Keeping the line on taxes and cutting benefit spending for public workers are among the policy recommendations of a new report on New Jersey’s fiscal health released by a conservative think tank.
The Morristown-based Garden State Initiative report also echoes some concerns about New Jersey’s finances that have been raised in recent months by Wall Street rating agencies after the state adopted a new annual budget. which increased spending year over year by almost 15%.
Concerns raised by Wall Street analysts and those who wrote the report include the continued use of one-time sources of revenue to support annual spending, creating a structural budget gap.
“Rather than blocking budgets with one-shots and gadgets as is the current practice and as has been the case for decades, New Jersey would find itself in a better condition to move forward and develop. in a sustainable manner, “according to the think tank’s report released on Wednesday.
Report gets Republican raves
The report immediately drew praise from former Republican Gov. Tom Kean, who said it detailed important budget issues that “can no longer be ignored.”
“New Jersey cannot continue on the path it is currently following,” Kean said at an afternoon press conference hosted by the think tank.
Long-term liabilities persist. New Jersey still has the lowest credit scores of any state
But Gov. Phil Murphy’s administration officials responded to the report by defending the current governor’s record on budget matters and also calling the findings “standard GOP talking points.”
Earlier this year, Murphy and his fellow Democrats who control the Legislature passed a budget that took spending to an all-time high amid the ongoing coronavirus pandemic. The increase in spending was financed in part by the surplus generated by record tax revenues collected in the previous fiscal year. Last year, they also agreed to borrow around $ 4 billion and use it to support state spending.
Among other areas, the latest budget increased allowances for public service pensions, K-12 education aid, and state-funded tax relief programs, such as the Homestead Allowance and the Credit Debt. tax on earned income.
But in recent months, Wall Street rating agencies have raised concerns about New Jersey’s lingering long-term liabilities and structural deficits created by reliance on one-time sources of income such as reducing debt. surpluses. And despite a series of recent outlook revisions by rating agencies, New Jersey’s credit rating remains lower in the eyes of two major Wall Street rating agencies today than before Murphy took office early. 2018.
Beware of complacency
The authors of the new Garden State Initiative report – New York University associate professor Thad Calabrese and Harvard University senior researcher Thomas Healey – have warned Murphy and lawmakers not to become complacent, even as the budget outlook New Jersey’s short-term contracts have been boosted by the recent debt problem. and the arrival of more than $ 6 billion in federal pandemic aid.
Their report also notes that New Jersey still has significant retirement debt thanks to years of underfunding its required annual actuarial contributions under a practice that was only discontinued earlier this year in the middle of the recent windfall of income.
“Pension liabilities are growing faster than the state economy, and it is this economy that ultimately supports these systems,” the report says.
Final votes took place less than 48 hours after the bill was posted on the Legislative Assembly’s website
The report calls for the adoption of a series of new changes in workers’ benefit policy, including raising the retirement age and requiring workers to contribute more to their pensions.
The last time such changes were enacted in New Jersey was in 2011, under the tenure of former Republican Gov. Chris Christie. Regina Egea, President of the Garden State Initiative, served as Christie’s chief of staff from 2015 to 2016.
In the section on concerns about the state’s dependence on one-time sources of revenue, the report cites research on state budgeting practices compiled by the non-partisan Volcker Alliance which gave New Jersey a rating of letter “D” in the category “budgetary maneuvers”. . “
“New Jersey has relied on these for so long that changing this behavior will require real spending reforms and political leadership to get there,” the report said.
While addressing taxes, the report argues that New Jersey is “at the limit of its ability to extract additional income from residents and businesses.”
The latest state budget did not include any blanket tax increases and instead funded many new tax cuts, including broader exclusions for retirement income for the elderly, tax breaks larger land for Homestead and a new parental income tax refund of up to $ 500. .
However, the last budget also relied on millions of new revenue generated from several tax increases passed by Murphy and lawmakers the year before. They include a higher marginal income tax rate levied on profits over $ 1 million and the extension of a surtax levied on businesses with net taxable income over $ 1 million earned in the New Jersey.
An old question: will the rich run?
The report cites studies that indicate that these rates – levied only on New Jersey’s highest-paying individuals and businesses – rank among the highest in the country. It has also raised concerns about the crowding out of high-income residents, as a large chunk of the budget is disproportionately covered by income taxes paid by wealthy residents.
“The state’s high tax rate makes it less competitive for businesses and individuals,” the report says.
Among its other recommendations, the report called for more efficient spending on public education, infrastructure maintenance and public worker health benefits. He also called for a thorough analysis of the cost of vital services and areas of the budget that are “less critical” to help align annual spending more with annual revenues.
A look behind the numbers shows recent policy changes mean tax breaks for many in a high tax state
Later Wednesday, Murphy’s spokesperson Darryl Isherwood said in response to the report’s findings that during Murphy’s tenure, which began in early 2018, the state increased its surplus and fully funded the annual membership fee. retirement for the first time in more than two decades. He also took aim at Christie’s balance sheet, saying his administration’s tax practices “have shredded the rating of government bonds.”
“Despite the once-in-a-lifetime pandemic, which has hit New Jersey harder than almost any other state from a health and financial standpoint, New Jersey continues to attract new businesses while helping those already here to grow. rebuild, ”Isherwood said.
Jennifer Sciortino, spokeswoman for the Treasury Department, said the report “ignores the dramatic about-face that has occurred” in recent years.
“Under (Murphy’s) leadership, we have made steady progress towards strengthening the state’s financial health and correcting the dismal fiscal trajectory we have inherited,” said Sciortino.