NJ Business Matters: The Blog of the CIANJ

Smoking Out Tax Collections

We are tardy on reporting this, but The Tax Foundation has published a report on what the federal cigarette tax increase will mean to all 50 states. As the price of cigarettes increases, the demand for (legal) purchases slips. This has reverberations across state sales and cigarette tax collections.

As a result of its action, Congress expects about 1.7 billion fewer packs of cigarettes to be purchased in FY 2010. The cost to New Jersey would be a loss of approximately $70 million (see table 2 here). Plus, the increased federal tax will take $163 million of disposable income out of the hands of New Jersey residents.

Long time blog readers will note that the last time NJ increased its cigarette tax, total cigarette tax collections actually fell. Now, in addition to the federal tax increase, NJ is considering a 12.5 cent per pack increase as part of this year's budget. Recent experience forces us to question whether revenue expectations will be met and what the broader impact will be on border-area sales. For example, a New Jerseyan choosing to buy their packs in Deleware might also make other convenience store purchases at the same time, further damaging NJ sales tax collections.

Try as they might, legislators still cannot repeal the law of supply and demand.  

Tax Collections May Slip Further

Look for an announcement in the next few days regarding further budget declines. Yesterday, New Jersey Chief Counsel William Castner told an audiencethat the revenue figures being presented to the Front Office are "frightening".

He declined to detail the latest revenue shortfall, but Castner did say the state is “committed” to spending cuts and to taking other steps to rein in the budget, which currently stands at $29.8 billion.

Already this budget hits business with a $350 million payroll tax hike, increased taxes on alcohol and a top marginal income tax rate that would be second in the nation. Adding even more costs to business will not improve the economy or job creation in the state. The legislature has until June 30 to pass a balanced budget.

DEP Commish Expects LSP Approval from Gov

Photo by Guy Brown, GH Brown Communications

This morning, DEP Commissioner Mark Mauriello spoke with about 100 business leaders at a meeting of the Environmental Business Council of CIANJ. Members had the opportunity to ask the commissioner about topics ranging from the Licensed Site Professional (LSP) bill sitting on Governor Corzine's desk to how the Department plans to manage their workload in these budgetary times. Our thanks to the Commissioner for joining us and reaching out to the business community.

From NJBiz,

“We’re looking at reinvesting in technology when we can’t reinvest in our staff...."

The commissioner said he didn’t know when Corzine would sign the Site Remediation Reform Act — which was passed by the state Legislature in March and has provisions to prioritize projects — but did not expect the governor to veto the bill. “We are proceeding as if this is going to be signed,” Mauriello said.

The LSP Bill would help clear the backlog of more than 15,000 permits clogged in the DEP by allowing a new class of professionals in the private sector to approve the continuation of site cleanup. The same program has been operating in Massachusetts for more than ten years, and New Jersey will be able to clean up a greater number of sites and put its citizens back to work once the governor signs the bill into law.

The sooner the better for the economy and the environment.

Penny Pinching Isn't Enough in Gov't

Since the President's announcement that his cabinet is using the next 90 days to find ways to save $100 million in inefficiencies, columnists, pundits and policy wonks have attempted to articulate that the savings are not significant and have attempted to put them to scale. The video below does the web's best job of that and hints at the fact you cannot reduce government without reducing what it does.

The video is a worthwhile 1:38.

Abbott's Final Days?

In one of the more under-reported stories of the last few months, the New Jersey Supreme Court will hear arguments today as to whether the famed Abbott v. Burke case should come to an end. The ruling will have a substantial impact on education funding and property taxes in New Jersey.

The Star-Ledger has an excellent overview on today's arguments and the viewpoints of the State and the Education Law Center. At issue is whether the state's new school funding formula is constitutional and provides a thorough and efficient education to all New Jersey's children.

Under the former formula, 31 so-called "Abbott Districts" had to be funded at the same per-pupil level as NJ's wealthiest districts. However, towns such as Newark could not provide that funding on their own, which is where the state made up for the shortfall and sent more than half of all state education dollars to these 31 districts. There are more than 600 school districts in the state.

The new formula operates under the philosophy that poor children live everywhere (in fact, more than half live outside Abbott districts), and that a poor child in Passaic is no more needy than one in Haledon. Therefore, it provides a base funding level, plus extra money for children in poverty, children with special needs and those for whom English is a second language. Now, aid is based more on student enrollment than zip code.

Abbott districts have long been losing students, even as their funding increased. Over the long term, dollars would follow children out of the Abbott districts and to their new homes. We will soon learn whether that meets the court's interpretation of "thorough and efficient".

And here we thought spending money was the purview of the legislative and not the judicial branch of government.

Too Bad You Can't Cap Demagoguery

An outstanding column was published in today's Washington Post by Robert Samuelson. All two of you regular blog readers should check out Samuelson's entire piece, which addresses the overly-optimistic assumptions of the EPA regarding the cost of energy tax legislation. Unfortunately, Congress has yet to have an adult conversation with the American people and say, "If you want this bill to reduce the global temperature by 0.5 degrees Celsius (assuming it works perfectly), it is going to cost you."

The selling of the green economy involves much economic make-believe. Environmentalists not only maximize the dangers of global warming -- from rising sea levels to advancing tropical diseases -- they also minimize the costs of dealing with it. Actually, no one involved in this debate really knows what the consequences or costs might be. All are inferred from models of uncertain reliability. Great schemes of economic and social engineering are proposed on shaky foundations of knowledge. Candor and common sense are in scarce supply.

Unfortunately, the market does not engage in make-believe and will react to legislation based on the markets own realistic predictions. Isn't it better for Congress to acknowledge the true costs now, rather than later?

Is Paid Family Leave Already Running a Deficit?

This may be interesting to those of you who have been closely tracking New Jersey's Paid Family Leave program since the legislative stage...

When the bill was debated, the legislature operated under the OLS Fiscal Note, which assumed the program would generate $97 million in revenues to match the $97 million in expenses. However, the shrinking economy has forced the Governor's budget estimate to be less than that.

Paid Family Leave is run through the state's Disability Insurance Fund, and page H-9 of this budget document shows that fund growing by less than $70 million from FY08-FY10. Meanwhile, page D-235 of this budget document shows PFL expenses at $89 million in FY10.

So in year one of the new benefit program, the state believes it may run at a significant loss, and that assumes just a 0.8% utilization rate. By the way, in California the number of PFL claims filed is up 27% from its first year of implementation. Let's hope advocates for the new program will paint an accurate picture of its true costs.

What's In A Course Name?

Regular blog readers know CIANJ is opposed to the continued use of the Special Review Assessment (SRA) for high school graduation. The alternative to the High School Proficiency Assessment has become a crutch for school districts to prop up their graduation rates, and it is given to students who fail at least one part of the HSPA three times. The HSPA, by the way, has been described by NJ's education commissioner as an 8th grade level test.

Now we learn that students who used the SRA had taken (and passed) college prep courses in their normal school work. This begs the obvious question - how can someone who took a college prep course not be able to score better than 50% on an 8th grade test?

Of the students who failed the HSPA and then used the SRA to graduate, 90 percent had taken algebra I, 86 percent had taken geometry and 71 percent were taking or had taken algebra II.

The survey also showed that 91 percent of the SRA students had taken biology, and 9 percent were taking honors or AP English.

Education advocates said the report shows the problem is more about how students are taught than how they are tested. "Is what the students take not really algebra?" asked Derrell Bradford of Excellent Education for Everyone, or E3, which supports more schooling options and vouchers. "Or does the person teaching it not know what they're doing? This is saying that nothing that happens to these kids in the classroom amounts to anything."

The report said almost 20 percent of surveyed schools reported some classes were taught by teachers not certified in the subject they were teaching.

Doolan said schools can call a course anything they want.

What is the purpose of a test that tells you everything is alright, when you know it isn't?

$14 Billion In School Spending Up for Approval Today

Voters in 548 school districts go to the polls today with the opportunity to vote yea or nea on their district's proposed budget. School costs are the largest drivers of property taxes in this state and voter reaction today could indicate their general feelings toward their taxes - assuming New Jerseyans are aware today is an election day.

Voter turnout is a key factor in determining how budgets fare, said [NJ Taxpayers Association President Jerry] Cantrell, a former president of the Randolph Township School District in Morris County. Turnout in New Jersey school elections ranged from 7.3 percent to 18.6 percent over the past 25 years, with the low in 1985 and the high in 1991.

“If the economic situation forces more people to come out, you’ll see a lot more rejections,” Cantrell said. “If they don’t, you’ll see the same patterns of” parent-teacher associations “getting parents to come out and pass them.”

If you are unsure about where to vote, click here to look-up location and voter hours. Proposed budgets are usually available on the website of your local Board of Education.

Turnout will be low this year, as it is every year. A reason for that is the April 21st election date. There is a bill languishing on the desks of legislators to move school board and budget elections to the November General Election date. However, that bill is stalled because of the heavy-handed lobbying of the teachers union, who would prefer to keep school budgets a mostly private affair. At the core of all their arguments is the fact they see a lower voter turnout as better.

If you are going to have a voter-approved budget, is there any compelling reason to not have it on the date likely to draw the highest voter turnout?

Big Labor Can't Count on Senator Webb's Card Check Vote

From the Washington Post's Plum Line blog,

This one is very, very bad news for the Employee Free Choice Act: Senator Jim Webb, who was thought by labor to be supportive of the measure, now won’t say whether he’ll cast a key vote for it.

Worse, his office says he views this as a bad time to be introducing the legislation — a potentially serious blow, because Webb is generally seen as strong on labor issues.

“He doesn’t believe this is the appropriate time to introduce this legislation or to be debating it,” Webb spokesperson Jessica Smith confirms to me. “He’s always been a strong supporter of the right to collective bargaining, but as written, he would look towards improving the legislation in a way to make it more fair and equitable.”

In another blow, Webb’s also won’t say whether he’ll support bringing it to the floor for debate. “He’s not publicly going to say at this point,” his spokesperson said.

Seems like the Senator is not willing to sacrifice the secret ballot, and he is to be applauded for that political stance. Hopefully, Senator Webb and Senator Lincoln are the beginning of a larger trend among the majority party.