's House vote against the first bailout package, the finger-pointing and blood pressure medication prescriptions are aplenty.

Lost in the fray is a suggestion by Senator Obama that the limit on money insured by the FDIC be increased to $250,000. That's an increase over the current limit of $100,000 per depositor, per bank. The FDIC insurance limit has not been adjusted since the Regan Administration. The first one. Furthermore, more than one-third (or $2.6 trillion) of money deposited in American banks is uninsured because of the $100,000 limit.

So at a time when the government is trying to avoid a panicky bank run, is there a compelling reason not to increase the limit to at least account for inflation over the last 28 years?

Putting a Cork in Spending

You may have read a thing or two about Wall Street's immediate outlook being more than a little uncertain, and that the ripple will have an impact on New Jersey's budget. Now, Governor Corzine is ordering his department heads to cut costs by 5% in anticipation of a future downturn. This follows a week of bi-partisan prodding by the legislature. The Governor also wisely insisted that the legislature pass no bills that would increase spending, unless the law is related to economic stimulus.

The moves are worthy of support and the legislature would be wise to interpret "economic stimulus" narrowly and not have it become the latest buzz word to justify increased spending. So far, there have been no signals of that intent.

"There are a lot of moving parts at the same time, and one thing is absolutely certain -- we are identifying hundreds of millions of dollars in additional cuts that may be necessary." [snip]

Senate Majority Leader Stephen Sweeney (D-Gloucester), a member of the Budget and Appropriations Committee, said the Legislature "absolutely" should heed Corzine's call to cork spending until more is known about the revenue projections.

"We gotta get a new set of numbers," Sweeney said.

Those new numbers will be available next month and will likely spark a new round of legislative action.

Breaking: Bailout Bill Fails - How Jersey Voted

A few minutes ago, the House of Representatives voted against the massive federal bailout bill. Here's how the New Jersey delegation voted:

NO
Scott Garrett (R-Wantage)
Chris Smith (R-Hamilton)
Rodney Frelinghuysen (R-Morristown)
Frank LoBiondo (R-Vineland)
Steve Rothman (D-Fair Lawn)
Bill Pascrell (D-Paterson)
Donald Payne (D-Newark)

YES
Rush Holt (D-Princeton)
Frank Pallone (D-Long Branch)
Rob Andrews (D-Haddon Heights)
Albio Sires (D-West New York)
Mike Ferguson (R-Warren)
Jim Saxton (R-Mount Holly)

On Friday, CIANJ President John Galandak commented about the political situation in which Congressman Garrett finds himself in an article printed in The Record. The video of Garrett's floor comments is available here.   

Pension Changes to be Signed Today

Update: The legislation has now officially been signed. Here's a link to the Governor's accompanying press statement.

The Governor is finally about to sign public employee pension and benefit changes that were passed by the legislature in June. Governor Corzine held off on the signings to allow the teachers union ample time to explain the changes to their members, most notably the prohibition against bringing out-of-state pension credits into New Jersey.

Other changes to the system are:

• To raise the retirement age from 60 to 62
• To establish a floor of a $7,500 annual salary to be placed into the state's defined-benefits system (all others would move into a 401(k) style plan)
• To eliminate Lincoln's Birthday as a separate state holiday for state workers, thus reducing the number of paid holidays (not vacation days) to 12.

CIANJ supports the changes and applauds the legislature and governor for their recognition that the status quo is unsustainable. However, this must be viewed as the start of more sweeping changes - including the phase-out of lifetime benefits - and not a capstone.

Budget Chair Wants to Consider Spending Cuts Now

Senator Barbara Buono, Chairwoman of the Senate Budget and Appropriations Committee is urging the Governor to consider mid-year spending cuts in anticipation of sagging state tax collections due to Wall Street's turmoil and the general economic slowdown.

"Hopefully, we won’t have to make cuts in the current budget, but we should be prepared for a worst-case scenario," Buono said. "Regardless of the success of the Wall Street bailout, its impact on New Jersey, both in terms of financial services workers and the industry itself, will be significant."

Earlier this week, Assembly and Senate Republicans made a similar, albeit stronger, request.

New Jersey's income tax structure is "progressive" and relies on the top 1% of wage earners to pay 40% of all income taxes collected. That creates a reliance on high-paying industries - such as financial services - and a slowdown in just one industry can have a significant impact on the state budget.

Here's what no one has mentioned in the public debate: high-wage earners are often boosted into the top 1% based on bonuses and other income sources outside their normal salary. Because of that, their net income is not known with certainty until mid-April of the following year. That puts the legislature and the administration in a position of being forced to forecast the loss, or wait until actual numbers are known - which could create a budget panic. We applaud Sen. Buono for calling for the creation of contingency plans now. 

Family Health Insurance up 5% in '08

From our friends at the Kaiser Family Foundation:

Premiums for employer-sponsored health insurance rose to $12,680 annually for family coverage this year – with employees on average paying $3,354 out of their paychecks to cover their share of the cost – and the scope of that coverage has changed, with many more workers now enrolled in high-deductible plans, according to the 2008 Employer Health Benefits Survey released today by the Kaiser Family Foundation and the Health Research & Educational Trust (HRET).  Key findings from the benchmark annual survey of small and large employers were also published today as a Web Exclusive in the journal Health Affairs.

Premiums rose a modest 5 percent this year, but they have more than doubled since 1999 when total family premiums stood at $5,791 (of which workers paid $1,543).  During the same nine-year period, workers’ wages increased 34 percent and general inflation rose 29 percent.

This year many workers are also facing higher deductibles in their plans, including a growing number with general plan deductibles of at least $1,000 – 18 percent of all covered workers in 2008, up from 12 percent last year. This is partly, but not entirely, driven by growth in consumer-directed plans such as those that qualify for a tax-preferred Health Savings Account.

The shift has been most dramatic for workers in small businesses with three to 199 workers, where more than one in three (35 percent) covered workers must pay at least $1,000 out of pocket before their plan generally will start to pay a share of their health-care bills – rising from 21 percent last year.  For workers facing deductibles in Preferred Provider Organizations, the most common type of plan, the average deductible rose to $560 in 2008, up nearly $100 from 2007. 

Congress Acknowledges the Law of Supply and Demand

Roll call vote number 632 - Congressional action to acknowledge the Law of Supply and Demand, and allow for limited off-shore drilling. The final tally was an overwhelming 370-58 and partially ends the practice whereby the US limits access to its own resources in ways unlike the rest of the industrialized world.

As for the future,

Meanwhile, policy experts and moderate Democrats said that once the moratoriums have been lifted, it’s unlikely that they could ever be reinstated wholesale — even under a Democratic Congress and president.

“Not if oil prices stay they way they’ve been,” said House Natural Resources Chairman Nick J. Rahall II, D-W.Va. Rahall sponsored a bill (HR 6899), which the House passed last week, that would allow drilling off the Atlantic and Pacific shores but with more restrictions than what would be allowed by letting the ban lapse entirely.

Of course, some in Congress have already vowed that they will try for another outright ban. Too bad it took $4 gasoline to convince most of their colleagues.

Financial Literacy Bill Back in The Assembly

Update at 4:09 p.m. - The financial literacy program was approved by the legislature with an overwhelming majority: 77-2.

Last year, CIANJ supported a bill introduced by Assemblyman Gary Schaer (D-36) that would have established a financial literacy program for New Jersey high school students. The program was designed to teach the basics about credit card debt, savings, investment, and interest. You know, the tools needed to help students live financially responsible adult lives.

The bill never became law because of Assembly and Senate haggling. However, it has been reintroduced this year, passed by committee and gets its final vote in the Assembly today. A copy of the new legislation, which will create a pilot program in six districts, is available here. It deserves the support of the entire legislature and New Jersey's high school students deserve the immediate opportunity.

Today in Trenton: Letting Companies Use E-Mail

Update at 4:07 p.m. - the legislation passed the General Assembly unanimously, with the understanding that this is only the beginning of bringing real tax reform to New Jersey's companies.

This afternoon, the General Assembly will vote on a package of common-sense updates to New Jersey's corporate governance requirements. CIANJ submitted testimony in favor of the package last week and looks forward to an overwhelming majority of YES votes today. The changes include,

-- Allowing corporate notices to directors and shareholders to be sent electronically.

-- Eliminating a rule requiring at least 10-days' notice to shareholders about items that could be voted on.

-- Simplifying rules involving the resignation of corporate directors.

-- Providing speedier options for businesses filing with the state Division of Commercial Recordings.

-- Giving corporations more flexibility to adopt alternative voting methods to select directors.

-- Expanding the types of foreign business entities allowed to merge with corporations in the state.

-- Give corporations more flexibility to award stock grants instead of stock options to executives.

We will post the final vote tally later today. The changes have already been successfully implemented in Delaware, improving the state's business climate. Assuming passage today, the package would be sent to the Senate and could be considered as early as next week.

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