NJ Business Matters: The Blog of the CIANJ

Higher Standards is Not Reform

During the summer, the State Board of Education raised the standard for what qualifies as a passing grade on standardized tests in New Jersey. Prior to the change, scores as low as 33% were considered proficient. The new metric (while still too low) means passing rates will surely decline, but that New Jersey policymakers will have a better understanding of the problem.

While an accurate diagnosis is important, it still does not address the underlying concern: the value of a New Jersey high school diploma. In today's Courier-Post, Derrell Bradford - rather pointedly - reminds readers that 30% of NJ STARS students are forced to take remedial courses once in college, and that the real issue is the quality and cost of a New Jersey education, not just the low bar.

Despite what the teachers' union and others assert, low standards are the norm. And when these standards are used as context, the picture of student achievement is frightening.

Take Newark, where 60.8 percent of seventh-graders were unable to score a 33 percent on the math assessment, despite nearly $1 billion in school spending and an average teacher salary of nearly $80,000 annually. Look at Camden where a $220,000-salaried superintendent and a $340 million budget for about 13,000 students only enabled 23.8 percent of eighth-graders (barely 1 in 5) to score above 55 percent in language arts.

Even the state's inflated graduation rate -- which includes 11,000 to 15,000 students who cannot pass, after three tries, the High School Proficiency Assessment -- draws the gap between the perception of student achievement and the reality of it in high relief. The HSPA is often described as a middle-school level test.

The state Education Department says it wants to raise standards across the board to address this disconnect -- which is laudable.

But raising standards is not reform. Higher standards will help diagnose the K-12 public school problems better, but the problems will still remain.

And We're Back

Apologies to both you regular blog readers, but NJ Business Matters went into radio silence for two days. We're a one man band, and for the last couple of days that band has been busy fighting trial lawyers and mythbusting away from the keyboard. We know you have been sitting at your desk, clicking away at the Refresh button, wondering where it all went wrong.

Look for the usual frequency and (lack of?) quality posts to return as of now...

One Step Forward...

The initial results of the Early Retirement Incentive (ERI) program are in, and the result is mixed. In total, just under 1500 state workers took the deal, saving the state $38 million this year and $51 million next, with additional savings in federal money and fees. However, the ERI also added more than $90 million to an already underfunded pension plan,

"It looks like we did OK here, which was the goal," said Assemblyman John Burzichelli, D-Gloucester, who sponsored the early retirement legislation along with Sen. Shirley Turner, D-Mercer. "We're essentially 1,500 employees less. That's a significant number of people. We're doing what people asked, making government a little smaller."

We disagree that the goal was to do "OK" and to make government "a little" smaller. New Jersey needs and deserves more.

Previous ERIs have failed because the State quickly fills the newly-vacated positions. That leaves New Jersey taxpayers paying more in pensions without realizing the savings of a smaller government. Governor Corzine will sign an Executive Order ensuring that no more than about 10% of the reduced positions are filled. He'll need future Administrations and Legislatures to honor that Order for the plan to be solvent.

Trial Lawyers Push Back in States

An editorial in today's Wall Street Journal highlights the trial bar's state-by-state comeback effort to bring the bar's own variety justice to their clients. And a pretty penny for themselves. While federal efforts have shriveled under a veto threat,

Lawyers have also been laboring to create opportunities for more lawsuits, more money and more time to sue. Last year, Alabama saw legislation that would allow a tort claim to continue even after a plaintiff had died, while California proposed authorizing lawsuits for any violation of privacy. New Mexico and New Jersey passed laws authorizing citizens to file "false claims" suits on behalf of the state -- in effect turning private individuals into state bounty hunters....

Plenty of legislatures remain wary of walking back down the highway of ruinous lawsuits, while many Governors say they'll veto this legislation. Still, the lawsuit industry is counting on discontent this fall to help flip a few more legislatures and governorships to pro-tort majorities, laying the groundwork for their proposals to become law. Tort reformers will have to push back.

The Association of Trial Lawyers of America American Association for Justice fails to remind legislators that their form of justice is harmful. Companies drop products for fear of lawsuits, and governments reach into taxpayer pockets when forced to pay out-of-control awards. Worst of all, it undermines the rule of law.

The reform movement in New Jersey is growing, and a common-sense place to start would be to cap appeal bonds and help reduce the financial barriers between a defendant and the courthouse.

It's Not Just Us - Through the Floor Edition

Every day, an e-mail from the website Pension Tsunami lands in our inbox here at the worldwide headquarters of CIANJ. In it is a sampling of public pension headlines from across the country. As a follow-up to our earlier post on Wall Street's impact on New Jersey, here is some news from beyond Jersey:

• Wall Street's dive hurts Sacramento too
• Denver: Mutual funds to lose billions on Lehman
• Omaha: City pensions hit hard as market tumbles
• Hartford: Fannie, Freddie takeover hits CT pension funds

Wall Street Struggles Go To Main Street, State Street

Last week, we noted the collapse of Lehman Brothers would have an adverse effect on New Jersey's pension fund - to the tune of at least $50 million. Now, the Governor is warning that Wall Street's bottoming out will create even more budget problems for New Jersey.

"I can't put a handle on it, but we have a number of operations in the two firms in New Jersey," Corzine said on CNBC. "If they are not compensated with the new firms that come in with Bank of America or however Lehman gets divvied up, it could be very hurtful for our economy and certainly will be for New York. I'll tell you, we have benefited enormously by the growth in the earnings power of people on Wall Street aside from just the number of jobs."

About 53,500 New Jersey residents work in the securities, commodities and financial investments industries, said James Hughes, dean of Rutgers University's Edward J. Bloustein School of Planning and Public Policy.

The first and most obvious struggle is that some of those 53,000 residents will lose their jobs while others see their earnings remain flat or fall. Beyond that, New Jersey's income tax system is one of the most "progressive" in the nation. We have a high reliance on high-wage earners. If their earnings fall, it creates havoc in state budget forecasts and lowers overall state revenue.

The Governor's entire interview on CNBC from yesterday is available here.

Gov Signs Bill To Limit BPU Interference

Earlier today, the Governor announced that he had signed pro-business legislation to more clearly define the role of the Board of Public Utilities in financial transactions. A-2906/S-1886 passed the legislature by overwhelming majorities in June, and helps prevent unnecessary government interference.

In September 2007, BPU issued and Order suggesting it had the right to oversee financial deals of a cable company's parent, even if the deal had nothing to do with cable television or New Jersey. For example, if Cablevision wanted to sell the Knicks, BPU could claim jurisdiction.

While the Board's role in consumer protection is important, this is excessive. S-1886 clearly defines BPU's role and limits their ability to interfere in deals such as the one described above.

It is a small step, but one that is unmistakably in the right direction.

Today in Trenton: Taxation Without Representation

The legislature reconvenes today for the first time since passing a budget in June. Less than 4 hours after everyone exchanges pleasantries and asks about summer vacations, the Assembly Housing and Local Government Committee will consider a bill that supporters endorse because it taxes those who cannot vote.

A-2765 would allow the cities of Newark and Elizabeth to impose a 5% tax on cars rented at Newark Airport. The money raised would then be sent into a poorly-defined redevelopment fund. It is a tax that is impossible to defend from the perspective of sound public finance, but has become popular because it is seen as politically easy. Later today, we'll link to your blogger's testimony before the committee. In the interim, here are four reasons to oppose the bill:

• It arbitrarily chooses one industry - rental cars - and taxes it because their customers are from out-of-state. That is a discriminatory tax practice.
• This is an anti-user fee model. There is no connection between rental car companies/customers, and the projects that would be constructed.
• Because the investments would be made with other people's money, local officials will have less motivation to spend wisely on projects and ensure the best deal is arranged.
• Rental car companies are already subject to various state and federal taxes.

Regular blog readers will be hearing lots more about this bill in the next few months.

Evening update: Despite opposition from rental car companies and yours truly, the measure passed the Assembly Committee by a vote of 4-2. Our testimony is available here. Bill advocates contend this bill is "creative" and a way to ease the City of Newark off state municipal aid. That may be their goal, but nothing in the legislation approved today notes that.

Voting "YES" to the rental car tax were Assemblyman Jerry Green (D-22), Assemblywoman Nilsa Cruz-Perez (D-5), Assemblyman Fred Scalera (D-36), and Assemblyman Anthony Chiappone (D-31).

Voting "NO" to the new tax were Assemblyman Michael Patrick Carroll (R-25), and Assemblywoman Charlotte Vandervalk (R-39). We thank them for their principled votes.

You Won't Believe This

Down in Florida, the former President of the teachers union is now the head of the school choice movement. Go figure.

The new head of the leading voucher group in Florida is a former teachers union leader who once said vouchers were "based on false assumptions and faulty logic."

His hiring may be another sign that the bitter political lines over vouchers are not as hard and fast as they were just a few years ago....

People say, " 'Gee, Doug, you suddenly flipped your position on school choice.' That's not true," Tuthill said.

Tuthill said he heard many of the same arguments now raised against vouchers when he helped set up the International Baccalaureate program at St. Petersburg High School in the early 1980s. "Our argument was all we're trying to do is create more learning options (for kids)," he said.

Bingo. Different children will excel in different environments. This includes traditional public high schools, vocational schools and yes, private schools. Yet somehow, the teachers union here in New Jersey continues to argue that the best interest of education does not include offering poor children all possible options.

Also joining the movement is a St. Petersburg Times columnist who now acknowledges that vouchers do not undermine public education.

Good for them.

Jersey Pension Fund Has Lost $50 Mil on Lehman

New Jersey's public employee pension fund is already carrying tens of billions of dollars in unfunded liabilities. Today we learn that those liabilities were made worse by the state's investment in Lehman Bros.

From Bloomsberg,

New Jersey's state pension fund lost $50 million on the sale of about 3 million shares of Lehman Brothers Holdings Inc. during the past two months, fund director William Clark said.

New Jersey had bought 4.2 million Lehman common shares for about $118 million in June when the U.S. securities firm raised $6 billion in a stock sale. The state paid $28 a share for the stock that it later sold at an average price of $19.35, Clark said in a telephone interview. New Jersey still holds $60 million of Lehman preferred shares that have a dividend of 8.75 percent.

"Look, I am really not happy about making a mistake in this Lehman investment,'' Clark said. "You think something comes down in price and that it looks really cheap. It was a mistake a lot of people have made and we have made as well.''