STATEMENT BY RAYMOND CASTRO, SENIOR POLICY ANALYST, NEW JERSEY POLICY PERSPECTIVE, ON THE FY 2013 STATE BUDGET, BEFORE THE ASSEMBLY BUDGET COMMITTEE, STATEHOUSE, MARCH 7, 2012

Thank you for the opportunity to testify on the FY 2013 State Budget. I am the Senior Policy Analyst at New Jersey Policy Perspective which is a nonprofit, nonpartisan organization that conducts research and analysis on state issues. There are number of positive features in the Governor’s proposed budget, particularly additional resources to expand community placements for individuals with mental illness and developmental disabilities. We also appreciate that there appears to be no new major proposed cutbacks in eligibility in safety net services although we have not seen the complete budget yet.

Nevertheless, we are very concerned that working class families with children are not being equitably treated in this budget. The two state funded programs that working families most rely on to maintain their independence are NJ FamilyCare and the state Earned Income Tax Credit (EITC). Unfortunately the proposed budget maintains the cutback in eligibility for NJ FamilyCare that has resulted in 70,000 uninsured parents and 20,000 children not obtaining health coverage. Also, while we commend the Governor’s proposal to restore the cutback in the EITC, it needs significant improvement if it is to adequately relieve the growing tax burden on low-income families. Below, you can see the number of parents and children that have been affected by these cutbacks by county.

State EITC

With respect to the state EITC, we commend the governor for proposing to restore this offset in state taxes to about half million families with children. Because of this cutback, a parent raising two children earning the minimum wage had their tax credit reduced by $300, which is equivalent to a week’s salary. However under this proposal, the cutback would not be restored until 2014 and even at that late date only half of the cut in the state EITC would be restored followed by the other half in 2015. With the partial restoration in 2014, this family would still have lost $750 over that three year period. There would also be no guarantee that this cutback would be restored at all since the Legislature can only allocate funds for FY 2013.

The delay in restoring the EITC cutback would also be very inequitable. The ten percent cut in the state income tax which would disproportionately benefit the wealthy would be phased-in starting in FY 2013, one year before the restoration of the EITC cut. However unlike the wealthy, these low income families need this break now when unemployment remains at records levels, not later when the economy has improved. The other advantage to prioritizing the EITC restoration is that it would stimulate the economy since low income families must spend any income they receive right away on necessities. Unlike the wealthy, they do not have the luxury to save for a rainy day – for these families it is always raining.

A popular misconception is that low income families do not pay taxes. While it is true that many of these families have incomes that are so low that they do not pay state income taxes, they do pay for all other taxes and fees. Just like the federal EITC was established to provide relief to low income families from payroll and other federal taxes other than income taxes, New Jersey’s state EITC was intended to offset other state taxes like the property and sales taxes.

This is a critical issue in New Jersey because low income families pay a far greater percentage of their income on these taxes than higher income households. For example the amount of property taxes that the poorest households (lowest 20% of all households under $21,000) pay as a share of their total income is about six times what the wealthiest households (top 1% with incomes above $732,000) pay (5.8% v.8%). Property taxes of course have been increasing at the same time that the state EITC was cut. Similarly the poorest households pay three times what the wealthiest households pay in sales and excise taxes as a share of their income (5.7% v. 1.9%). The average state EITC of $450 only offsets about 15% of the $3000 in total taxes that the average low-income family (income $30,800) pays.

NJ FamilyCare

In SFY 2011, the eligibility of parents in NJ FamilyCare was reduced from 200 percent of the federal poverty level to 133 percent. That means today a parent raising two children is no longer eligible for health coverage if the parent makes more than $12 an hour. The main reason given for this cutback by the Governor was that Medicaid spending was increasing at too high of a rate. As Commissioner Velez recently testified before this Committee on the Medicaid Comprehensive Waiver, that is certainly not the case now. Not only has the Medicaid expenditure rate slowed, the department has generated up to $300 million in savings. Since a number of the initiatives in the Waiver had to be delayed, we can also expect even more savings in subsequent years. Since the rationale for the cutbacks no longer exists, the NJ FamilyCare cutbacks should be restored.

Also one of the main reasons that Medicaid expenditures are growing at a slower rate is because of the savings that were generated from cutting parent eligibility. The Commissioner testified that the reason for the lower enrollment in Medicaid was the improvement in the economy. However, based on the available data for that period, the main cause instead appears to be cutbacks in parent eligibility. There was no significant change in the economy last year. The unemployment rate at the beginning of 2011 (9.1%) was basically the same at the end of that year (9.0). Also food stamp enrollment is generally considered the best indicator of need for low income families and it increased by 12% during that time. We are very concerned that due to more restrictive eligibility criteria, Medicaid in New Jersey has become much less responsive to the increasing medical needs that result from a downturn in the economy.

The administrative data in Medicaid also show the major impact of cutting back eligibility of parents in reducing enrollment. Last year the enrollment rate of all adults decreased by 4% whereas enrollment of children increased by 3%. Since the income of children is based on their parents’ income we would expect a negative impact on them too. The real reason for the discrepancy in enrollment is that parent eligibility was cut but eligibility for children was maintained. The enrollment of children would have been even higher except that about 20,000 of the children of parents who were denied health coverage also did not obtain health coverage.

The Medicaid data also clearly shows that the only reason there was a decrease in enrollment of all adults is because of eligibility cuts. Last year enrollment of adults in Medicaid (below 100 percent of the poverty level) increased by 3% and adults in NJ FamilyCare below 133% increased by 8%. At the same time, enrollment of adults between 133% and 200% decreased by a staggering 45% (see below). The latter group of course had their eligibility cut two years ago and was the reason why there was a net decrease in total adult enrollment this year.

Reinstating eligibility should not be a significant cost issue. It would cost about $25 million to restore this cutback in FY 2013. As mentioned earlier, DHS was able to generate up to $300 million in savings in one year alone and more savings are expected from the Comprehensive Waiver. Also an investment of $25 million would generate up to $50 million in federal funds which would help stimulate the New Jersey economy, as well as significantly decrease charity costs in hospitals.

We therefore strongly urge that the Legislature take a strong stand for families and children at a time when they need support the most and fully restore the EITC and NJ FamilyCare cutbacks this year.

Thank you.