NJPP Monday Minute 1/24/11: Job creation or corporate welfare?

Large corporations and small businesses will receive more than $800 million in tax breaks if the governor signs a number of bills passed by the Legislature earlier this month as part of its "Back to Work NJ" package. Much of the rhetoric associated with these bills is about creating jobs. Some of the legislation--specifically, one bill that allows unemployed people to receive training while they collect unemployment insurance--might have that effect. Many of the others, however, seem to benefit businesses rather than the unemployed.

Lawmakers might have a stronger case if they had followed their own law. New Jersey passed the Development Subsidy Job Goals Accountability Act in 2007, a bill meant to document the effect of tax breaks for businesses on job growth. The report is supposed to include the number of jobs created; whether they are full- or part-time; the salaries and benefits paid; and the number of current and new workers with health insurance. Unfortunately, the act has never been implemented.

Whether these tax cuts will lead to new investments in the state remains an unanswered question. There is no question, however, that in a time of scarce resources, the state stands to lose an estimated $568 million annually from the following six key business tax break bills alone.

Net Operating Losses (S1540/A3143)

One of the most costly of the bills allows businesses that pay their corporate tax liabilities as part of their personal gross income tax to combine certain losses and write them off against their income for up to 20 years. The Division of Taxation estimates the state will lose between $375 million and $400 million annually if this bill becomes law.

Under current law, gains from rents, royalties, patents, copyrights, partnerships and S corporation income are considered separate categories of business income and are deductible only against losses in the same category. For example, a business partnership that loses money in a given year can now only write off its losses against that partnership and not against any rents, royalties, patents, etc. it might have. This bill would allow the business partnership losses to be written off against profits of the other businesses. The impact of this is to allow businesses to write off much more of their bad business decisions for up to 20 years--well beyond the likely life of many of the businesses.

Single Sales Factor (S1646/A1676)

Changing the way states tax multi-state corporations has been on big business lobbyists’ wish list for a long time in New Jersey. Currently, New Jersey calculates corporate business taxes for multistate corporations based on three factors – sales, property and personnel. This bill eliminates the property and personnel factors from the calculation, leaving only sales. Multi-state corporations with significant property and personnel in New Jersey will benefit most from this; corporations that operate entirely within the state will be unaffected. The bill also establishes a special formula for airlines subject to New Jersey taxes.

The Office of Management and Budget estimates this bill will cost the state $39.2 million in corporate taxes in FY 2012; $78.4 million in FY 2013; and $98 million in FY 2014 and in future years, as it is phased in over three years. But OMB says the estimate is subject to significant fluctuations because a very few large taxpayers may account for significant revenues. When New Jersey switched to its current formula in 1978, the Division of Taxation estimated that 81 percent of tax benefits went to 200 multi-state corporations.

Closing Fund (S2545/A3353)

If the Closing Fund bill is enacted, New Jersey will have up to $50 million for grants to encourage companies to stay, expand or move to the state. The fund is aimed at companies that have received subsidies already but say they need more in order to close the deal with the state. The law would be administered by the New Jersey Economic Development Authority and the State Treasurer, who will be able to waive all grant criteria if they determine the project would significantly benefit the state’s economy. No job requirements are included in the bill. To receive a grant from this fund, a company would not need to hire a specific number of people, pay them a certain amount, provide them with health insurance or even hire them as regular employees instead of as consultants.

Garden State Film & Digital Media Jobs Act (S690/A2905)(S2545/A3353)

Despite the fact that Gov. Christie suspended New Jersey’s film subsidy program in July 2010 because he said the state couldn’t afford it and the fact that many other states are limiting their film and digital media credits, the Legislature has passed a bill that significantly increases New Jersey’s film and digital media tax credit. The bill will increase the credit from $10 million to $50 million for filmmakers and from $5 million to $10 million for digital media producers. The Office of Legislative Services estimates that this bill would cost the state $45 million a year. As long as at least 60 percent of total production costs occur in New Jersey, filmmakers and producers would continue to be entitled to a credit of up to 20 percent of their production costs (and 22 percent if those transactions take place in an Urban Enterprise Zone) on their state corporate business or gross income taxes.

According to a recent study by the Center on Budget and Policy Priorities, the cost of film credits generally far outweigh their benefits. The study found that most of the in-state jobs created from film-related work are part-time, temporary positions. New Jersey has commissioned its own study on the effectiveness of its film tax credit, but the report has not been released.

Historic Property Reinvestment Act (S659/1951)

The Historic Property Reinvestment Act establishes tax credits for the rehabilitation of historic properties – both private homes and business properties. Homeowners can receive a 10-year credit of up to 25 percent ($25,000) of the rehabilitation cost applied against their income tax liability. The business owners’ credit is not capped and can be taken against their corporate business tax and insurance premiums tax liabilities. At least 40 percent of the rehabilitation must be done on the structure’s exterior. If the tax credit is greater than the income tax liability, the bill allows excess credit to be carried forward for four years and unused credits to be sold.

A December 30, 2010 article in the Wall Street Journal profiled the conversion of the 10 buildings on the 15-acre Jersey City Medical Center campus, which would be eligible for tax credits of up to $87 million under this bill. The conversion of the Medical Center into luxury apartments and 45,000 square feet of amenities, including a pool and fitness center, is an example of what should not be subsidized. Such projects do little more than increase developers’ profits at the expense of public services.

The executive branch estimates the credit would cost the state $15 million in FY 2012; $25 million in FY 2013; $40 million in FY 2014; and $50 million in FY 2015. The Office of Legislative Services estimates no revenue loss in FY 2012 and a loss of $22.2 million in FY 2013; $29.9 million in FY 2014; and $37.6 million in FY 2015.

Business Retention and Relocation Assistance Grant Program (BRRAG) Expansion (S2370/A3389)

On January 6, the Legislature passed and Gov. Christie signed an expansion of the BRRAG program that provides tax credits to businesses based on the number of their employees in New Jersey. The expansion increases the amount a business can be paid for each employee working in New Jersey and sets up a complicated five-tier system that increases the subsidy amounts and duration depending on the size of the company. The credits now are accessible to any industry the state Economic Development Authority determines is desirable to maintain in the state. Before this expansion, BRRAG targeted the biotechnology, pharmaceuticals, high-technology, financial services, manufacturing, logistics and transportation industries.

The Office of Management and Budget estimates the expansion will result in a state revenue loss of up to $18.6 million annually, beginning this year.

The six bills included here contain many unknowns. It is possible they will create new jobs; it is equally possible they won’t. What is fact, however, is that all of them will result in a revenue loss to the state at a time when the state needs every cent it can collect. When times are tough, fiscal discipline should apply to everyone, not just those with a voice in the state capitol.

Note: Estimated total cost of all six bills is between $542.8 - $567.8M

NJPP Monday Minute 1/17/11: To make real the promises of democracy...

Today, the nation pauses to honor the life and work of a true American hero, the Rev. Martin Luther King Jr. Because Dr. King practiced the non-violence that he preached when he protested poverty and injustice, his ideas carry a special resonance for many of us today. We will hear Dr. King's best-known line, "I have a dream" many times today, and we will gladly rejoice in those words and be uplifted by their aspiration.

We at NJPP would like to invite you to be inspired even further by spending 15 minutes listening to Dr. King’s "I Have a Dream" speech in its entirety, as it was delivered from the steps of the Lincoln Memorial in Washington, D.C. more than 47 years ago.

NJPP Monday Minute 1/10/11: NJ EITC: Governor's No Tax Pledge Ignores Poor Working Families

Amid the celebrating about extending federal income tax cuts to everyone in the year ahead, New Jersey is ringing in the new year with a substantial tax increase. Not to worry, though, the only ones who will be paying more in taxes are those who can least afford to pay more.

The state saved $45 million in the current year budget when it slashed a tax break given to families scratching out a living just above the poverty line. This tax break called the Earned Income Tax Credit (EITC) provides a credit to working poor families against the tax they might pay on the income they earn. The New Jersey EITC is calculated as a percentage of the federal EITC. The state reduced that percentage last year to 20 percent from 25 percent of the federal credit (a 20 percent cut), starting January 1, 2011.

This change will result in a $300 loss to a single parent raising two children with a minimum wage job that pays $15,000 a year. That amounts to more than one week's pay. Even with the extension of federal tax cuts in Washington, working poor families in New Jersey will be less well off in 2011 than they were in 2010.

While the Christie Administration said the state could not afford to sustain the 25 percent credit to the poorest families in the coming year, the Governor and the Legislature have been willing to increase tax credits to major corporations by hundreds of millions of dollars.

Here's just one example of many. Through the Urban Transit Hub Tax Credit program, the state approved three 10-year tax breaks that will benefit Wakefern Corporation, which operates the Shop-Rite chain of grocery stores. Wakefern itself received a $29.2 million grant in August and will benefit from another $15.7 million grant to its landlord. In December, it received a third grant for $58 million. Wakefern certainly must have been pleased to get these tax breaks. Especially since all it had to do was locate three warehouses in Newark and Elizabeth, which it might have done anyway. The state, on the other hand, will lose up to $103 million in corporate tax revenues over ten years if Wakefern fulfills the grant requirements.

Tax credits are set up to encourage certain behavior. The governor and legislators choose to believe that offering tax credits to corporations will encourage them to do what they otherwise might not do. They are even willing to give away billions of dollars with little proof that these incentives cost more than they benefit the state.

Evidence does exist that the EITC encourages people to work rather than accept welfare. By leveling the playing field for families at or below 200 percent of the federal poverty level (that's $36,620 for a family of three in 2011), it encourages them to work. The credit is designed to help offset the high cost of living in New Jersey (which ranks fifth among all states) and compensates them for paying a disproportionate share of their income in regressive taxes, like sales and property taxes.

Gov. Christie pushed for and the Legislature approved a cutback in the EITC despite the opposition of working parents who depend on these funds to support their children and in the face of objections from advocacy organizations representing these families. It was the wrong thing to do at a time when so many poor families are struggling.

New Jersey has become a state that cuts taxes on millionaires and corporations but raises them on the state's poorest working families. The EITC is a good investment for New Jersey's workers. In the coming fiscal year, the governor and the legislature should find the $45 million necessary to help people help themselves.

NJPP Monday Minute 1/03/11: Resolutions for a New Year

Every year 40 to 45 percent of American adults make one or more resolutions to change certain behavior patterns. Among the top personal goals are weight loss, getting more exercise and quitting smoking. People also want to act more responsibly with respect to their finances and get out of debt.

Research shows that making resolutions can be useful because people who explicitly make resolutions are ten times more likely to attain their goals than people who don't explicitly make them. And even if only about 50 percent of people keep their resolutions for six months, it is still useful to try.

If people can make these resolutions and change their behavior, perhaps it would be useful for the state to do so as well. Here are some suggested resolutions to help New Jersey do better in the coming year.

Get Fit
Enact a fiscally responsible budget that meets the needs of all New Jersey residents. Enact no new laws without a full understanding of the revenue gain or loss to the state and local governments. Do a complete analysis of who benefits and who loses when laws are changed. All of this should be done in a manner that informs the public and is based on fact. Transparency is critical. The richest taxpayers in New Jersey just received a tax windfall from Washington. If managing the state's finances in a fiscally responsible way requires increasing taxes on some, the state should do it.

Manage Debt
Cut the hype; explain the facts. Poor financial decisions have caused New Jersey's debt to grow measurably over the years. Since the 1990's, governors and legislators have borrowed when they shouldn't have; have failed to make pension and retirement payments; have expanded programs without resources to provide for them; and have cut taxes with no understanding of the impact. It has taken many years to get into this situation; it will take years to correct it. Public employees who plow the roads, teach children, put out fires and pay the bills are not the enemy. They have contributed towards their benefits; the state has not. A thoughtful plan of action for the future agreed upon by all is needed.

Drink Less
Commit to reducing gasoline consumption by 10 percent through a combination of increased fees on gas consumption and improvements in public transportation. New Jersey last increased fees on motor fuel consumption in 1988 while at the same time making its public transportation system one of the most expensive to use in the nation. New Jersey should expand the sales tax to include motor fuels; raise its gas tax; and use some of the new resources to make mass transit more affordable again. The benefits of this include less congestion on the roads, cleaner air, healthier people and independence from authoritarian oil-producing nations.

Get a Better Education
Over the last year, the Governor has engaged in an unproductive and ugly debate about New Jersey's education system. Calling public school children "drug mules" does not get at the central debate about how to continue to educate New Jersey children and future leaders. Cutting $800 million in state aid from school budgets will likely increase class sizes without having a measurable effect on lowering property taxes. The governor, the legislature, NJEA, teachers, administrators and parents need to work together to address the problems that exist and fix them.

Get a Better Job
The state's colleges and universities produce the leaders of the future and are critical to the state's competitive business climate. Young, educated families move to New Jersey because of the state's good schools and the high quality, well paid work opportunities provided throughout this region. But the state needs to be aware that it must effectively support its colleges and universities and the students who attend them. Education has made America a world leader. Investments in higher education are a much better growth strategy than tax breaks to corporations.

Help Others
Take care of the needy. Raise the minimum wage to a living wage and expand the Earned Income Tax Credit to its 2010 level of 25 percent of the federal credit, recognizing that New Jersey is a high cost-of-living state for working poor people. Expand services to feed the hungry, provide heat to low income people and care for the elderly and disabled. Reinstate the appropriations to family planning organizations, school breakfast and lunch programs, and after school programs that lost their funding under the current budget. Adopt a homeless animal. Feed the birds. Don't kill deer and bears.

All of these resolutions call upon us to invest - in people, the environment and the state's infrastructure. They ask us to listen and think and get the facts. They ask for civility and kindness. It's clear we have to do better than we have done in the past. And that's what resolutions are all about. If we resolve to do these things and we only succeed at half of them, New Jersey will be a better place.

NJPP Monday Minute 12/27/10: To Insure Promptness: Tips for the Holiday Season

As the holiday season winds down, many have said thanks by tipping the people who take care of them during the year. These are the people who take care of their children, clean their houses and cut their hair. They are the people who walk their dogs, deliver their newspaper and prepare and serve their food. And, because many of these people are only guaranteed a fraction of the full minimum wage from their employer, they rely on these tips to help them make ends meet.

Tipped workers earn less than one-third the $7.25 an hour New Jersey state and federal law guarantees to minimum wage workers. The federal Fair Labor Standards Act allows employers to pay workers who rely on tips as a major source of income as little as $2.13 an hour, as long as the worker earns at least the full minimum wage when his or her hourly wage and tips are averaged over a full work week. The definition of a tipped worker is one who earns at least $30 a week in tips. That includes waiters and waitresses, bartenders and parking lot attendants whose wages averaged about $11 an hour in 2009 when tips were included.

The problem with a job that relies on tips is that workers can see wide fluctuations in their income, which can make it difficult to pay their bills. All but two states, including New Jersey, have established a minimum wage for tipped workers to help alleviate the problems associated with these fluctuations. Because New Jersey has not established a minimum wage for tipped workers, the state's rate defaults to the federal standard of $2.13 an hour, a wage that was last raised in 1991 and is the same in New Jersey as it is in Mississippi. Imagine living in New Jersey on a Mississippi wage that has not increased in 19 years.

The last time New Jersey addressed the issue of minimum wage workers was in 2005 when it raised the wage for most workers to $7.15. At the same time, it established the New Jersey Minimum Wage Advisory Commission to report on the adequacy of the wage and the condition of minimum wage workers. The commission issued two reports - the first in December 2007; the second a year later. Both reports recommended that New Jersey's minimum wage be raised (first to $8.25 an hour, then to $8.50) and adjusted annually to reflect increases in the cost of living, as has been done in 10 other states.

But New Jersey lawmakers have failed to act. Only because the federal minimum wage increased in July 2009 did New Jersey's minimum wage workers receive a 10-cent increase, which increased the hourly wage to $7.25. Perhaps frustrated by the state's inaction, the Minimum Wage Advisory Commission has not met since 2008.

Today 14 states and the District of Columbia have higher minimum wages than New Jersey does. On January 1, three more states will provide a more generous wage than New Jersey currently does. A minimum wage worker in New Jersey who works full-time 52 weeks a year earns $15,080 annually, barely above the federal poverty level for a family of two ($14,570) and less than the federal poverty level for a family of three ($18,310) or four ($22,050). Supporting oneself or one's family on salaries like that is especially difficult in New Jersey which now has the fifth highest cost of living in the country.

Raising wages for the lowest-paid workers helps sustain consumer spending and will boost the economic recovery. Minimum wage increases go directly to workers who spend the additional money immediately - on food, rent, gas and clothing. Without action by New Jersey lawmakers, the value of New Jersey's minimum wage will continue to erode, making it even harder for minimum wage workers to make ends meet. And, without the establishment of a statewide minimum wage for tipped workers, the people who depend on tips to pay their bills will continue to fall into deeper and deeper poverty.

In this season of giving, New Jersey owes it to these workers to raise the minimum wage; to restore its value; and to establish a minimum wage for people who rely on tips to supplement their income. The minimum wage was set up to provide a safety net for the most vulnerable workers. It's time for this to actually mean something.

NJPP Monday Minute 12/20/10: Deficit be Damned: Everyone Gets a Tax Cut Next Year

This Christmas, we'll all be getting a gift from Congress - two more years of Bush-era tax cuts. Never mind that Congress is paying for them with a credit card; they'll square up the $860 billion bill with the Obama Administration down the road.

The thing is, the biggest gifts went to the wealthiest taxpayers.

A recent analysis by Citizens for Tax Justice, a Washington-based public interest research and advocacy organization, estimates that the compromise plan agreed to between President Obama and Republicans in Congress would give 25 percent of the total value of the tax cuts to the wealthiest 1 percent of all Americans. The President had originally proposed not extending the tax cuts for those with income of more than $250,000 a year.

The CTJ analysis also estimates the impact of the compromise on a state-by-state basis. In New Jersey, that's an average benefit of $443 for the poorest 20 percent of earners and an average benefit of $93,350 for the wealthiest 1 percent.


The compromise plan extends to everyone the current federal income tax rates for two years, cuts the estate tax to below the 2009 level and cuts Social Security payroll tax deductions for all workers by 2 percent.

Income Taxes
Federal income tax rates were lowered twice during the Bush administration, in 2001 and again in 2003. Although each act had its own legislative history and impact, the two are generally lumped together in terms of their effect on taxpayers and the economy. The two acts significantly lowered federal marginal income tax rates for nearly all taxpayers. Both were set to expire at the end of 2010.

The debate in Washington has centered on whether the tax cuts should be extended and who should benefit. The president's plan favored lower and middle income families and allowed rates to rise on the wealthiest taxpayers. Congressional Republicans wanted the current tax rates made permanent for all.

Congressional Republicans prevailed-but only temporarily. The tax cuts were extended two more years, at which time they will be subject to another debate.

Estate Taxes
The debate on the estate tax centered on Obama's effort to maintain estate taxes at the 2009 level, which exempts the first $3.5 million of an estate and taxes the remainder at a rate of 45 percent. The compromise exempts the first $5 million and taxes the remainder at 35 percent.

Payroll Taxes
The compromise includes a 2 percent payroll tax cut (from 6.2% to 4.2%) for all workers. That is significantly less than the president's "Making Work Pay" proposal, which would have eliminated the 6.2 percent payroll tax on the first $6,450 ($12,900 for couples) in earnings. The impact of this 2 percent cut is greater on lower income earners because only the first $107,000 of income is subject to payroll taxes.

According to CTJ's analysis, the top 1 percent of taxpayers in New Jersey with incomes averaging $1.8 million will receive over 30 percent of these benefits from the income tax and estate tax provisions. When payroll taxes are taken into consideration, lower and middle income earners fare better. While some of the tax cuts have boosted take-home pay for middle class families, the tax cuts for the wealthiest are poorly designed short-term stimulus and, more important, ineffective long-term economic policy. Increasing the take-home pay of low- and moderate-income families will lead to more spending and a boost in demand for necessary goods and services, which in turn creates more jobs. By contrast, tax cuts for the wealthy are more likely to be tucked away as savings, which is a relatively ineffective boost to the economy.

Many have argued that tax cuts for the wealthy increase the incentive to invest or create small business jobs, and that these benefits eventually trickle down to average families. But the economic record tells a different story. Of the 10 economic expansions since 1949, the expansion between 2001 and 2009 ranks last in terms of economic growth, national investment, employment and employee pay.

Economist Mark Zandi of Moody's Analytics estimates (see Table 4 in the report) that every dollar spent making the Bush tax cuts permanent generates only 35 cents of economic activity (permanent corporate tax rate cuts yield only 32 cents). Comparatively speaking, a dollar spent on infrastructure (investing in a transit tunnel under the Hudson River, for example) yields $1.57 return on investment; a dollar spent to prevent layoffs of teachers or police or firefighters yields $1.41; and a dollar to temporarily increase food stamps yields $1.72.

It's too bad the Obama compromise will only boost paychecks, instead of lifting the entire economy.

NJPP Monday Minute 12/13/10: Great Expectations: Choose New Jersey

"The companies that join Choose New Jersey contribute $450,000 and we expect a return on that investment."

That's a quote about the creation of a new nonprofit corporation attributed to John Bigelow, president of the New Jersey division of American Water, a company that has 2.5 million customers in 17 New Jersey counties.

The "return on investment" American Water expects is clearly lower taxes for corporations and, ultimately, fewer services for the rest of us.

Choose New Jersey is a new corporate-funded 501(c)(3) which is being championed by Governor Christie as the state's cheerleader for doing business in New Jersey. Every nonprofit (and even some for-profits) envies Choose New Jersey because of its funding - 14 corporations have committed a total of $2.1 million a year for the next three years to capitalize the group's operations. The chair of its board is New Jersey Verizon president Dennis Bone. The organization's 16 board members are mostly presidents or CEOs of private corporations, almost all of whom earn million-dollar salaries. Nine of the 14 corporations currently have contracts with the state; four of them have received business subsidies totaling $216 million.

The organization is said to have its genesis in the transition team report delivered to Governor Christie by his Subcommittee on Economic Development & Job Growth.

The impact of the subcommittee's report cannot be ignored. Many of the legislative changes on the fast track this month can be found there. What is compelling about this report and fascinating about what's going on in the Legislature right now is that no analysis accompanies most of the policy recommendations. Democrats and Republicans alike have bought into the notion that reducing public resources by cutting taxes and eliminating regulations will make New Jersey more competitive. There seems to be little interest in the fact that less revenue means fewer public services.

Fourteen corporations have committed a total of $6.3 million to this nonprofit corporation for the next three years. This nonprofit won't be providing medical services to poor people or after school programs for children. Based on the work of other corporate lobbying groups like the various state chambers of commerce, it's unlikely to do research. It doesn't seem to have an educational purpose. It won't be guarding the state's rivers and beaches from polluters.

What's troublesome is the obvious and direct connection between the substantial corporate donations and the expected policy changes. As the quote above indicates, contributors to this nonprofit expect a return from their investment. Money does buy access and that's clearly the point of this new nonprofit.

Following are the board members of Choose New Jersey:

• American Water - Don Correll, CEO & President
• Atlantic City Electric - Vincent Malone, President
• Bank of America Merrill Lynch - Robert Doherty, State President
• Bethany Baptist Church - M. William Howard, Jr., Pastor
• Healthcare Institute of New Jersey (HINJ) - Bob Hugin, Celegene President & COO (representing HINJ)
• Horizon Blue Cross/Blue Shield of NJ - William Marino, Chairman & CEO
• Laborers Union - Raymond M. Pocino, LIUNA VP & Eastern Regional Manager
• New Jersey Manufacturers Insurance Group - Bernard Flynn, President & CEO
• New Jersey Resources - Laurence Downes, Chairman & CEO
• Novartis - Kevin Rigby, VP of Public Affairs
• Prudential Financial - John Strangefeld, Chairman & CEO
• Public Service Electric and Gas (PSE&G) - Ralph Izzo, Chairman & CEO
• South Jersey Industries - Edward Graham, President & CEO
• United Water - Robert Iacullo, President & CEO
• Verizon - Dennis Bone, President of Verizon NJ
• Wakefern Food Corporation - Joe Colalillo, President

NJPP Monday Minute 12/6/10: CORPORATE TAX CUT BILLS LACK FISCAL ANALYSIS

Over the next three weeks, Democratic leaders in the Legislature plan to consider 30 bills they claim will "jump-start" the state's economy and create jobs. A sampling of the first seven of these bills (all of the others haven't yet been publicly identified) makes clear that "jump-start" means cutting corporate taxes and expanding already generous business tax credits.

Because much of this legislation championed by the Democratic majority is co-sponsored by legislators in the Republican minority, it's abundantly clear that the bills are on a fast-track through the Assembly and the Senate. The legislation is likely to land on the governor's desk for his signature by early January.

New Jersey has been down this road before. In fact, we're still paying for earlier bouts of such foolishness.

In 2001, Judith Cambria warned in a report for NJPP that New Jersey lawmakers' penchant for cutting taxes, borrowing at unprecedented levels and manipulating pension funds would lead to trouble. Among the problems she predicted: a bankrupt transportation trust fund, high debt and large unfunded retirement liabilities for public employees. Sound familiar?

Four years later, another NJPP report analyzed the cost of Governor Whitman's sales and income tax cuts in the early 1990s. The report estimated the tax cuts cost the state $24 billion in sales and income tax revenue between 1994 and 2005. And the cuts weren't worth it. For nine out of 10 New Jersey households, the sales and income tax reductions were swamped by increases in property taxes.

But New Jersey need not be condemned to a history of repeating its mistakes.

Lawmakers should carefully and publicly consider all of the legislation and they should require at least basic understanding of what the bills will do and how much they will cost. At a minimum, each bill should be considered on three key points.

FISCAL RESPONSIBILITY

No bill should be discussed or voted out of committee without a complete fiscal analysis, known as a fiscal note. That note should estimate the revenue impact to the state (and to local governments if applicable). Particular attention should be paid to revenues that will be lost from a change in the statutes and how the state will manage those losses. Winners and losers should also be identified.

Take for example, A1676/S1646, known as the Single Sales Factor which is being considered by the Senate Budget and Appropriations Committee on December 8. The bill would change the way New Jersey taxes corporate income. Single Sales Factor has been on the table before-the last time in 2008. It didn't become law, in part, because of its cost. No fiscal estimate was available when this Monday Minute was written. The most recent credible cost estimate of such a change was made in 2001, when the Assembly Commerce, Tourism, Gaming and Military and Veterans' Affairs Committee held a hearing on a similar bill. At that time, the state Treasury estimated that switching to the Single Sales Factor would cost the state as much as $250 million annually. If that estimate hold true for this year, that's 11 percent of the $2.3 billion the state expects to collect from corporations under the tax this year. All of those tax reductions would benefit large, multi-state corporations, like Johnson & Johnson and Verizon not small businesses operating only in New Jersey.

PROPER ANALYSIS

The stated goal of the bill package introduced by the Democrats is job creation, and clearly the leadership is willing to expend state resources to that end. But it is critical, especially because the state's finances remain so precarious, that proper analysis be done to explain clearly how each bill will create jobs; how many jobs it will create; what type of jobs will be created and where specifically the jobs will be located.

This is not something New Jersey has ever done before even though it should have. In November 2007, lawmakers enacted the Development Subsidy Job Goals Accountability Act, which charged the state with the responsibility of measuring the costs and benefits of its business subsidies (bonds, grants, loans, loan guarantees, matching funds and all tax expenditures). The act required the state to produce a comprehensive analysis of its largesse to the business community by documenting the number of jobs created; the average pay and benefits for each job; and the number of workers with health insurance. The report has never been done.

POSITIVE PROOF

In March, New Jersey produced its first Tax Expenditure Report, which showed the state is losing $15 billion in FY2011 because of loopholes and exemptions in its tax code. The Tax Expenditure Report is useful because it tracks revenue losses from the bills after they become law. But it's only hindsight. New Jersey taxpayers deserve proof -- or at least reasonable evidence -- that cutting corporate taxes and providing credits, subsidies and other incentives to businesses will, in fact, stimulate new economic growth and that New Jersey will be the primary beneficiary.

New Jersey is entitled to (at least) these minimal measures of transparency and accountability from its elected officials. For too long the state has relied solely on those who benefit from tax breaks and subsidies to tell them if the program was successful. The state must do better. And the members of the General Assembly and the Senate should embrace this opportunity to tell their constituents whether taxpayers are truly getting their money's worth.

NJPP Monday Minute 11/29/10: Christie Family Income Taxes: When 10.25% really means 6.2%

In New Jersey, opponents of progressive taxation, including Governor Christie, argue that tax rates are too high. Indeed, just a month before he filed his 2009 tax returns, the governor said he intends to lower income tax rates within two years in order to stimulate the economy and make New Jersey more competitive with neighboring states.

But a full understanding of the state's tax structure shows that New Jersey is already quite competitive. And Governor Christie's own 2009 New Jersey income tax return shows the truth often isn't as simple as it seems. Even though their household income pushed them into the top bracket of 10.25%, the Christies actually paid just 6.2% of their family income to the state.

Much can be learned from an income tax return, which is why the average person's return is generally not available for public scrutiny. Many politicians, however, make their returns public during their time in office to prove they are solid tax-paying citizens - just like the rest of us.

Such is the case with the governor. The governor has made his tax return available for public perusal. The document is quite useful in illustrating how New Jersey's marginal income tax rates work.

In 2009, the Christie's New Jersey taxable income was $540,792, including $527,069 in wages from Mrs. Christie's part-time job at Cantor Fitzgerald, a Wall Street bank and brokerage firm. The governor, who resigned as U.S. Attorney to campaign, did not have a salary.

The Christies paid $33,619 in New Jersey income taxes. To most, that sounds like a substantial sum, but it amounted to 6.2% of their New Jersey taxable income, considerably less than one would expect them to pay given their 10.25% tax bracket.

How does this work? It's all about the margins.

New Jersey taxes income at different rates as income increases. Many believe this is the more appropriate way to tax income than a flat tax rate on all income, but it can be confusing. Current rates for married couples range from 1.4% on income of less than $20,000 to 8.97% on income of more than $500,000. Married couples who earn less than $20,000 pay no income tax in New Jersey.

In 2009, New Jersey had slightly different brackets as a result of a temporary rate increase enacted by lawmakers. The top marginal income tax rate was 10.75% on income of more than $1 million; 10.25% on income between $500,000 and $1 million; and 8% on income over $400,000 but less than $500,000.

The 6.2% effective income tax the Christies paid to New Jersey is less than they would have paid to New York State if Mrs. Christie's job were there; less than they would have paid if she had worked in Philadelphia; and about what they would have paid if they had lived in Georgia.

New Jersey, unlike some other states, does not allow for many deductions. As a result, the Christies could not lower their taxable income by the $36,866 in property taxes they paid in 2009 for their nearly 7,000-square-foot house valued at $1.8 million in Mendham.

Earlier this year, the Legislature passed legislation that would have maintained the higher income tax rates on the state's richest residents and tied those increases to the property tax rebate program. But the governor vetoed the bills because he said income tax rates in New Jersey are too high. So, the rates for 2010 reverted back to the 2008 level when the top rate was 8.97% on income over $500,000.

In effect, the governor gave himself a $2,151 tax cut.

Rather than arguing over whether the current 8.97% top marginal rate on the richest people in the state is too high, the discussion we should be having in this state is whether it's too much to ask the wealthiest families, those like the Christies who claim a net worth of $3.8 million, to pay 6.2% (or 5.8% under current tax rates) of their income to support public services in New Jersey.

NJPP Monday Minute 11/22/10: Giving Thanks

This week, most of us will enjoy a fabulous Thanksgiving feast. Our holiday will be marked by an abundance of family and football and food, all in joyous testament to the good fortune we enjoy. Our tables will be set so full that by Sunday surely there may be recriminations over the monotony -- if not the extravagance -- of all the leftovers from a 26-pound turkey with all the trimmings.

We must indeed find time this week to give thanks for our good fortune. We must be mindful of the shared spirit of that first Thanksgiving at Plymouth Plantation, nearly 400 years ago, when the Pilgrims celebrated the harvest in community with the Wampanoag people.

And we must also recognize that these times are not plentiful for every one of us.

In fact, 24.1 million Americans are living in poverty, more than at any time in our nation's history, according to the U.S. Census Bureau. The economic recession has kept unemployment over 9.5 percent for more than a year. Home foreclosures are at record levels. Homelessness is on the rise. Last week, the U.S. Department of Agriculture's Economic Research Service reported that 50 million Americans, including 17 million children, do not have consistent access to a nutritious, well-balanced diet.

This lack of plenty is evident at food pantries across New Jersey, which are seeing a 30 percent increase in demand over last year, according to Anthony Guido of the Community FoodBank of New Jersey. That's all the more remarkable considering that the Community FoodBank assisted 1,600 agencies in distributing 35 million pounds of food to 830,000 people last year, a 45 percent increase from 2005.

"Times are tough all around," Guido told WBGO radio. "Our agencies will give out the food as soon as we can get it to them. That means as soon as we collect it and bring it into the food bank, it goes right back out to the charities in need."

The need could have been much greater.

Amid all the budget trauma in New Jersey, the Christie administration and the Legislature protected state funding for a vital initiative in the Department of Agriculture called the State Food Purchase Program (SFPP). The SFPP is a supplement to the federal Emergency Food Assistance Program (TEFAP), which last year supplied about 12 million pounds of food to nearly 400,000 households in New Jersey.

Begun in FY2007 with a budget of $3.9 million, the SFPP provides state tax dollars to the Community FoodBank in order to buy food in bulk quantities to be distributed at local food pantries. In January, as he was leaving office, former Governor Corzine added $3 million more to the fund for FY2010. Governor Christie shaved off a token $100,000 from that total in his first budget, but continued the program at the more substantial level of $6.8 million for FY2011. The SFPP allows for the purchase of 9.7million pounds of food for distribution at local pantries.

Thirty-eight states invest in emergency food and nutrition programs. A study by the California Association of Food Banks earlier this year showed New Jersey was fourth among states in its funding of emergency food programs, with an annual expenditure of $22 per household. Massachusetts was first at $62, followed by New York at $36 and Pennsylvania at $32 per household.

Even so, New Jersey could improve. In 2007, only 59 percent of New Jerseyans eligible for food stamps received them, according to the U.S. Department of Agriculture, and there are 324,000 New Jersey households that are "food insecure," meaning that all household members do not have access to enough food for an active, healthy life at all times.

That first Thanksgiving in the autumn of 1621 was a three day harvest festival, not unlike others in ancient times or other cultures. We should all keep foremost in our minds that the gathering of Pilgrims and Native Americans offered a chance for the entire community to join in the feasting and partake of the bounty that the harvest offered.

NJPP Monday Minute 11/8/10: Honoring veterans with a tax break

On Thursday, Americans will formally honor the nation's military veterans. Veteran's Day is a federal holiday and is observed annually on November 11, the anniversary of the signing of the Armistice that ended World War I. On that day, major hostilities were formally ended at the 11th hour of the 11th day of the 11th month of 1918 with the German signing of the Armistice. The holiday is officially celebrated in other parts of the world as Armistice Day or Remembrance Day.

Former New Jersey Governor and U. S. President Woodrow Wilson proclaimed an Armistice Day for November 30, 1919. Seven years later Congress declared the holiday should be moved to November 11 as "a day to be dedicated to the cause of world peace..."

One of the ways New Jersey and most other states honor their veterans is through property tax breaks. New Jersey provides a $250 annual property tax deduction to veterans who are U. S. citizens and New Jersey residents and who have been honorably discharged from active service during war-time. Since 1947, this benefit has been protected by a provision in the State Constitution and has increased from $50 to its current level. Since 2003, when the deduction was raised to its current level, there have been no increases. Surviving spouses and domestic/civil union partners continue to receive this benefit as long as they do not remarry.

These property tax deductions are available only to veterans who served during wartime, including those who have served or are serving in Iraq and Afghanistan. The number of veterans claiming this deduction has decreased by more than 30 percent in the past 10 years, from 337,344 in 2000 to 257,366 this year. This decrease is expected to continue as New Jersey veterans continue to age.

Municipalities currently administer this program and the state reimburses them 102 percent - the entire cost of the deduction plus 2 percent for administrative costs. This calendar year, the deduction has cost the state $65.5 million, an amount that like the number of veterans has been declining each year since its appropriation peaked at $81 million in 2003.

A smaller number of veterans - those rated 100 percent disabled by the federal Department of Veterans' Affairs and who served during war-time - are totally exempt from paying property taxes. In 2010, 6,790 New Jersey veterans qualified for this exemption.

For more information on this deduction and eligibility for this benefit, go to the deduction application.

As Veterans Day approaches, thank the veterans for their valiant efforts against tyranny and for their peacekeeping efforts around the world.

NJPP Monday Minute 11/1/10: Employee benefit funds in question

With unemployment levels nationwide hovering at just below double digits for more than a year now, the focus on unemployment insurance (UI) benefits has never been more intense.

One of the items at the top of the to-do list when Congress returns for its lame duck session later this month will be consideration of another extension of federal-state UI benefits. Supporters say an extension is necessary because unemployment levels have been so high for so long. Opponents argue that cutting off UI benefits will push the unemployed to find a job, any job. One candidate for the U.S. Senate in Nevada told the Los Angeles Times, "You can make more money on unemployment than you can going down and getting one of those jobs that doesn't pay so much but is an honest job."

Let's be clear: unemployment insurance benefits are not lottery winnings. A UI check is an earned benefit from a trust fund that both workers and employers pay into to protect workers when they are unemployed. UI benefits equal 60 percent of a worker's previous wages up to a maximum weekly payment that varies by state.

In 2009, nationally, UI benefits kept 3.3 million people, including 1 million children, out of poverty. In New Jersey, 414,600 workers are currently receiving benefits. Unemployed workers receive up to 26 weeks of state unemployment payments and then may be eligible to collect federal unemployment benefits for another 90 weeks or more.

According to the New Jersey Department of Labor and Workforce Development, the maximum UI benefit in 2010 in New Jersey is $600 a week but the average benefit is $397 per week. Twelfth District congressional candidate Scott Sipprelle has publicly suggested that benefits are too high and should be lower than minimum wage-about $290 a week for 40 hours of work. At $15,080 a year, that is about $6,000 below what the federal government estimates a family of four needs to live in New Jersey.

The UI benefit was created in 1935 in response to the Great Depression, a time when up to 25 percent of the workforce was unemployed; when people were regularly losing their homes to foreclosures; when Americans were migrating across the country looking for work and shanty towns, called Hoovervilles. Hungry and homeless unemployed people were forced to rely on charities, churches, good-hearted neighbors and strangers to survive.

The circumstances preceding the creation of UI are described In the US Department of Labor's, Beginning the Unemployment Insurance Program - An Oral History: 1935-1985: "In the welfare field the States and local governments, which had been handling the unemployed as well as welfare cases, didn't have any unemployment insurance. There wasn't any kind of help for these people; a lot of them were absolutely helpless. They stayed in their homes; couldn't pay rent. Housing went to pot. The whole economy just went to a disaster. What happened then is that the local authorities began to come to Washington and say, 'Can't you do something down here to help us.'"

In his book, Hard Times: An Oral History of the Great Depression, Studs Terkel reported Roosevelt official Gardiner Means' 1933 account of how UI reflected a change in thinking brought about by the extreme economic crisis faced by millions in the country: "People agreed that old things didn't work. What ran through the whole New Deal was finding a way to make things work. Before that, Hoover would loan money to farmers to keep their mules alive, but wouldn't loan money to keep their children alive. This was perfectly right within the framework of classical thinking. If an individual couldn't get enough to eat, it was because he wasn't on the ball. It was his responsibility. The New Deal said: Anybody who is unemployed isn't necessarily unemployed because he's shiftless."

The present day equivalent of bread lines and shanty towns are homeless shelters and community food banks. The Star-Ledger reported earlier in October that New Jersey food banks are seeing a 46 percent increase in demand.

Unemployment insurance is a vital safety net that supports families and allows them to meet their basic needs. In good times New Jersey and many other states used the program's funds to balance the state budget. These diversions started in 1993 and mostly ended by 2006, but by then much damage had been done. In March 2009, the non-partisan Office of Legislative Services said the state's UI fund was completely depleted. Restoring the funds solvency required the state to either increase contribution rates or borrow from the federal government. New Jersey chose to borrow.

These funding maneuvers have led to a ballot question which tomorrow will allow voters to express their opinion about these practices. Ballot Question #1 asks whether the state constitution should be amended to prohibit the state from using any employee benefits funds (including UI, paid family leave, temporary disability and workers compensation) for purposes other than paying benefits to workers. Both unions and businesses recommend voting "yes"on the question. Voting in favor of the question will provide constitutional protection for these funds but will add further complexity to the constitution and tie public officials' hands in the future. It's a complicated question with no easy answer. Tomorrow voters will provide an answer.

NJPP Monday Minute 10/25/10: This is the time to go a little "batty"

It's almost Halloween, a time to celebrate the ghoulies and ghosties and long-leggedy beasties and things that go bump in the night. One of the most enduring symbols of fright night is the silhouette of a bat, wings spread in a wide scallop, backlit by an orange glowing moon. But, please kiddies, don't be frightened of these often misunderstood mammals (some of which actually do feed on blood). Bats play a critical role in the world's ecosystem. In some African countries, bats are sacred animals thought to be the physical manifestation of souls. In much of Asia, bats are symbols of good luck.

Bats are not so revered here, despite their tremendous contribution to the public weal, and New Jersey's bat population is dying off at an alarming rate.


This is the time of year many bats begin to hibernate. In New Jersey's most populated hibernation spot - Hibernia Mine in Morris County - fewer than 1,700 of almost 30,000 bats survived last winter's sleep, according to Mick Valent, Principal Zoologist for the New Jersey Division of Fish and Wildlife. Worse, Valent said, many survivors showed signs of infection with a fungus that is rapidly spreading across the country.

The fungus is called "white-nose syndrome" and is named for the whitish powder that appears on the nose, ears and wings of infected bats. This disease has killed an estimated 90 percent of bats in the state--and that's very bad news, not just on Halloween.


Bats serve a vital role in the ecosystem as pollinators and seed-dispersers for countless plants. Without their pollination and seed-dispersing services, local ecosystems could gradually collapse as plants fail to provide food and cover for wildlife species. But perhaps their greatest contribution is in pest control. Bats consume about 3,000 insects per hour while feeding, and mosquitoes are a favorite food. Mosquitoes of course are carriers of some of the world's worst diseases such as malaria, encephalitis and the West Nile virus. In New Jersey West Nile virus is a recognized problem which threatens to grow if the mosquito population is not controlled. Fewer bats mean more mosquitoes, more mosquitoes mean more illnesses, more illness means lost work and school.

Bats also like to eat many species of moths that damage agricultural products, vegetation and of course the clothing we all wear. One moth can potentially lay 1,000 eggs at a time, making them the scourge of New Jersey farmers and wool sweater-wearing New Jerseyans alike.

The obvious public policy alternative to the natural pest control bats provide is increased pesticide spraying. Spraying is expensive and carries with it health and environmental risks. Much of the cost of spraying is borne by New Jersey counties with some help from the NJ Department of Environmental Protection through grants, but that amount last year was only about $1 million for the state's 21 counties to divide. The rest of the cost was borne by the counties.

Valent and other zoologists believe humans are to blame for the bats' demise here; that fungal pathogens were introduced into American bat caves by visitors who previously entered European caves and carried the disease back on boots or equipment that wasn't properly cleaned. While bats in Europe are not dying at the same alarming rate, scientists in the U.S. are working to figure out how to save their North American relatives. Valent is hopeful that common anti-fungal compounds might soon offer a cure.

So as you trick or treat, look to those black wings in the sky and beware the glint off of their sharp teeth. But be at least a little grateful and appreciate that those speedy little flashes zooming across the sky are important to us on more than just one night a year.

NJPP Monday Minute 9/27/10: Good, Better ... Best Practices

On October 1, every municipality will puts its state aid on the line. As part of the governor's reform Tool Kit, towns will only receive 100 percent of their state municipal aid payment if they respond "yes" to at least 76 out of 88 questions listed in the governor's "Local Government Best Practices." Not having enough "yes" answers will cut their final aid payments for this year at a time when most municipalities have already lost some of their state aid.

Many of the questions make sense. Elected officials should understand their responsibilities and obligations and should attend most of their organization's meetings. It would be good for the municipal websites to include standard useful information like municipal budgets, minutes and agendas of the various governing bodies and boards, and the names of people to contact. A personnel manual is important for employees of the municipality to know the rules...and certainly the municipality should have rules.

Many questions suggest that important policies are in place and are recognized as important. Since assessed values are the basis for the property taxes people pay, towns should recognize that maintaining those records is a critical feature of good management. Unfortunately, only 60 percent of municipalities will be able to answer "yes" to that question.

Other questions contradict each other so if a municipality says "yes" to one, it can't say "yes" to the other. For instance, one question asks if the municipality employs a full-time health officer. The next question asks if the municipality shares health services with another municipality or county. If you say yes to one, the only way you can say yes to the other is if you have more than one health official.

Some questions contradict state policy. For instance, the questionnaire asks if the municipality limits health benefits to full-time (35 or more hours weekly) employees-excluding from coverage all part-time employees, elected and appointed officials. Newly enacted laws on this subject (P.L. 2010, c. 1 and c. 2) define full time for local government employees as 32 or more hours a week.

And while the questionnaire asks whether the municipality has implemented cost sharing for health benefits by collecting at least 1.5 percent of salary for all employees, it is silent on pensions. If the state is interested in health benefits why not also pension costs? It might be a big surprise for the borough administrator to find out how many pensions some of their shared service workers are entitled to receive upon retirement.

Of course, that is not a "yes" or "no" question, but it could be phrased along the lines of, "Do any of your full-time employees also work full-time in another municipality?" Also, "Do you know how much your full-time employees get paid by the other municipalities where they also work full-time?"

How about nepotism and political patronage? Because this issue clearly fits into the category of ethics and personnel manuals, what about asking, "Does the municipality condone the hiring of a son by a father, a sister by a brother or a mother by a daughter?" or maybe even a more pointed, "Does the municipality allow a mayor, council person or other public official to buy municipal property?"

How about various sanitation practices? Under the public works section of the questionnaire, several questions are asked about recycling. But how about asking whether the municipality picks up trash more than once a week? Or whether the municipality picks up grass clippings?

And what about the ultimate questions?

Are you too big or too small to function effectively?

Do you annually have a joint meeting of officials from every taxing authority to see how you can coordinate and manage the services you provide taxpayers to guarantee that you are providing the highest quality, most cost effective services possible?

"Yes" and "no" questionnaires have both value and limitations. They are like public report cards. If made public, they raise questions. NJPP has always believed information should be provided to the public in an understandable way. "Yes" and "no" is pretty simple. And making municipalities answer the questionnaire or lose state aid is a pretty direct stick. But tying these "yes" answers to the allocation of state aid may not be the best practice when non-compliance is likely to amount to further increases in property taxes to make up for lost state aid.

NJPP Monday Minute 9/6/10: Having your cake and financing it too State awards cake baker for Christie inauguration a BEIP grant

Earlier this year, Gov. Christie suspended New Jersey's film tax credit for the fiscal year 2011 - a reasonable move given the staggering budget situation that the state faced. The movie and TV industries protested. Actors, producers, lobbyists and small business owners testified against eliminating the credit.1 When lawmakers passed a budget without the credit, NBC's Law & Order: Special Victims Unit moved its production back to New York.2

But the governor's elimination of the film tax credit did not stop the state from favoring another television production with a $45,000 grant from New Jersey's flagship business subsidy, the Business Employment Incentive Program (BEIP). The recipient of the state's largesse: Carlo's City Hall Bake Shop in Hoboken, the subject of TLC's reality show "Cake Boss, " and the bakery that supplied the cake for Governor Christie's January inauguration. The Star-Ledger reported that the inauguration cake was donated and would retail for about $15,000. The cake was a twin-bed sized diorama of New Jersey sights including an edible version of the Goldman Sachs tower in Jersey City - ironic since the real version of this tower has benefitted from multiple BEIP grants.

In April, in a decision that received no press coverage, the state Economic Development Authority (EDA) approved the BEIP grant to Carlo's Bakery Inc., the owners of which operate Carlo's City Hall Bakery. The Cake Boss wanted the state's help in opening an additional cake and dessert manufacturing facility to accommodate increasing customer and restaurant demand. It plans to hire 30 new workers who would be paid an average annual salary of $35,000.

When the application was approved, no location had been selected. The bakery owners said the new facility does not need to be near its original Hoboken bakery. If the Cake Boss were to locate his additional facility in one of the state's municipalities where economic development is most encouraged, such as Jersey City, Newark, Paterson or New Brunswick, the grant could increase from the estimated $45,000 to $144,000.

The funding for the BEIP subsidy comes from the state income taxes paid by the new employees. Instead of the state using these tax collections entirely for property tax relief as the income tax was intended to be used, the state returns a portion to the employer. That amount is based on a number of factors, including location, and can be as much as 80 percent of income tax withheld. Since its inception in 1996, the BEIP subsidy has paid out $856.4 million in grants to businesses, according to the EDA.

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1. Siriwardane, Venuri. "TV industry joins fight to keep N.J. tax credit." Star-Ledger. June 15, 2010. www.nj.com.
2. Arrue, Karina. "Jersey loses when Law&Order: SVU leaves North Bergen, Hudson pols blame Gov. Christie's suspension of $10 million film tax credit." July 30, 2010. www.nj.com

NJPP Monday Minute 8/30/10: AND THEN THERE WERE TEN The gradual (and inevitable) decline of dual office holding in New Jersey

Senate President Stephen Sweeney recently announced his retirement - from his other elected office, Director of the Board of Freeholders in Gloucester County.

That the ranking Democratic lawmaker in the state could hold two elected offices at once is unthinkable in almost every other state in the nation. Not so in New Jersey. Here, dual office holding has traditionally been viewed as a peculiarity, much like buying tags to use the public beaches or not being able to pump your own gas.

At least one of those traditions will end, hopefully sooner rather than later.

Sweeney's retirement reduces to ten the number of dual office holders remaining in New Jersey, all of whom are covered by a special provision in the law that ended the practice more than two years ago.

Lawmakers in Trenton in 2007 voted to ban dual office holding for all state, county and municipal elected officials. However, the amendment to the law exempted those members of the Legislature who were already serving in another elected office on the day it took effect, Feb. 1, 2008. This " grandfathering" allowed 19 of the 120 members of the Legislature to continue to hold dual offices - a practice outlawed in almost every state, as well as in federal law.

Before the law was rewritten in 2007, New Jersey statute explicitly permitted dual office holding. The law was originally written and enacted by the Legislature in 1962 in a direct response to a New Jersey Supreme Court ruling in 1961 that barred a Morris County freeholder from also serving as a mayor in Dover Township.

Chief Justice Joseph Weintraub, writing for the unanimous court, said: " As government becomes more complex and additional roles are assigned, the opportunities for dual office-holding must inevitably diminish. What remains constant is the demand of sound public policy that the incumbent in public office shall act with undivided devotion to duty. "

For nearly 50 years, elected officials in New Jersey have flouted that ruling. The singular argument for holding dual offices was that the people had the right to elect whomever they wanted to as their representative, and if it didn't bother voters why should it bother others?

In One to a Customer, our 2006 report written by Tom O'Neill, NJPP considered the practice of dual office holding and found that it often insulated the office holder from accountability; frustrated the democratic system of checks and balances and inflated pork barrel spending. The report concluded: " By creating a class of elected officials whose entire lives are embedded in politics and government, dual office holding raises the stakes of politics unacceptably high and erodes the idea of the citizen-legislator. It encourages expensive, cut-throat campaigns and protects elected officials from competition. Perhaps most serious for the long term well-being of New Jersey, it strengthens the most counter-productive aspects of our home-rule tradition. "

There is a growing, bi-partisan consensus in Trenton that the practice should end entirely.

Gov. Christie campaigned for election on a platform that included outlawing all dual office holding immediately, including for those grandfathered into the legislation. " Dual office holding is simply wrong," he said. A spokesman for the governor recently suggested that the governor was poised to announce a new package of legislation to address enduring issues, like dual office holding as well as a perhaps even larger ethical conflict, dual public employment.

Sweeney's announcement last week did not come as a complete surprise. He has been promising to give up his post as Director of the Board of Freeholders since the dual-office holding ban was enacted.

Sweeney, who lists his occupation as an organizer for the International Ironworkers Association, has served on the Gloucester County Board of Chosen Freeholders since 1997. He became director in 1998. Three years later he was elected to the state Senate, and earlier this year was chosen by members of the Senate to serve as Senate President.

The timing was also opportune. The board, which oversees Gloucester County government, has come under scrutiny after being accused of more than 50 violations of the state's open meetings law. State Superior Court Judge Francis J. Orlando Jr., who sits in Camden, has appointed an independent monitor to observe the freeholders' meetings for six months and report back to him.

Regardless of the timing, Sweeney's decision also sets a good precedent and should prove to the holdouts that giving up the authority of a local office will not diminish the power of a state office.

With Sweeney's retirement, there are 10 dual office holders left in Trenton. They are:

Sen. Nicholas Sacco, D-Hudson, elected to the Senate in 1993. Sacco has been mayor of North Bergen since 1991, following six years serving as a city commissioner. He also has a full-time job as assistant superintendent in the North Bergen School District.

Sen. Paul Sarlo, D-Bergen, appointed to the Senate in 2003, after serving two years in the Assembly. Sarlo has been mayor of Wood-Ridge since 2000, after serving the previous five years on the town council. He chairs the powerful Senate Budget and Appropriations Committee.

Sen. Robert Singer, R-Ocean, elected to the Senate in 1993, after serving six years in the Assembly. Singer has been a committeeman in Lakewood since 1980 and served as mayor four times, most recently in 2009.

Sen. Brian Stack, D-Hudson, elected to the Senate in 2007, after serving four years in the Assembly. Stack has been mayor of Union City since 2000. At one point, in 2003-04, Stack held three elected posts: Mayor, Freeholder and Assemblyman.

Asm. John Burzichelli, D-Gloucester, elected to the Assembly in 2001. Burzichelli has been mayor of Paulsboro since 1996.

Asm. Ralph Caputo, D-Essex, elected to the Assembly in 2007, after serving previously from 1968 to 1972. Caputo has been a freeholder in Essex County since 2002. One of the last "grandfathers" allowed by the legislation, Caputo sought and won re-election to his freeholder post in 2008.

Asm. Ronald Dancer, R-Ocean, appointed to the Assembly in 2002. Dancer has been mayor of Plumsted since 1990.

Asm. Joseph V. Egan, D-Middlesex, elected to the Assembly in 2001. Egan has been a city councilman in New Brunswick since 1982, but is not seeking re-election and his term will expire in January.

Asm. John McKeon, D-Essex, elected to the Assembly in 2001. McKeon has been mayor of West Orange since 1998 and was a council member for six years prior to his election as mayor.

Asm. Gary Schaer, D-Passaic, elected to the Assembly in 2005. Schaer has been a city councilman in Passaic since 1995, serving as council president for ten years. He served as acting mayor for 10 months in 2008, after Mayor Samuel Rivera pled guilty to attempted extortion in 2008.

NJPP Monday Minute 8/23/10: Extending Bush Tax Cuts for Top 2% Shortchanges the Economy

When Democrats in New Jersey raised the top rate on the state income tax last year, it was billed as a one-year, temporary increase on millionaires. When it expired this year, Democrats voted to renew the increase for another year. Republicans, emboldened by Gov. Christie's veto threat, said "no." They reasoned that Democrats purposefully wrote the expiration into the legislation, and so it should be allowed to expire.

In Washington, D.C., the partisans argue opposite sides of the "expiration" debate.

Republicans a decade ago enacted what came to be known as the Bush tax cuts, the signature domestic policy legislation of the Bush Administration. That legislation enacted tax cuts with an expiration date at the end of this year. Republicans want to renew the legislation. Democrats in Congress (echoing Republicans in New Jersey) argue the bill was written with an expiration date, and so it should be allowed to expire.

If it feels a little like a funhouse mirror, well, there's a reason.

None of the partisan back-and-forth is about good fiscal policy or philosophical differences. It's entirely about gaining political advantage.

But it should be pretty clear by now tax cuts haven't spurred the nation's economy. In fact, the worst economic collapse since the Great Depression happened on the heels of deep federal tax cuts. It makes almost no sense, from a policy perspective, to continue such cuts.

A study earlier this year by the non-partisan Congressional Budget Office of 11 options for stimulating economic growth placed tax cuts dead last in effectiveness. Top among the options for creating jobs and jump-starting the economy: job-creation tax credits; extended unemployment benefits and funds to help states balance their budgets with fewer cuts in services.

A proposal by President Obama would allow the tax cuts to expire for the highest-income taxpayers while temporarily extending the cuts for the other 98 percent. Effectively, the plan would restore taxes on households with incomes of $250,000 or more to the same levels as ten years ago, except for tax cuts enacted as part of the American Recovery and Reinvestment Act.

This chart from the Center on Budget and Policy Priorities uses the CBO analysis to break down the cuts by income category:



The CBO study found that allowing the tax cuts to expire for those earning $250,000 a year or more - the wealthiest 2% of all taxpayers - would provide $40 billion in public funds over the next two years to invest in economic programs to boost the economy. Extending the cuts for the high-income earner would likely spur after-tax investments that would increase the GDP by about $10 billion, the CBO said. By comparison, the Center on Budget points out using the economic multipliers in the CBO analysis, investing $20 billion into state fiscal relief and $20 billion in job-creation tax credits would generate about $32 billion in GDP. That's a tripling of the effect of extending the tax cuts.

For taxpayers in New Jersey, Obama's proposal would mean an average federal tax cut of $2,245 in 2011 taxes over what would have been owed in 2001. For 80% of New Jersey taxpayers, that's actually more than the Republican proposal for extending the tax cuts, according to a state-by-state analysis by Citizens for Tax Justice. Higher income households would still reap substantial savings: at least $10,000 for those with incomes of $350,000 or more.

It seems clear that given the anemic effect tax cuts have in stimulating the economy and the immediate impact of channeling those savings back into the economy, the Obama proposal is the middle ground that will provide revenue for improving the economy at the same time it provides relief for the greatest number of taxpayers who have been hardest hit by the economy.

NJPP Monday Minute 8/16/10: MORE FEDERAL MONEY, BUT NOT ENOUGH FEDERAL MONEY

Congress last week passed legislation that will send an additional $685 million to New Jersey - $399 million in increased Medicaid funds and $286 million to save teacher jobs. If properly implemented, these additional federal funds will save jobs; help the state's ravaged economy and protect services to the most vulnerable.

But New Jersey's share of the Medicaid relief was $181 million less than lawmakers expected, and that could punch a substantial hole in the state's already anemic revenues.

JOBS FOR TEACHERS - $286 million

The new $286 million in federal funds going directly to school districts will help retain existing teachers, rehire former teachers or hire new teachers. According to the U.S. Department of Education, these funds should protect the jobs of about 3,900 teachers in New Jersey. That is about a third of the teachers expected to lose jobs as a result of cuts in state aid to education this year.

Gov. Christie initially opposed the aid for more teachers, but shifted his position after learning the federal government would distribute the funds in New Jersey if the state did not. That's water under the bridge. It is now important that the state Department of Education work with the districts to accommodate these funds in their budgets as soon as possible to avoid any unnecessary teacher layoffs.

FEDERAL MEDICAID FUNDS - $399 million

In an effort to help states weather the lingering recession, Washington has been providing extra Medicaid funds to help protect the neediest residents. New Jersey already has spent about $1.4 billion through May of this year and expects to receive about $800 million more through December. The problem is that Gov. Christie (and about 30 other governors) reasonably assumed these Medicaid funds would be extended until June 2011, to cover the second half of FY2011 and so they balanced their budgets accordingly.

New Jersey built $580 million from the relief program into its revenue estimates, but will only receive $399 million.

This money is needed to avoid further downward spiraling of the state's economy. There is general agreement that the recovery will be slow, with the potential for a "double dip" recession. States are most at risk because traditionally state revenues don't rebound until a year or two after national recovery sets in, largely because unemployment is the last area to improve when a recession ends.

The relief Congress approved, however, falls $181 million short of expectations. The shortfall won't require an immediate budget adjustment, but if it isn't made up by increases in state revenue collections, program cuts might be required.

The downsizing of Medicaid relief payments by one-third is the result of increasingly partisan political wrangling in Congress, where the legislation got bogged down in a false debate over deficit spending.

With only a few exceptions, Republicans were united in the Senate and the House against the bill. They argued the nation could not afford to provide the relief, even though the bill was fully funded by closing corporate tax loopholes and eliminating the current increase in food stamps by 2014. The bill, plainly speaking, would not have increased the federal deficit by one penny.

Gov. Christie was right to join other governors in urging Congress to pass this necessary fiscal relief measure, and all of the Democratic members from New Jersey did vote in favor of the aid. Unfortunately, the governor wasn't as persuasive with the members from his own party. New Jersey's five Republican members joined in the partisan bloc that opposed the relief for state budgets, even after it was scaled back.

The opposition is even more surprising given the blame assigned to the state's Congressional delegation for New Jersey's tepid return on its citizens' investment in federal taxes. New Jersey lags almost every other state in federal aid received as a percentage of federal income tax paid. For every dollar New Jerseyans pay in federal taxes, they get back 61 cents, according to one estimate.

Perhaps that's due, in part, to state budget writers leaving too much federal money on the table. (see chart)

There are several instances of substantial federal dollars being lost because of minor cuts in the state budget. Take, for example, health care. For every $1 cut from the state's successful FamilyCare health insurance program for working families, the state lost a $2 federal match. The governor's rejection of $7.5 million in funding for family planning clinics cost the state a $9 match for each $1 spent by the state. Given the state's diminishing revenues and the governor's insistence on no tax increases, it seems folly to turn down money from the federal government for new teachers, social safety net programs or health care for working families and young women.

The total in lost federal funds from all state program cuts in New Jersey was about $250 million, according to NJPP estimates. That loss will multiply itself in subsequent years if the cuts are not restored.

NJPP Monday Minute 8/2/10: Rutgers Report Compares NJ Public and Private Employee Compensation

NJPP's July 19 Monday Minute asked and answered the question: are public employees overpaid? National studies suggest that, on average, public sector employees are paid less than private sector employees - particularly in professional positions - but that public employee benefits (health insurance and pensions) tend to be better than private sector benefits.

Now that question can be asked and answered about New Jersey thanks to a new report by Rutgers School of Management and Labor Relations professor Jeffrey Keefe. His report has just been published by the DC-based Economic Policy Institute.

This is an important question in light of the governor's interest in privatizing an increasing number of public services. The most significant savings in most privatization proposals come from salary savings - from reduced salaries and the constriction or elimination of benefits.

Professor Keefe's data analysis controlled for education, experience, hours of work, organizational size, gender, race, ethnicity and disability and found that no significant difference exists between private and public sector compensation cost on a per hour basis.

But he finds that the public and private sector use substantially different approaches to staffing and compensation.

Salaries:

• New Jersey public sector workers, on average, are more highly educated than private sector workers: 57 percent of full time New Jersey public sector workers hold at least a four-year college degree compared to 40 percent of full time private sector workers.
• New Jersey state and local governments pay college educated workers, on average, 10 percent less than private employers. As noted in the July 19 Monday Minute, the earnings differential is greatest for professional employees, lawyers and doctors.
• But the public sector sets a floor on compensation. Compensation of workers without a high school education is higher for public employees than for private employees.
• State and local government employees receive a higher portion of their compensation in the form of employer-provided benefits and the mix of benefits is different from the private sector.

Benefits:

• Public employers contribute, on average, 34 percent of employee compensation to benefits compared to 31 percent in the private sector.
• Health insurance accounts for 11 percent of public sector compensation, but only seven percent of private sector employees' compensation.
• Retirement benefits are eight percent of public employees' compensation compared to four percent in the public sector. And most public employees participate in defined benefit pension plans, while more private sector employers have switched to defined contribution plans such as 401(k) plans. A significant difference between these two plans is risk. Defined contribution plans shift much of the risk from the employer to the employee.

Using a standard earnings equation, Dr. Keefe estimates that fulltime state and local employees are under-compensated by about four percent. When the number of hours worked is included in the calculation, there is no significant difference in total compensation between fulltime state and local employees and private sector employees.

It is alleged that public employee unions and collective bargaining have produced an over-compensated workforce. Eligible public employees are almost completely unionized in New Jersey. It is well known that taxpayers do not want to pay higher taxes and so exert considerable pressure on elected officials to resist increases in compensation, creating an incentive to hold government below market compensation.

This report only considers fulltime public employees in New Jersey. It makes a strong case that fulltime public sector workers are not the cause and cannot be the solution to the state's financial problems.

Lessons for privatization
It is likely that schemes to privatize state services will fail to result in savings if those services require more than a high school education - since the compensation differential between private sector and public sector salaries tends to be greatest as education levels increase.

Even in situations where a high school education is sufficient, savings may be questionable when health insurance and pensions are considered. When the Whitman administration privatized janitorial services in state buildings, state employees lost their jobs and benefits. The average state salary for a custodian at that time was just under $20,000 with benefits. When state office buildings were raided after the private contractor was hired, it was discovered that a number of the new cleaning staff were undocumented workers working off the books at below minimum wage with no benefits. The only person who benefits from this situation is the private contractor as long as he doesn't get caught.

The actual cost to the public of low wage private sector workers is greater than people think. People with no health insurance, no vacation or sick days and no retirement are cheaper for their private sector employers to hire, but ultimately are supported by public services.

The children of the person who drives the privately owned school bus, often qualify for New Jersey's FamilyCare program because they have no other health insurance. That driver personally may use emergency rooms in the hospital more because he or she can't afford to go to the doctor. If that person's child is very sick, New Jersey generally allows her to take paid family leave so she can take care of her child. If that person has no employer-sponsored retirement plan, she will need greater public support in his or her old age.

What everyone seems to forget is that when the private sector fails to provide for its workers, it is the public and the taxpayer who picks up the slack. What may seem like a good deal often doesn't include the hidden costs.