NJ Fiscal Folly

Wednesday, June 28, 2006

This Is An Alternative?

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.

Friday, June 23, 2006

Republican Budget Cut Proposals

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

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?

Wednesday, June 21, 2006

NJ Sales Tax Reform

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.

Tuesday, June 20, 2006

NJ Government Employee Data

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.

Monday, June 19, 2006

Worth Reading

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."

Friday, June 16, 2006

Dual Office Holding In NJ

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.

Wednesday, June 14, 2006

NJ's Shadow Government

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.

Thursday, June 08, 2006

America's Next Civil War?

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.

Tuesday, June 06, 2006

More Of The Same

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.