STUMP » Articles » New Jersey: Battle Over Public Finance Between Democrats » 30 January 2019, 05:20

Where Stu & MP spout off about everything.

New Jersey: Battle Over Public Finance Between Democrats  

by

30 January 2019, 05:20

I will be back to beating up on Illinois and Chicago any minute (maybe let them get warmed up again). I want to pull out an item from Taxing Tuesday, and a few other things courtesy John Bury.

Before I have my say, just a reminder that if you have interest in multiemployer pensions and/or New Jersey pensions and finance, Bury is great to follow (I get an email every time he posts). Sign up for an email subscription like me (it’s in the upper right corner).

INTERNECINE WARFARE IN NEW JERSEY

I will start in the middle of things, and then work my way out.

Murphy official rallies liberal activists to attack governor’s chief Democratic rival

A top aide to Gov. Phil Murphy, in a conference call with liberal activists, suggested ways to push back against state Senate President Stephen Sweeney’s big plan to fix New Jersey’s long-term fiscal problems, NJ Advance Media has learned.

The aide — Deborah Cornavaca, Murphy’s deputy chief of staff for outreach — said during the call Wednesday that Sweeney, a fellow Democrat but frequent Murphy rival, is pushing “a false narrative” against public-worker unions.

Ooooh, false narrative… how very Marxist of her! (Not to be confused with the more Trumpian “fake news” – isn’t that interesting, the punchy two-syllable phrase vs. the 4-syllable one (that sounds more Frenchy/Latinate))

The situation could threaten to further erode the often-tense relationship between Murphy and Sweeney, New Jersey’s top two elected state officials.

One legislative source said this appears to be “a declaration of war” as Murphy heads into negotiations with Sweeney and other fellow Democrats who lead the state Legislature on what the next state budget will look like. That includes whether there will be new tax hikes.
….
Among the report’s biggest recommendation is to make more cuts to pension and health benefits for the state’s public workers to curb their ever-ballooning costs.

Though both Murphy and Sweeney are Democrats, the governor is more progressive, while Sweeney, like many top state lawmakers, is more moderate.

Yeah, we could look at it that way, but we can also look at it in a different lens.

SHORT-TIME NATIONAL FOCUS MONEY GUY VS. LIFELONG LOCAL POLITICIAN

Sweeney entered the New Jersey Senate in 2002, and has been there since. He became President of the NJ Senate in 2010, and has been in that position since. All his elections for his state senate seat has been won by about 10 percentage points (except his first, which was a squeaker), though his 2017 election was a blowout: 59-41. Before his political career, he was an ironworker, and then became involved in local politics, joining the Gloucester County Board of Chosen Freeholders in 1997… and evidently, he still holds that position. So he is a long-time local politician.

Contrast that to Murphy. He’s a finance guy who made his nut at Goldman Sachs, and then was very active in national Democratic politics because of the huge amounts of money he had – he was finance chair for the national party and was ambassador to Germany under Obama. His first and only elective office has been governor of New Jersey.

There is a 2 consecutive term limit in New Jersey, and though Murphy could serve 8 years, wait 4 more years, and be governor again, I find that unlikely.

So we have a lifetime politician versus a money man who used his money to get top spot in New Jersey… and will be gone, at the latest, in 7 years.

You might see why Sweeney has a more long-term interest in New Jersey than does Murphy. Sweeney wants to still be around after Murphy is gone. Murphy wants to be a progressive hero (soooo many to choose from).

SWEENEY NOT AN ANGEL ON PENSIONS

I don’t have a hell of a lot of sympathy for Sweeney though.

He was my inaugural entry into the 80% funding hall of shame back in 2014.

“The governor paints a very bleak picture by saying ‘look at what a big hole we’re in,’” said Sweeney. “The governor’s focus is basing everything on us being fully-funded. That’s not a realistic number. And a lot of pension systems live being 85 percent funded, or in the 80s.”

FWIW, the highest funded of the state plans is only at 70% fundedness. ..and that’s the smallest of the NJ funds in the Public Pension database. The other two are 50 – 60% funded.

That Sweeney may a wee more serious about pension reform than Murphy is not a high bar to clear.

OLD SWEENEY POSTS

Prior points in STUMP re: Sweeney

HOW BAD IS IT — SOME QUANTIFICATION

What I have above is just the war of hot air. Let’s take a look at how bad a situation they’re looking at. (Pulled from yesterday’s Taxing Tuesday news items).

Another NJ Tax Increase? Budget Cuts? Here’s Why Both Possible

The Murphy administation just got some bad financial news – and it could even have worse consequences for New Jerseyans as Gov. Phil Murphy gets ready for his State-of-the-State address.

Here’s why New Jerseyans could face more tax increases, or steep budget cuts, if the state’s financial fortunes don’t turn around soon:

Tax collections dipped way below expectations in December, falling $335 million – or 10.1 percent, – below the previous December’s figure, according to the state Department of Treasury.

WAIT A SECOND.

Maybe that fall was due to people trying to pre-pay state/local taxes because of the SALT cap.

Also, revenues grew at a modest 2.1 percent over the last year – well below what the Department of Treasury expected, which was 7.5 percent.

HOLY CRAP – why did they think total revenues would increase 7.5%?

That’s the most significant number – because it means the state Department of Treasury expected to get $700 million more than it did. But it didn’t.

Uh, yeah. That’s a big difference.

The state Department of Treasury blamed the revenue shortfall on a “change in tax planning behavior” caused by the federal tax reform law, which placed new caps on state and local income tax deductions.

Yes, duh. DID THEY NOT INCLUDE THAT IN THEIR PLANNING, FFS.

via GIPHY

Seriously, did they not think that they had got a December boost in 2017 because of prepaid taxes?!

This is why accrual, not cash accounting should be used in governmental finances. In insurance companies, for example, if you pay a premium for one year’s worth of coverage (for whatever coverage), and say you pay that annual premium in November, the insurers have to pro-rate the premium over the reporting period – that’s called “earned premium”.

Similarly, if someone pre-pays taxes, it should be “unearned taxes”, etc. I don’t actually dig too much into these things, but dear Lord, the timing of individual taxpayers shouldn’t throw off budget planning.

“The capped federal SALT deduction may have prompted a change in tax planning behavior this year because it eliminated the incentive to prepay the estimated fourth quarter payment in December, which is due Jan. 15,” according to the statement from the treasury department.

You think? That means that you should be seeing more taxes paid in January 2019.

Seriously, if they based their planning on bad accounting practices… well, I’m not the least surprised.

MURPHY’S STATE OF THE STATE SPEECH

For the record, this was Murphy’s State of the State speech on January 15

I will pull out a few bits on finance.

One year ago, tomorrow, I took the oath of office as New Jersey’s 56th governor. Three days later, on January 19, 2018, I ordered a full and complete audit by State Comptroller Degnan of our tax incentive programs — it was one of my highest priorities.

My concern was that those programs were designed to do exactly what they were shown to do — reward the well-connected while taxpayers and workers paid the price — rather than actually create jobs and nurture innovative new businesses.

This is about wasted money, phantom jobs, squandered opportunities, and misplaced priorities. This is about a failed status quo and a broken system.

….
Between 2010 and 2017, $8 billion in corporate tax breaks were given away. More than $11 billion have been awarded over the past 13 years to lure companies to come to, or stay in, New Jersey. By the close of 2017 we were handing out tax breaks at a cost of more than $160,000 per job.

The Comptroller could not prove that New Jersey got back benefits anywhere near what it handed out. Based on a sample, it could not even prove that 20 percent of the jobs promised to be created or retained actually ever were – meaning money flowed from taxpayers’ pockets into a black hole.

….
First, I do not oppose tax incentives. Carefully crafted, properly enforced, and transparent tax incentives have a place in a successful economic program.

….
However, the Comptroller verified one of our worst suspicions, that in the most egregious cases, past “business incentives” got turned into “crony capitalism.”

The audit revealed bad policy, badly run — a program more likely to have been drawn up in a smoke-filled back room than created for New Jersey’s future. It showed that New Jersey did not implement a serious, strategic plan for creating jobs. It showed a stunning lack of controls to ensure that these tax break programs lived up to their promises.

…..
In the upcoming fiscal year, these tax breaks from the past will cost us more than $1 billion. To those who bemoan our inabilityto pay for even the most basic items in our budget, let me say that this, simply put, is nuts.

…..
We were able to make these investments by asking those with incomes over $5 million to pay a little more, and by ensuring a more equitable distribution of school aid. We are proving that investment in our kids is also an investment in middle-class tax relief. To help our property taxpayers, we are also taking steps to promote common sense shared services.

We met our pension obligation and, working in partnership with our public employees, we reached an agreement that will save state and local taxpayers half-a-billion dollars in health care costs over two years.

Note: that is the only mention of pensions.

These advancements are taking some of the weight off the shoulders of our property taxpayers. In 2018, New Jersey saw the lowest increase in statewide average property taxes on record.

We know we have much more to do to crack the back of our property tax burden – including working with our federal delegation to reinstate the SALT deduction. But, it’s a start.

via GIPHY

Mind you, I could see the Dem House trying to get rid of that SALT cap. But I’m not seeing the Senate (much less Trump) cooperating on that. I could be wrong.

Now, that’s it on the finance, as it were — yes, he mentioned a lot of ideas that will cost a lot of money… but he didn’t mention how much any of them would cost.

So yes, get rid of tax incentives for companies to move from New York to New Jersey. Sounds good to me (person living in New York, working in Connecticut). I am sure that it’s mainly cronies getting these bennies—it’s NJ, after all!

SWEENEY’S TAKE

So Murphy’s attack dog(s) are on the attack because of Sweeney’s insistence that the pensions have got to be taken care of, and will have to involve many people being disappointed, including the public workers and retirees. And taxpayers. And more.

Sweeney warns of ‘death spiral’ without NJ financial reforms

MANTUA — Senate President Stephen Sweeney painted a bleak picture of the state’s financial future if it fails to enact difficult fiscal reforms soon during a town hall Thursday, warning that inaction would doom the state to a “financial death spiral” that would force huge tax increases, service cuts and a mass exodus of residents.

But the Senate’s top Democratic lawmaker also emphasized that a fix is possible and that public sector workers should rally behind it.

“We’re just honestly in a financial death spiral. And if we don’t correct it so we can start making the investments into things we care about, I tell people we might as well turn the lights out,” Sweeney, D-3rd of West Deptford, said at Rowan College at Gloucester County during the first in a series of town hall meetings he plans to hold statewide to discuss the fast-approaching financial crisis and his proposed solutions.

….
“We were vilified for eight years, and we feel disrespected today,” said Ray Greaves, of the Amalgamated Transit Union. “We elected you, this Legislature and a Democratic governor who had vision for all of us in this room, not just the privileged few.”

Sweeney responded: “This isn’t an attack honestly on public workers. … You work hard and you are taxpayers.” But he also stressed existing benefits are unsustainable and their costs would soon overwhelm the state’s budget and crowd out spending on education, transit and other priorities.

Guys, telling you that your appetites will not be able to be filled is not blaming you for that fact. It certainly isn’t blaming you for the decades of underfunding.

But it also will not make adequate funding appear in the future.

“New Jersey grows its revenue every year about $1.1 billion. Every single penny of that is now going into pension and health care,” he said.

The workgroup’s proposed solution is for new employees and those with less than five years experience to move from the current defined benefit pension systems into a new hybrid system similar to a 401(k), as well as switching public employees from so-called platinum to gold health care plans.

I don’t know if this would actually fix the problem. That still may accrue promises faster than they can fund.

Those changes alone are projected to save $3 billion a year, including about $2 billion by county and local governments that can be applied to reducing property taxes, Sweeney said noting that Pennsylvania approved similar pension reforms last year.

“This isn’t an attack or a fight with anyone. We want to have a dialogue and we want to have a fix. Because why can Pennsylvania with a Democratic governor and a Republican Legislature pass benefit reform with no fights?” he said.

Maybe they were in less of a hole so had to take less drastic cuts?

Both Greenwald and Sweeney said raising taxes to keep up with the growing pension payments that are required is not the answer.

“Gov. Corzine in two years made more pension payments than the previous 17 years combined. Gov. Christie did more than Gov. Corzine, and Gov. Murphy has done the single largest pension payment in the history of the state with the help of the Legislature, and we’re losing ground,” Greenwald said. “And none of that has lowered property taxes. None of it.”

To be fair, it was better than not making those payments.

“I’m happy to have a conversation around revenues, but you can’t continue to pour revenues into a broken system and expect a different result,” Greenwald said.

Sweeney warned that another recession could wreak havoc on the state’s finances and accelerate the looming pension insolvency.

Now John Bury pushes back on what Greenwald said:

Yes you can. That IS the solution assuming no change in the current benefit structure. If the state were to contribute $30 billion annually (last budget had $3.2 billion) there would be no crisis. Along with what the localities and the employees are contributing the shortfall of approximately $200 billion would be made up in about 10 years and the benefits currently being accrued would be fully funded.

It would be as if New Jersey were to fall out of a plane and someone thought it ridiculous to think a parachute would not help. It would. The issue is that New Jersey can’t afford its parachute.

Okay, Bury, you were comparing the payment actually made versus some theoretical payment — that’s about a 900% increase.

Let’s compare it against the total New Jersey budget. 2019 summary budget document [from March 2018] says the following:

Fiscal year 2018 – expected revenues: $36.7 billion
FY 2018 – expected expenditures: $35.9 billion

Those were what was expected… not necessarily what actually happened (as noted at the top of this post). A reminder on Micawber Principle:

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness.

Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”

Well, it looks like they got a lot less than expected.

Oh, and dropping in $30 billion would consume most of the budget, if they did that.

FWIW, I believe the NJ Teachers plan is in danger of running out of money.

That’s a couple years old, so the very large contributions may have staved off disaster for a few more years. I do need to refresh my projection tool with more recent data.

Best wishes to Sweeney, but he created part of this problem by not really working with Christie when he could have. Now he’s stuck with a Democratic governor who doesn’t really want to work with him.

YOU’LL MISS THOSE MILLIONAIRES

I tend to be nasty about this, but the main reason that rich people live in New Jersey is that it’s (slightly) cheaper than New York. I refuse to live in NJ, and that comes with a cost.

YOU MAY PAY THE PRICE FOR MILLIONAIRES LEAVING NJ

New Jersey Senate President Steve Sweeney, D-Gloucester, once famously told me, “New Jersey doesn’t have a spending problem, we have a revenue problem.” Now, we may have both.

Those who have long advocated for making the so-called rich “pay their fair share” have cited studies that show the rich don’t move because of high taxes, but a new study shows just the opposite is happening. Millionaires are leaving New Jersey at an alarming rate, and leaving with them is the money they contribute to the state treasury.
…..
New Jersey 101.5’s David Matthau reports more than “5,700 millionaires packed their bags and left” over the last year. They are among a huge exodus from New Jersey right now. U.S. Census data shows the state is losing around 1,000 people a week. We now know a good portion of them are among the state’s top wage earners.
It becomes even more worrisome when you consider:

The top 1 percent of taxpayers account for more income taxes than the bottom 90 percent combined;
The top 10 percent of wage earners pay two-thirds of the income tax;
Taxpayers with adjusted gross income of more than $465,000 pay almost 40 percent of all federal taxes

I can’t tell if all the stats this article is quoting are for federal or state income taxes. But I would be willing to bet that New Jersey is dependent on their tippy-top.

And that is dangerous:

“Both Frantz and other Fairfield County legislators have repeatedly stated that a relatively small percentage of the richest Connecticut residents pay a disproportionately high share of the state income taxes. In years when Wall Street was booming, the top 5 percent of Connecticut taxpayers paid more than the bottom 95 percent combined.”

And that’s a huge problem.
…..
The problem is that CT is overly dependent on their coterie of rich people (whether high income, high wealth, or both) for their revenue. Rich people are the most mobile people there are. They may be happy to pay big bucks to live in a pretty house on the shore near a bunch of other rich people, but there are plenty of other places one can go and be rich.

…..
In any case, if you want a plutocracy, one of the best ways to get there is to have the richest people paying for the bulk of the government. These people are not only mobile but know several legal ways to reduce their tax hit (such as adding to the large endowments at Harvard or Yale).

I’m sure they would know how to make sure the governmental bodies dependent on that revenue to play the game the way they wish it to be played.

One of the things that politicians crowing about income taxes, especially local taxes, is that the rich people can afford it. Sure, but they forget real rich people have multiple houses in multiple states, and they didn’t get rich by being stupid about money (except for some entertainers (which includes sports players), but that’s for a different time).

Going back to the piece about the fleeing NJ millionaires:

New Jersey already has the highest tax burden, and both Sweeney and Assembly Speaker Craig Coughlin, D-Middlesex, have publicly come out against raising taxes. It will make for an interesting showdown between the two top legislative Democrats and Murphy as budget talks begin. There already exists a less-than-cordial relationship in this triad, and the report of millionaires bolting from New Jersey is likely to embolden Sweeney and Coughlin in their opposition to Murphy’s tax hikes in the new budget.

Tax hike proponents have argued for years that the rich can afford to pay more. While that may be true, this new report shows they just don’t want to, and the rest of New Jersey may be asked to pay the price for the tax policies that are driving millionaires out of the Garden State.

How about trying cutting spending for a novelty? Might help get the state in a better condition for when the next recession hits, and those rich folks aren’t quite so rich.

A NOTE ON INTERNECINE

“Internecine” is a word I enjoy using, and it has multiple meanings/connotations. I usually use it when it’s struggle between members of a group, it’s very destructive (and that’s pretty usual for within group hostility), and both sides can lose. Indeed, it can destroy the very group the combatants are members of.

I’ve used that term for battles between actuarial organizations… and now we’re seeing it in the Democratic Party within New Jersey.

It was so much easier when there were at least a few Republicans who could be blamed for the mess.

But now… it’s all yours, Democrats.

Because bitching about Christie and Whitman (when was she in office, again?) is going to be pretty rich when the Dems run the whole show.


Related Posts
Divestment and Activist Investing Follies: What's Next? My Lunch?
Federal Tax Avoidance Follies: A Splash of Reality
Puerto Rico Link Dump: World of Pain