NJ Business Matters: The Blog of the CIANJ

Eleven Committees Meet To Discuss Maybe, Possibly, Spending

The Lame Duck session rolls on today with the meeting of 11 legislative committees - seven in the Assembly and four in the Senate - to discuss issues ranging from MVC fees to burdening restaurant owners with a new mandate. However, that all happens within the context of today's Star-Ledger story which notes that Democrats have not decided what, if anything, constitutes appropriate spending for a state with no money and a structural deficit that equals about one-third of the total budget.

"There’s balance in life," said Senate President Richard Codey (D-Essex), who favors some extra spending. "There’s people who say, ‘We can’t afford the money.’ There’s other people who are saying, ‘No, aren’t we a compassionate society?’"

Codey recently sparred with Senate Budget and Appropriations chair Barbara Buono (D-Middlesex) after she said her panel would not consider any bills today requiring additional cash — including measures he backs to refund some taxes paid by victims of Madoff’s Ponzi scheme and increase training and drug-screening for staff at state psychiatric hospitals and other facilities.

The trouble with Senate President Codey's position is that New Jersey is in the seemingly impossible position of simultaneously being a high tax state and flat broke. The reason we cannot afford much compassion now is not because of stingy taxpayers and legislators, but because previous decisions made in Trenton put us in this position.

That whole fault not being in the stars, but in ourselves thing.

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.

Step Two - Actually Save Money

The Corzine Administration announced yesterday that it has taken the next step in using "excess" tax collection to pay down state debt - identifying the areas most advantageous to repay now.

The state's Public Finance office identified the most financially advantageous bonds to sell after a six-week search that took into account maturity dates, interest rates and other factors, said Treasury spokesman Tom Vincz.

The agencies whose debt is being retired - the Economic Development Authority, New Jersey Building Authority and the Sports and Exposition Authority - all must approve resolutions authorizing the debt repayment. The EDA board was to meet Tuesday for a vote, the first board to do so.

By retiring $650 million in debt, the state can save $130 million a year in debt service payments.

The state's annual debt service payment is $2.7 billion, making New Jersey the fourth most indebted state in the country.

This is a small, but significant, step on the road back to fiscal solvency. It does not undo prior bad acts, but it shows a genuine desire from the State House to avoid future ones. This part of the budget process deserves praise - - and to be repeated next year.

The Governor's press statement is available here. 

Debt Reduction Bill Signed

From NJBiz:

Gov. Jon S. Corzine yesterday signed legislation to pay down the state's mountainous debt by $650 million, a move he says will save taxpayers $135 million in interest and debt-service payments each of the next five years.

The state has amassed about $33 billion in debt—which exceeds the state's annual budget—and its debt-service payments were scheduled to cost $2.7 billion in the upcoming state budget. This year's payment will reduce that cost by $135 million.

The debt reduction is the result of better-than expected tax collections sent to Trenton. Astute readers will remember that when word of the so-called windfall first broke, CIANJ stood with NJBIA, the NJ Chamber of Commerce and the Healthcare Institute of New Jersey to urge legislators not to spend that money on programs this year. We argued that state government is just as bloated as it was when the Governor first delivered his budget address, and that excess money should be used to pay down state debt.

$650 million is a small - but significant - start.

Do As We Say, Except When We Say Otherwise

Some legislators may have a case of whiplash this morning, following a vote to borrow $3.9 billion for school construction without voter approval.

Both of you regular blog readers know that the majority of New Jersey's debt was acquired without the say-so of voters, despite Constitutional requirements to the contrary. For years, the State did this by borrowing through "independent agencies" such as the Sports and Exposition Authority or the EDA. When those agencies needed support, taxpayers picked up the tab of their debt.

To correct this, CIANJ supported a Constitutional Amendment that sat on the desks of legislators yesterday. It would ensure that all state borrowing is approved by voters and that legislators follow what the Constitution already intends.

Good news: That amendment passed with overwhelming majorities in both houses.

Bad news: A few hours before passing, the state borrowed $3.9 billion (which will cost nearly $7 billion to repay) for school construction - without voter approval.

This, of course, was under the guise of being done for the kids. It's the same logic that allowed legislators to ramrod through an $8 billion scheme years ago, which failed to actually build the needed schools.

If a bill is actually for the kids, shouldn't you let their parents decide whether to saddle them with debt for a generation?

Lurching Toward Real Reform

Sen. Barbara Buono yesterday announced her support for undoing a legislative gift to retired state employees, and for creating savings for New Jersey's overburdened taxpayers.

In 2001, as the state approached legislative elections and the economy was on more stable grounds, the legislature decided to do a favor for retired state workers. At the time, the formula for the amount of money a worker would receive in their retirement years was the number of years worked divided by 60 (n/60). For example, an employee working 30 years would receive half their salary during retirement (30/60=50%).

That changed in 2001 when the legislature acted unilaterally - not through the bargaining table - and changed the denominater in that equation to 55, which is where the formula still lies (n/55). That same worker with 30 years of service now gets 55% of their salary in retirement (30/55 =55%). The benefit increase did not only extend to those currently on the payroll, but to all retirees; even those who were living in Florida for 15 years.

What the legislature giveth, Senator Buono proposes the legislature can taketh back. CIANJ supports the roll back, as New Jersey needs to bring its retirement system more in line with the private sector and we applaud Senator Buono for showing the political courage to re-introduce the idea before the legislature.

As we maintained during the special session on property taxes, rebate checks are no substitute for the fundamental reform necessary in this state. Sen. Buono's proposal is a step forward in that effort. 

Gov. Seeks To Borrow Another $2.5 Billion For School Construction

Quick, you're a homeowner and you are under the burden of such crushing credit card debt that you plan to sell the family car, what do you do? Most of us would start by cutting up their credit cards. If you're the State of New Jersey...

In a last-minute bid to head off Supreme Court action, the Corzine administration announced yesterday it would ask lawmakers for at least another $2.5 billion to restart the troubled school-construction program in the state's poorest districts.

The plan to borrow another massive infusion of cash follows controversy about how the initial $6 billion was spent and comes just weeks after Corzine lectured lawmakers in his State of the State address on New Jersey's burgeoning debt.

All two of you regular blog readers know that on January 8 the Governor said our state was in such poor fiscal shape that we must exchange toll revenue for the next 75 years for upfront cash. Then, to be sure that investors who give us that cash are paid back, we must increase tolls 800% on New Jerseyans.

Remember that the first $6 billion spent by the School Construction Corporation (a government entity)failed to build half of the schools it was assigned to and that they spent an average of 45% more on school construction than the going rate. Now taxpayers are supposed to shrug this off and give a new government entity $2.5 billion because,

"We knew this was looming, and, frankly, if the governor didn't do something, the court would," Senate President Richard Codey said.

Checks. Balances. Scapegoats. 

Moving From Tax and Spend Policies

As this legislative session winds to a close, policymakers increase their focus on the 2008-'09 budget, which is facing a structural deficit of about $3 billion - the nation's third highest burden.

Tom Hester does a nice job of breaking down the Governor's avenues for addressing that deficit. Governor Corzine promises spending cuts are in order and will neither rule out nor promise a tax increase. And of course, there is the issue of asset monetization.

He hasn't said how much tolls may increase, though at least a 45 percent increase is necessary to widen the Turnpike and fix bridges on it and the Parkway.

Corzine wants to use money from the deal to pay at least half of the $32 billion in state debt and provide money for transportation needs.

The notion of 'selling' state assets in return for immediate funds is not fundamentally opposed to taxpayer interests, especially if it results in paying down the debt in today's dollars rather than tomorrow's. However, attached to it must be a guarantee that monies received will actually be spent for that purpose and some sort of mechanism must be developed to ensure toll rates are predictable and do not become overbearing.

Governor Corzine is scheduled to introduce his formal plan January 8th. 

Tax Revenues Up; $3 Billion Deficit Still Looming

When a state such as New Jersey is forced to run its budget on thin margins, small up-ticks become big news. Exhibit A is Saturday's Star-Ledger report on higher-than-expected revenue collections.

They say this year's budget appears to be holding steady so far. Acting treasurer Michellene Davis said yesterday tax collections are running about $300 million ahead of projections for the first four months of the budget year. That's more than twice the $133 million windfall the state realized by this time last year.

She said healthy income and business tax receipts have pushed total revenues to nearly $8.9 billion since July 1. On the downside, sales taxes were off slightly, and officials know most taxes will not be collected until the second half of the year.

"Many statehouses around the country are seeing mixed revenue pictures, and are wary of trends fueled by slowed consumer spending, tightening credit and higher prices for energy," said David Rousseau, the governor's fiscal policy advisor. "We should expect to see these trends influence New Jersey revenues and will remain cautious as our fiscal picture comes into clearer focus in the weeks ahead."

The budget gap is still forecast at about $3 billion dollars heading into the next fiscal year. At some point, the legislature and governor are going to need to make a decision as to whether we maintain the status quo or opt to cut spending and become serious about spurring economic activity. Even in the 21st Century, it is difficult to grow an economy with fewer people around to do the growing.

Sometimes, It's Good to Be Reminded of the Obvious

Regular blog readers have heard the drumbeat before, but it is worth repeating - next year New Jersey faces a structural deficit of about $2.5 billion. To put that in perspective, this year's budget was above $33 billion, with about $3 billion used to pay off part of our existing debt. In the end, the legislature must choose between spending restraint or raising taxes.

The administration has pledged the need to "grow our way out" of NJ's present fiscal state. In today's Opinion Journal, former DE governor Pete DuPont details the model laid out by the federal government,

Tax rate reductions increase tax revenues. This truth has been proved at both state and federal levels, including by President Bush's 2003 tax cuts on income, capital gains and dividends. Those reductions have raised federal tax receipts by $785 billion, the largest four-year revenue increase in U.S. history. In fiscal 2007, which ended last month, the government took in 6.7% more tax revenues than in 2006.

These increases in tax revenue have substantially reduced the federal budget deficits. In 2004 the deficit was $413 billion, or 3.5% of gross domestic product. It narrowed to $318 billion in 2005, $248 billion in 2006 and $163 billion in 2007. That last figure is just 1.2% of GDP, which is half of the average of the past 50 years.....

[T]here have been 49 consecutive months of job growth as a result of the economic expansion induced by President Bush's 2003 tax rate reductions.

Let's hope members of the legislature read the Opinion Journal.