NJ Fiscal Folly

Flatliners

2006-07-15T14:05:00.000-04:00

Like Corzine's credibility, my PC is currently flatlined.

I hope to resume posting next week.

Why Americans Ignore Soccer

2006-07-10T10:57:00.000-04:00

(1) Low scoring = boring

(2) The officiating sucks. There aren't enough officials on the field, so they don't control the game. Players get away with too many cheap shots and flops. Bad calls also have a greater impact in low scoring sports than high scoring sports.

(3) The player substitution rules are too inflexible.

(4) Nobody wants a game to be decided by penalty kicks. Greater substitution flexibility would allow sudden death overtimes.

We now return to our regular programming.

Democrats Piss On Taxpayers

2006-07-08T10:28:00.000-04:00

It wasn't enough to raise taxes yet again.

It wasn't enough to refuse essential reforms in state spending.

Now the Democrats have decided to add $270 million in additional pork to Corzine's already bloated budget. It only took two days to confirm my prediction that commingled tax revenues from the sales tax increase will be diverted from property tax relief to other programs.

During the last week, we got a lot of bluster from Corzine about his willingness to use the line item veto. Let's see how long it takes him to weasel out of that pledge too.

Update: The final figure was $250 million. The Democrats actually added $300 million, but Corzine made token cuts of $50 million. Thus, Corzine and the spendthrift Democratic legislators have already hijacked 23% of the sales tax increase for political pork.

Another Year Of "Tax And Spend"

2006-07-06T18:54:00.000-04:00

Gov Corzine and the Assembly Democrats have apparently reached a budget deal. Here's all you need to know.

Once again, the Democrats increase NJ taxes. The sales tax will go from 6% to 7%. One of the highest tax states in the country will become even more onerous.

Once again, the Democrats continue to waste taxpayer money. There will be no headcount reductions or spending cuts in our bloated state government. The Democrats ignored all spending cut proposals, and made no progress in reducing or eliminating runaway state spending. Another tax increase is now certain for next year.

Once again, the Democrats lie about property tax relief. Any talk about setting aside a portion of the tax increase is simply blather, nothing more than lipstick on the pig. The commingled tax revenues will soon be diverted to other programs.

Once again, the Democrats fleece NJ taxpayers.

Emperor Corzine?

2006-07-05T09:15:00.000-04:00

Has anybody else noticed that every time Corzine shows up to address the legislature he brings along an imperial bodyguard of state troopers?

What's that all about, and why do the legislators let him get away with it?

We're All Gonna Die!

2006-07-05T08:26:00.000-04:00

No casinos. No lottery. No DMV.

Will this pain and suffering never end?

The Farce Continues

2006-07-03T11:15:00.000-04:00

How is it possible that Gov Corzine is unable to find any significant headcount reductions in a state workforce of 84,400 employees (see pages 3 and 55), including at least 43,500 "non-essentials"?

As far as I'm concerned, the state government can remain shut down for a month. We'll barely notice the difference. NJ taxpayers will find out how much of their money is wasted on a bloated state payroll.

This Is An Alternative?

2006-06-28T10:18:00.000-04:00

NJ Assembly Democrats plan to push an alternative budget to Gov Corzine's "tax and spend" turkey.

Here's a link to a news story that briefly summarizes their proposals.

One of the Democrats' primary goals is to avoid a sales tax increase this year, possibly because they want to save this tactic for future use.

When you review the currently available details of their plan, one feature stands out. Like Corzine's budget, there are almost no spending cuts in the so-called alternative. Other than a lower pension system contribution, the Democrats' proposals are basically a collection of new tax increases on businesses, employees, vehicles, etc.

The only real benefit of this alternative budget is that it provides a rallying point for Corzine's opponents. Otherwise, it's simply another version of business as usual in Trenton.

Republican Budget Cut Proposals

2006-06-23T14:44:00.000-04:00

The NJ Assembly Republicans have prepared a list of more than $2.2 billion in possible spending cuts for next year's budget.

Here's the press release and here's the list of proposed cuts. Additional information can also be found at this link.

The list is somewhat long, and includes both major and minor cuts. The list includes the following large items:

-- $420 million from a 10% reduction in Abbott district spending

-- $102 million from restructuring the Urban Enterprise Zone Program

-- $78 million from eliminating Special Municipal Aid, which is basically political pork

-- $116 million from eliminating cost-of-living increases for higher paid state employees

-- $200 million from pension reforms

-- $300 million from eliminating legislative pork

-- $71 million from reducing the number of political appointees

-- $150 million in savings from improving state government procurement practices

Obviously, there's a certain amount of political theater involved here. The scope, size, and timing of potential cost savings are overstated. On the other hand, many of the proposals are quite feasible, and a 50% success rate still yields $1 billion in savings.

In the next 7-10 days, NJ taxpayers will hear a lot of blather about the necessity of further tax increases. Don't buy it. The only thing needed in Trenton is backbone, not money.

Empty Threat

2006-06-23T10:22:00.000-04:00

Gov Corzine is threatening to shut down state government unless the legislature goes along with his proposed budget, particularly an increase in the NJ sales tax from 6% to 7%.

Shutting down the government is supposed to be a tactic to get state employees and taxpayers to apply pressure to the legislature to pass a budget. In this situation, however, it's an empty threat.

If I'm a legislator (in either party), and someone complains about my budget position, I have an easy defense:

"Gov Corzine wants to raise NJ taxes. I don't. The only reason for a government shutdown is Corzine's stubbornness. If you have a complaint, contact Corzine."

I know this answer is glib, but it's still effective. Why does Corzine think he's going to win this exchange?

NJ Sales Tax Reform

2006-06-21T21:09:00.000-04:00

New Jersey Policy Perspective, the liberal policy group, has just issued another interesting paper, "Making The State Sales Tax Pull Its Weight".

The paper provides a broad overview and comparisons of various states' sales taxes. After briefly summarizing NJ's sales tax history, the report then analyzes NJ sales tax features and shortcomings.

The paper basically concludes with a single recommendation: NJ should retain the current 6% sales tax rate, but should try to eliminate most of the sales tax exemptions that currently exist, particularly the many categories of services that are now untaxed. The paper points out that services now account for 58% of Americans' consumer spending.

As you may recall, Gov Corzine's budget proposal currently includes a similar expansion of taxable activities, which is projected to yield $330 million in additional yearly revenues.

The NJPP report claims that elimination of all exemptions could produce $5.6 billion per year in additional sales tax revenues. However, this figure includes the following categories and estimated sales taxes:

(1) Gasoline and other motor fuels ($928 million)

(2) Food products ($922 million)

(3) Clothing ($680 million)

(4) Consulting and lobbying services ($462 million)

(5) Legal services ($449 million)

(6) Computer systems design ($381 million)

(7) Architectural, engineering and related services ($379 million)

(8) Accounting, tax preparation, etc ($297 million)

The paper includes a table in the appendix which shows how many states currently tax various categories of services. For the most part, taxation of services is fairly widespread, except for professional services, which are rarely taxed.

If you can concede for a moment that spending cuts alone will not balance next year's budget, then NJPP's recommendation (and Corzine's budget proposal) makes sense. Sales tax reform would also help reduce NJ's dependence on income taxes and property taxes. The paper is probably too optimistic about the potential expansion of taxable goods and services, but the general idea seems correct. It's also nice to see that NJPP's proposal falls outside the usual liberal "tax the rich" rhetoric.

NJ Government Employee Data

2006-06-20T10:07:00.000-04:00

I've just discovered two excellent sources of information on NJ government employees.

The first source is the NJ State Government Workforce Profile, which is updated annually. This report includes extensive data on headcounts, salaries, educational levels, job categories, union representation, etc. I'm still working my way through the 2006 report, which is 70 pages long.

The second source is the NJ Department of Labor wage survey of public and private employees, which is also updated regularly. Most teachers fall under industry code 61. Most other government employees can be found under industry code 92.

Although both sources provide wage and salary data, neither seems to include benefit costs, such as medical care or retirement benefits. Given the magnitude of these liabilities, that's a real shortcoming. However, there's still a lot of good information in these reports.

Worth Reading

2006-06-19T08:36:00.000-04:00

David Rebovich had a pretty good column yesterday, "Democrats' Budget Crisis Has Deep Roots".

It's basically a summary of the current situation, but worth a few minutes of your time.

"The most basic reason the Democrats have a crisis about the next budget is that they have for too long told their constituents that extensive government spending is possible because someone else, eg, the rich, the business community, people in the next town, will pick up the tab. If not, the bill can simply be covered by some painless budget maneuver. Well, those days are gone, and Democrats are bickering over what to do about it."

Dual Office Holding In NJ

2006-06-16T08:43:00.000-04:00

New Jersey Policy Perspective, a liberal policy group, has just issued an interesting paper, "One to a Customer: The Democratic Downsides of Dual Office Holding".

Quoting the report:

"According to the Center for Public Integrity, 33 percent of New Jersey legislators received income from a government agency other than the Legislature and at least 20 held more than one elected office. Dual office holding also is common at the county and local level.

There are many reasons for concern. Holding two elective offices in New Jersey:

• Insulates office holders from political accountability

• Frustrates the system of checks and balances among levels of government

• Is a form of political double-dipping

• Amplifies pork-barrel spending

• Blocks the political ladder to emerging aspirants

• Reinforces the state’s predilection for localism, parochialism and fragmentation

• Creates “low-show” jobs that divide the time and attention of elected officials

• Puts officials in a built-in conflict situation"

While I generally agree with the need to eliminate dual office holding, I might make an exception for those people who hold unpaid offices at the local level, such as $1 per year mayors.

NJ's Shadow Government

2006-06-14T11:15:00.000-04:00

I've recently discovered a small group called the Union County Watchdog Association, that also has a blog, The County Watchers. As you might surmise, their primary focus is Union County: political activity, financial issues, freeholder shenanigans, etc.

This is a good idea that needs to be duplicated elsewhere in the state. NJ county government is neither transparent nor accountable, and this situation provides ample opportunities for corruption and waste. NJ county government also tends to operate in the shadows, dominated by county party organizations and outside the spotlight usually focused on state or local government activities. For example, what do you really know about the background, powers, and activities of your own county executive or freeholders?

Thanks to the internet, watchdog groups and blogs now have much better tools to monitor county government, accumulate relevant data in easily accessible formats, and communicate their findings to taxpayers, voters, and other interested parties. The internet also makes it possible for an individual or small group to have a large impact.

Whenever I read about proposals for municipal consolidation or regionalization, I shudder to think that my own town or our schools might fall under the control of Bergen County politicians and bureaucrats. If more NJ counties had groups like the UCWA, we would increase the visibility and accountability of such people, and greatly reduce the corruption and waste that constantly plagues our state.

America's Next Civil War?

2006-06-08T08:18:00.000-04:00

I've just run across an interesting article, "America's Second Civil War: The Public Employment Complex vs Taxpayers", from the Yankee Institute in Connecticut.

At the state and local level, the "public employment complex" (PEC) includes all persons or groups that earn a living, either directly or indirectly, from government programs. PEC includes government employees, public unions, community organizations, advocacy groups, lobbyists, lawyers, consultants, etc. As we've already seen in NJ, the steady escalation in government spending and PEC costs has created numerous financial crises across the country. The resulting tax burdens can no longer be sustained or ignored. Thus, many politicians now face an unavoidable choice: either cut back government spending, or watch their taxpayers migrate to lower-cost communities.

The article forecasts a dramatic increase in labor militancy, bitter political conflicts, and harsh attacks on those persons or groups that want to reduce PEC costs. The author believes that taxpayers will eventually win, due to a numerical majority and the fact that constantly growing PEC costs can't be sustained or justified. However, the other consequences of this imminent "civil war" may be harmful to everyone.

More Of The Same

2006-06-06T16:37:00.000-04:00

I find it difficult to take too seriously today's Codey-Roberts proposal for the NJ legislature to spend the summer working on property tax reform. There's no way to cut the Gordian knot unless Abbott district spending is significantly reduced. Any other version of property tax "reform" is simply an exercise in shifting the tax burden from one group to another. Any verbiage about revising school funding formulas is simply hot air unless non-Abbott districts get a larger share of taxpayer-funded school aid.

Municipal/school district consolidation/shared services is a worthy topic, but the potential savings are insignificant compared to Abbott districts, which are currently budgeted to receive 37% of all funds available for NJ property tax relief.

Pension reform is also a worthy topic, but it's really separate from property tax, and the issues are much broader than just curbing the obvious abuses. I don't know why the NJ legislature needs to look at this area yet again. There are already numerous specific proposals on the table.

I remain a skeptic regarding any NJ constitutional convention, for at least two reasons. First, the politicians and interest groups are continually trying to limit the scope of such a convention to state taxes, but to exclude any consideration of state spending. Second, I see a great potential for mischief in the whole amendment process.

MSM Is Late To The Party

2006-05-31T09:31:00.000-04:00

The MSM is finally reporting that Gov Corzine's budget proposal to expand NJ FamilyCare severely underestimates the cost of providing health insurance.

I had previously posted on this topic May 3 and March 24.

The Cost Of Amnesty For Illegals

2006-05-30T09:56:00.000-04:00

The Heritage Foundation has published a disturbing paper with the lengthy title "Amnesty and Continued Low-Skill Immigration Will Substantially Raise Welfare Costs and Poverty".

The paper's main points include the following:

(1) The net additional cost of amnesty for the 10-12 million illegal aliens already in the US would be approximately $16 billion per year.

Most of the current illegals have low education levels and low skill levels, which are highly correlated with high welfare utilization, high rates of out-of-wedlock childbearing, high rates of child poverty, high crime rates, future shortfalls in educational attainment, and future welfare dependence, including successive generations.

(2) Once the illegals receive permanent residence, and later citizenship, they are allowed to bring spouses, children, and parents to the US. The estimated cost of "family chain migration" would be an additional $30 billion per year. (Many of these immigrants would be net consumers of government and social services rather than potential taxpayers.)

(3) Amnesty, citizenship, and welfare benefits, combined with a lack of border security and other forms of enforcement, would serve as a magnet to accelerate the flow of low-skill illegals into the US, and would further increase the costs to US taxpayers, as well as other social problems.

As the study notes, current amnesty proposals would be the largest expansion of the welfare state in 35 years. If the illegal immigrant population becomes entitled to citizenship benefits, while simultaneously growing due to "family chain migration" and the "magnet effect", the costs to US taxpayers would be truly staggering.

I would add two other points to the paper.

First, even though immigration policy is determined at the Federal level, many of the costs associated with amnesty would be incurred at the state and local level, without benefit of offsetting Federal funds. For example, NJ hospitals currently spend $250-300 million per year providing Federally mandated medical care to illegal immigrants. There is no Federal compensation for this care, and these costs are eventually passed on to NJ residents, through higher medical fees, higher medical insurance rates, or higher taxes. NJ government is already broke, and can't possibly afford any expansion of such uncompensated services.

Second, the issue of immigration policy is intimately tied to the concepts of national sovereignty and national identity. Many amnesty supporters believe that "progressive, transnational values" trump any national policies that might preserve US sovereignty or national identity. These supporters do not concede (a) that immigration is a privilege, not a right; (b) that the US has a right to regulate the rate of immigration; or (c) that English should remain the primary language of the US. The rest of us believe otherwise.

I'm not against immigration, but amnesty plus open borders is a formula for disaster.

Update: Back in April, the Federation For American Immigration Reform estimated that NJ currently spends about $1.7 billion per year for just three categories of illegal immigrant costs: emergency room medical services, education, and incarceration. This figure seems pretty high to me, but I could easily believe at least $1 billion per year after you add in other social services plus increased state and local government costs. In general, illegal immigrant costs will greatly exceed any taxes paid by low skill workers.

The Good News Never Ends

2006-05-24T17:33:00.000-04:00

One of my favorite topics is NJ's liability for post-retirement health care benefits for public employees (sometimes designated PRM, for post-retirement medical). This liability is a form of debt, a future obligation to be paid by NJ taxpayers. Unlike pension obligations, there are no assets set aside and invested to pay for these future expenses.

It should also be noted that NJ public employees have generous health care benefits, especially PRM, that most private sector employees can only dream about.

Back in December, the Benefits Review Task Force Report made a rough estimate that NJ's PRM obligation was at least $20 billion. I expressed skepticism about that figure in a prior post, and suggested that a more realistic number might be as high as $40 billion.

Today, I came across an interesting tidbit buried in an OLS analysis of the proposed budget for "Interdepartmental Accounts", a cost center which contains state funded employee benefits. The OLS analysis includes a background paper on "Other Post Employment Benefits" (OPEB, essentially the same as PRM).

Here's the good news hidden away in the OLS paper (see page 40):

"Notwithstanding the unofficial estimate of $20 billion for New Jersey's OPEB liability, Mercer Consulting, a global corporate consultant firm, estimates that OPEB liability will be 40-60 times an entity's annual medical expenditures. This suggests that New Jersey's OPEB liability is in the $40 billion to $60 billion range."

NJ currently spends about $1 billion per year for retiree health care benefits. This expense category is projected to grow by more than 22% per year over the next four years.

Furthermore, due to new government accounting regulations, NJ will have to start reporting the OPEB liability on a yearly basis. The bond rating agencies will begin to include this data in their evaluations of the state's finances, which will affect future borrowing costs. I wouldn't bank on any credit rating upgrades, particularly when the OPEB liability is combined with current state debt ($33 billion and growing), unfunded pension liabilities (at least $18 billion), and endless Abbott spending requirements.

Like so many other components of the state's finances, PRM costs are out of control. However, it's a pretty good bet that feckless politicians and public employee unions will do nothing to change course as our car accelerates straight over the cliff.

NJ Economic Development

2006-05-23T09:30:00.000-04:00

Although NJ desperately needs to reform fiscal management and state government, we have no future without economic growth. You only have to take a look at a high cost, declining, Rust Belt state like Michigan to see one possible future if NJ can't stimulate growth and diversify the economy.

The National Governors Association Center For Best Practices recently released a study which reviews economic development initiatives in various states over the last year.

Quoting the study's Executive Summary:

"Most of the states’ major new economic development initiatives focused on enhancing state and regional "clusters of innovation" -- fast-growing groups of businesses that share markets, labor, new ideas, and products. To enhance these clusters and exploit the unique advantages of the region’s labor pool, educational resources, and research capacity, most development initiatives emphasized one or more of the following strategies:

-- Promoting research and development by leveraging public funds and encouraging partnerships

-- Building a skilled workforce by providing training and education to meet industry needs

-- Supporting entrepreneurs by providing seed funding and incentives for job creation

-- Developing rural areas by supporting innovations in agriculture and supporting business development

-- Supporting tourism through state funding, campaigns, and training programs

-- Improving business attraction through revitalization activities and quality of life initiatives

-- Marketing the state’s businesses through outreach campaigns and international missions and offices."

Although NJ is not mentioned in the study, we seem to be following much of the standard game plan above.

It should be noted that many other states are also targeting three industries identified in NJ's "High-Tech Recovery Plan": life sciences and biotechnology, nanotechnology, and renewable energy. Economic development is not a zero sum game, but it is competitive, and some states (and countries) will do better than others. For example, NJ's traditional strength in pharmaceuticals has been eroding over the last few years as other locations have gotten stronger.

However, economic development is not an excuse to squander money. The full speed charge into NJ's new stem cell research program already looks like a replay of the political buffoonery and plunder that characterized the spendthrift Schools Construction Corp. Is it really necessary to commit $250 million to three new research facilities at this point? Why not start with one facility in New Brunswick, the logical location, and see how that goes?

NJ is a rich state, with many talented people and other resources critical for growth. However, economic development is not a quick fix, and it is not a substitute for improving NJ fiscal management or reforming state government.

State Revenue Updates

2006-05-22T17:28:00.000-04:00

State Treasurer Bradley Abelow and the NJ OLS today released revised revenue projections for FY 2006 and FY 2007. The two sets of numbers have not been totally reconciled, but these types of revisions are normal for any large, complex budget.

The most important revelation is that Abelow now expects FY 2007 revenues to be $441 million lower than previously forecast. The primary reason for this shortfall is a lower growth rate in gross income taxes (GIT), which are substantially affected by a small number of taxpayers with less predictable incomes (eg, capital gains). The revenue shortfall also results from lower corporate business taxes (CBT) than previously forecast.

Abelow's FY 2007 figures still include the sales tax increase, and apparently still include the controversial hospital bed tax ($215 million for the state).

New Jersey Has No Power

2006-05-17T09:06:00.000-04:00

As I've noted previously, NJ ranks 50th (ie, worst) in a state-by-state comparison of Federal taxes paid versus Federal spending received. For every $1 in Federal taxes paid, NJ receives $0.55 in Federal spending. This is partly due to NJ's ineffective Congressmen.

Today, I discovered a web site that ranks Congressional power, by Congressman and by state. As you might expect, NJ ranks 49th in terms of Congressional power. Sen Lautenberg ranks 97th in the Senate (Sen Menendez was not ranked). In general, NJ Republican Representatives ranked higher than NJ Democratic Representatives.

No wonder New Jersey never gets a fair share of Federal funds.

Roberto at DynamoBuzz also has a similar post on this topic today.

NJ State Debt Disclosure

2006-05-10T08:48:00.000-04:00

One of the many reasons NJ financial management is so poor is because NJ financial disclosure is so poor. Like the managers of a badly run company, NJ politicians and bureaucrats like to avoid any form of reporting that might be used to hold them accountable.

There was a story in yesterday's news that NJ's total state debt has now increased to $33 billion, up 11.5% from last year. However, we get this information from Moody's Investors Service, not the NJ State Treasurer. In all likelihood, the Treasury Department provided the data to Moody's, but not to any NJ taxpayers.

The Public Finance Division of the Treasury Department has a web site which contains two reports related to state debt. However, the reports are incomplete and way out of date. There are no schedules in the Corzine budget proposal with more current information.

I have two recommendations.

First, the State Treasurer should be required to maintain current information on total NJ state debt on the Public Finance web site. The format of the schedule labeled "State of New Jersey Debt Analysis" is particularly useful. The web site should also include current bond ratings for benchmark state bonds from all major ratings agencies. Any links to rating agency reports would be valuable too.

Second, there should be a requirement that all budget proposals and approved budgets include detailed information and summaries of total NJ state debt (including debt service requirements for the next 3-5 years). The best figures would be outstanding debt as of the December 31 immediately preceding the next budget year (eg, 12/31/05 data for the FY 2006-07 budget year). This kind of information is standard in any large private sector budget.

Current information on total NJ state debt is easily available. There's no reason that Moody's should receive this data but not NJ taxpayers.

Pension Deficits Are Local Too

2006-05-05T10:56:00.000-04:00

Yesterday, State Treasurer Bradley Abelow indicated that a new estimate shows that the state's public employee pension system has a deficit of $18 billion. Altough I think this figure is still too low, it's certainly more realistic than the prior estimate of $12 billion, which was a total fiction based on wildly optimistic assumptions, such as inflated investment returns.

The state's pension system consolidates the pension obligations of both state government and local governments. Based on the last available details (as of 6/30/04), the local government component of the total pension deficit is roughly 30%, or $5.4 billion.

The two main pieces of the local government pension deficit are police and firemen (PFRS; 80%) and other employees (PERS; 20%). Teachers are considered a state obligation, not a local one.

As the NJ League of Municipalities has pointed out, "the cost to local government for one PFRS member is approximately three times more than the cost of a local government PERS member". Local government pension liabilities for police and firemen are driven by higher salaries, generous pension benefits (ie, income replacement ratios), and early retirement options.

The cost of local government pension liabilities is ultimately paid by local property taxes. Thus, while it's currently convenient (and mostly appropriate) to focus on the state's overall financial problems, and the shortcomings of Gov Corzine's proposed budget, taxpayers should also remember that there are major liabilities and cost drivers a lot closer to home.