Op-Ed: The Teachable Moment the Governor Failed to Seize in His Budget Address

February 27th, 2014  |  by  |  Published in Budget and Tax Policy, Editorials & Op-Eds, NJPP Blog: As a Matter of Fact ...

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This op-ed appeared in the February 27, 2014 edition of The Bergen Record.

NJPP Op-EdIn the governor’s budget message this week, he rightly backed away from two reckless proposals that would have done even further damage to New Jersey’s economy, but he missed a clear opportunity to connect the major themes in his speech to a larger teachable moment about the state’s fiscal health.

First, the governor backed off his proposal to cut income taxes. He’s long pushed for an income-tax cut, and one of his chief financial advisors said as recently as November that an across-the-board income tax cut was a top priority of the governor’s second term. This is consistent with the Republican Party’s persistent and unproven contention that tax cuts and smaller government are the certain path to prosperity and better jobs.

Problem is, there is zero evidence that tax cuts work such magic.

Do the arithmetic: If New Jersey’s economy is about $450 billion, the suggestion that a tax shift of $1.5 billion a year from the Property Tax Relief Fund to taxpayers would somehow ignite the economy and create badly needed jobs is nonsensical.

In New Jersey’s case, there are two other problems: There literally isn’t enough money in the treasury to pay for the cut, largely because of the state’s slow, sideways crawl out of the Great Recession; and the cut in question would have delivered 58 percent of the economic benefit to just the top five percent of households, leaving the rest of us to pick through the remainder.

Second, the governor backed off his hints of potentially skipping payment on some or all of New Jersey’s full pension payment. This year, that payment is set to increase by $700 million as outlined under the bipartisan pension reform enacted in 2011.

It’s a steep bill, to be sure, but in order for the agreed-to payment plan – which is projected to save $122 billion over 30 years – to work, the state has to do its part and make its increased contributions on schedule. Moreover, the governor’s claim to protect worker and retiree pensions also relies on the 2011 deal being honored.

So, we applaud the governor’s decision to kill the reckless tax cut and pension payment suggestions.

Still, the budget message offered the governor a “teachable moment” that he did not seize.

His complaint that the increases in pension, health benefits and debt service will absorb almost all of the increase in revenues next year is pretty much correct, but it’s here where we split ways with the governor.

According to the governor, the consequence of these increased fixed costs is that New Jersey cannot invest in high-priority areas like infrastructure, energy, the environment, higher education, research and public schools. No question that these areas need investment, as they are the building blocks of a strong and prosperous state economy. But saying we can’t make these investments and meet our statutory obligations presents a false choice. In reality, we can – and should – do both.

Since the governor cited California in his budget speech, let’s use the Golden State as an example. He pointed to the decline in one of the “world’s greatest research universities” because California would not address its pension obligations like New Jersey did. But while the University of California system has indeed suffered reductions in operating support and tuition increases (just like New Jersey’s public colleges), it has reversed that trend in the upcoming budget.

The answer to the question of how is where the governor had a chance to change the trajectory of New Jersey’s economic future. California’s governor offered its voters the choice: see taxes rise for a seven-year period or watch their investment in education continue to decline. They decided to pay higher taxes to invest in education. The lesson: if you connect higher revenues to essential investments, voters will understand.

Putting tax rates to a referendum is not an optimal approach, but California was at the end of its string, much like New Jersey now is.

New Jersey is stuck because its economy is stagnant, despite the governor’s singular emphasis on reducing the taxes paid by corporations. In fact, he touts $600 million in business tax cuts in this budget, as well as overhaul to the state’s business subsidy programs that will ultimately lead to even more tax breaks for businesses. It hasn’t worked yet and there’s no reason to believe that will change now.

What does work is to invest in New Jersey’s economic assets that made it an economic powerhouse: its transportation infrastructure connecting it to New York and Philadelphia, its great research universities, its well-educated workforce, its great public schools and its magnetism for striving immigrants. Increasing revenues to allow the state to make these investments is economically essential and politically possible, but not without the governor’s proven skills to make the case.


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