It’s July 1 and There’s No Transportation Funding Fix. What’s Next?

New Jersey's leaders should abandon cries for fictional “tax fairness” and demonstrate that they want to invest sensibly in New Jersey’s future.

Published on Jul 7, 2016 in Tax and Budget

This op-ed appeared in the July 1, 2016 edition of NJ Spotlight.

June 30 came and went without approval of a plan to raise much-needed revenue to invest in transportation projects around the state. Despite the dire need to inject new life into the moribund Transportation Trust Fund, New Jersey residents should breathe a sigh of relief that the governor and Legislature failed, since both proposals being considered this week in the name of “tax fairness” would have improved transportation funding but at the price of serious financial and economic damage to the state.

This failure — which came despite numerous 11th-hour, secretive and top-down efforts — grants political leaders the chance to draw a deep breath, sigh, and then return to continue their conversations in July. So what should they do?

Let’s start first with what they shouldn’t do.

They should not follow either of the plans that made it to the finish line this week — and here’s why.

The plan concocted by the governor and passed by the Assembly would have raised fuel taxes to the tune of about 23 cents a gallon, funding a robust capital transportation plan for 8 years. The “tax fairness” element was a 1 percent cut to the state sales tax and expanding the tax break on retirement income by 400 percent while allowing higher-income families to qualify for it by also expanding eligibility. These cuts, once fully phased in, would have cost New Jersey $1.8 billion a year. In all, they would have drained at least $17 billion from the state’s coffers over the next 10 years.

These tax cuts would have saved the average New Jersey family less than $6 a week but would make it impossible for the state to meet its current and future obligations, provide essential services, or invest in priorities important to families across the state. The most devastating consequences would most likely be reserved for the poor and working-class families who rely on the state the most just to get by. But middle-class families would see school aid drop, public college tuitions and student debt rise as they contend with falling incomes. Given that the state government of New Jersey is already broke, this is more than rhetoric — it is an indisputable reality.

Ironically, on the same day the Assembly chose to blow this hole in the budget, it approved withholding payments to companies that qualified for $800 million in cash reimbursements for tax breaks under the BEIP program and approved a constitutional amendment calling for quarterly pension payments that rise to $5 billion for which no funding is available. In other words, New Jersey is effectively broke and unable to meet its current and future obligations even if the sales tax is not reduced. Enacting the proposed $1.6 billion reduction will lead to new downgrades in the state’s credit rating, higher borrowing costs, and severe cuts to essential programs and services.

On the Senate side, the price tag for “tax fairness” was lower — about three-quarters of a billion dollars a year — but the proposal was just as flawed. It would have raised slightly more than the Assembly from fuel taxes and funded a robust transportation program for 10 years. The price was the complete elimination of New Jersey’s estate tax, the same 400 percent expansion of the retirement income-tax break, a new charitable deduction against state income taxes and a boost to the state Earned Income Tax Credit.

The problem here was not just the loss of critically needed funds — though that was a problem — but that the bulk of the tax benefits would go to the heirs of less than 5,000 wealthy decedents each year while all 9 million of the rest of us pay the higher gas taxes.

So back to the question: What’s to be done?

  • First, declare an impasse and adjourn until after the July 4th weekend.
  • Second, remind everyone that this is about having secure funding to invest in New Jersey’s greatest competitive economic advantage, its location in the middle of the world’s largest market with access to the world’s most important city and to Philadelphia. That advantage only works if stable funding for maintaining, expanding, and improving its networks of roads, bridges, and public transit becomes the organizing purpose of summer legislative sessions. Lawmakers need to keep their eye on the ball of a secure Transportation Trust Fund and not continue to be distracted by every shiny tax cut and pet tax break that comes along.
  • Third, accept that a long-term and robust solution to the transportation-funding problem — at least one that doesn’t come with tag-along policies that will harm the state — is unlikely in the current political climate. This is unfortunate, but it’s the reality in which legislators, as well as the advocates and lobbyists pushing for a trust-fund fix, must operate for the sake of the future of our state.
  • Fourth, put forward a proposal to finance new debt at a cost of $150 million to 300 million to maintain two years of transportation projects, which will permit current and a few future projects to be funded and will pass the task of enacting stable, long-term funding to a new governor and Legislature in 2018.

New Jersey already has the second-worst credit rating in the nation because Wall St. has determined that it can’t reasonably meet its debt and other liabilities. Unless our political leadership is anxious to capture last place, it should abandon cries for fictional “tax fairness” and demonstrate that it wants to invest sensibly in New Jersey’s future.

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