Cautionary Tale for New Jersey

Regina M. Egea was the Chief of Staff to New Jersey Governor Chris Christie from December, 2013 through in April, 2016 and is now president of Garden State Initiative (GSI) which she describes as:

an independent, nonprofit organization, we take seriously our commitment to examine public policy options and offer alternative, intellectually honest solutions. Our goal at GSI is to offer timely, useful and, yes, even at times provocative alternatives to the standard “tax more and spend more” mantra that plagues our state.

Their first initiative: criticizing Connecticut.

Some excerpts and then the takeaway:

The degree of crowd-out that New Jersey is experiencing is artificially low, since pension payments that a government is not making cannot reduce funding for other services. (page 8)

Connecticut’s fiscal situation is the most striking. The state raised billions in new revenues through a series of significant tax increases in 2009, 2011, and 2015. (page 9)

New Jersey experienced massive deficits during the depths of the recession, reaching as high as $10.7 billion, or 36% of the FY11 budget. In recent years, though, its budget has been more stable than Connecticut’s. This is striking, given that, unlike Connecticut, New Jersey has not resorted to major tax increases to keep revenues in line with expenditures. Aside from a recent increase in the gas tax to fund transportation programs, taxes have generally remained stable and, in some cases, have gone down. A temporary “millionaire’s tax” (10.75% on incomes above $1 million,  10.25% on income over 500,000, and 8% on income over $400,000) actually was allowed to expire in 2010, and, after a recent cut, New Jersey’s sales tax is  now 6.875%, set to reach 6.625% in January 2018. (page 11)

New Jersey’s and Connecticut’s pension mismanagement stretches back many decades and should raise serious doubts about whether either state can ever be trusted to responsibly manage a defined benefit retirement system……The structure of defined benefit systems will always lend itself to manipulation when politicians find it convenient. (page 12)

In New Jersey, many state officials and candidates for office believe that the state’s fiscal struggles can be alleviated through higher taxes and healthy economic growth rates. That is precisely the combination that Connecticut has not seen over the last several years. Up to a point, it is understandable, and certainly inevitable, that Connecticut and New Jersey are high-cost states. When governments raise taxes not to enhance services but to pay for the costs of the past, this not only weakens their advantage relative to low-tax jurisdictions but also to high-tax jurisdictions with a reputation for a high quality of life. (page 13)

What GSI wants you to take away: If raising taxes did not work to solve the pension and benefit crisis in Connecticut then it won’t in New Jersey either. As to what will……?

3 responses to this post.

  1. Posted by George on October 19, 2017 at 7:31 pm

    Quibbles:

    “New Jersey’s sales tax ” The tax rate may have declined a bit, but compliance by taxing internet sales is probably way up. The total sales tax collection may be up.

    “gas tax to fund transportation programs” I thought at the time the gas tax money was used to replace the extra money Christie was putting into the pension scheme.

    Conn attempting to increase teachers payroll tax to pay for retired teachers.

    Compromise Budget Would Eliminate Car Tax, Increase Teacher Pension Contributions

    http://www.ctnewsjunkie.com/archives/entry/compromise_budget_would_eliminate_car_tax_increase_teacher_pension_contribu/

    Reply

  2. Posted by Anonymous 8 on October 19, 2017 at 8:50 pm

    I took the GSI report a little differently.

    The GSI report is incomplete about what New Jersey actually should do, but I think that is because it is a counterargument to what Phil Murphy has proposed on pensions, which itself is highly incomplete. The GSI report is also an argument against the New Jersey Policy Perspective economic fantasy that increasing taxes and “increasing investment” will stimulate economic growth.

    “While some New Jersey politicians embrace a combination of tax increases and robust rates of economic growth, that hasn’t been the experience of Connecticut, which didn’t regain all the private-sector jobs that it lost during the Great Recession until June 2017. It has been one of the slowest-growing states in terms of GDP and personal
    income, and it has lost population in each of the last three years.”

    To the people on this blog it’s common sense that increasing taxes and spending it an expansive public sector isn’t going to lead to growth, but that’s what Phil Murphy says and based on his lead a lot of people apparently believe him.

    What NJ needs is a “grand bargain” of health care benefits normalization and higher taxes and tolls. I think the story of Connecticut’s budgetary floundering under repeated tax increases is part of an argument that tax increases alone (ie Murphy’s plan) won’t work.

    Reply

  3. Posted by Tough Love on October 19, 2017 at 9:42 pm

    Quoting ………

    “What GSI wants you to take away: If raising taxes did not work to solve the pension and benefit crisis in Connecticut then it won’t in New Jersey either. As to what will……?”

    John, It depends upon what you mean by “solve”.

    If “solve” is limited to the Normal Cost value of future accruals, it CAN and SHOULD be “solved” by very materially reducing (think 50+%) the value of future accruals for the future service of all CURRENT workers. Sure, it would be a HUGE fight with the Public Sector Unions ………… but so would proposed reductions of far-smaller magnitude …….. so why not shoot for a home-run?

    If “solve” mean addressing the HUGE ($150 Billion ???) Pension unfunded liability for PAST service accruals, that’s a whole lot harder. While the the Plan participants have strong legal protections, I’m not willing to accept the taxpayer ripoff (yes, the collusion between the Public Sector Unions and our Elected Officials in granting these ludicrously excessive pensions in the first-place is INDEED a taxpayer “ripoff”) without a fight ……… a fight that (if necessary) should include a refusal to pay, and an State Constitutional crisis wherein the Executive Branch refuses to follow a judicial order (should it come to that). .Taxpayers have MORE THAN sufficient justification to demand significant financial Public Sector workers/retiree participation in any “solution”.

    Reply

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