Budget Briefing: Other Key Issues

July 19th, 2013  |  by  |  Published in NJPP Blog: As a Matter of Fact ...

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This is the fifth in a series of in-depth examinations of major issues in the recently enacted FY 2014 budget. Click on the links for the first, the second, the third and the fourth.

In addition to the major issues we’ve outlined so far, here’s where other key issues stand in the recently enacted budget.

School Funding

While no school district will receive less total state aid then it did last year, the budget fails to fully fund the 2008 court-approved school funding formula. If the formula were fully funded, schools would receive an estimated nearly $1 billion more to improve educational quality – and provide property tax relief. While the formula should be fully funded, it’s worth noting that full funding has only happened once, in the first year (FY 2009). The next year’s budget (FY 2010) came close to fully funding the formula, but it was fueled by over $1 billion in federal stimulus funds. Faced with the loss of the federal funds and the approximately $1 billion in revenue generated from the one-year income tax surcharge, it’s not surprising that the school funding formula isn’t being fully funded. To be able to do so will require either additional state revenue or a substantial shift in funding priorities within the budget.

Higher Education

The approximately $720 million in operating aid (not including the $18 million in special aid provided to Rowan University for costs associated with the assumption of UMDNJ’s School of Osteopathic Medicine) for the state’s four-year public colleges and universities in this year’s budget continues the disinvestment trend of the last decade. This is the same amount of operating aid in each Christie administration budget, about $100 million less than in FY 2010 and about $235 million less than in FY 2006 (but $386 million less if adjusted for inflation). Despite the decline and subsequent stagnation of operating aid, total support – including fringe benefits – of $1.4 billion is about the same it was in FY 2007, and about $50 million below FY 2006’s peak (but, again, $230 million – or 16 percent – less when adjusted for inflation).

Municipal Aid

The level funding of municipal aid continues the diversion of up to $260 million in energy tax receipts that the municipalities believe they are entitled to. Returning all or some portion of this money to municipalities would allow them to restore some recent service reductions (including police layoffs in a few cities) and provide tax relief.

Direct Property Tax Relief

This budget does not provide any increase in direct relief to homeowners and maintains the same level of homestead benefit credits that was received in 2012: $518 for 491,000 senior and disabled homeowners and $409 for 346,000 non-senior homeowners. And it comes after a budget year in which no direct property tax relief was paid, due to the administration’s shifting of payments to plug a budget hole.

Pensions

The nearly $1.7 billion this budget puts towards funding the state pension system is by far the largest pension payment ever. The payment is up $650 million from last year, making it the item with the largest year-to-year increase. Even so, this year’s payment is just 42 percent of the what’s required by the actuarial standards that guided the pension reform legislation – less than the 50-55 percent level paid in FY 2008.

Although the governor and legislative leaders tout that they are complying with the law that they enacted to phase-in the state’s pension payments, the state is still far behind. The 2011 reforms simply legislated the continuing underfunding of the system. If fully funded, the pension payment for FY 2014 would be close to $4 billion – $2.3 billion more than the amount budgeted. But as with school aid there is no way the state can make the full payment without a significant increase in revenue and/or significant restructuring of spending. Even as it stands now, the continued phase-in of pension payments will continue to put pressure on other areas of the budget each year the increase in the pension payments will continue to have first call on any revenue growth.


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