Report - New Jersey Policy Perspective

New Immigrants Drive Economic Growth in New Jersey

Posted on April 15, 2024April 15, 2024 by Marleina Ubel

This report was co-authored by Anthony Capote, Senior Policy Analyst at the Immigration Research Initiative, and David Dyssegaard Kallick, Director of the Immigration Research Initiative.

New Jersey’s fundamental strength lies in the rich tapestry of people who call the Garden State home, reflecting a diverse range of cultures and backgrounds. Nearly one in four residents (2.2 million) are immigrants,^[i] who play a pivotal role in shaping the state’s identity.

Immigrants bring a wealth of skills and talents that enrich New Jersey’s arts, cuisine, and entertainment, add to the intellectual achievements across various fields, and play essential roles in the private and public sectors. Across the state, immigrants make significant contributions to their local communities and the broader economy through their labor, entrepreneurial endeavors, and tax contributions.

Despite the positive role immigrants play in New Jersey and around the country, there has been a rise in xenophobia and anti-immigrant policymaking in a number of states. It is imperative for New Jersey to uphold its values of inclusivity and support for immigrants. Championing “Fair and Welcoming” policies that lower barriers to essential public services and protect residents from discrimination and workplace abuses is not just a moral obligation but a strategic necessity for bolstering the state’s economy.

To measure the economic contributions of new immigrants, this research brief by New Jersey Policy Perspective and the Immigration Research Initiative models the long-term economic outcomes for newly arrived immigrants and projects that there will be significant wage earnings and tax contributions in their first year of arrival and even more over the long run.

Newly Arriving Immigrants Immediately Get to Work and Contribute to the Economy

Newly arriving immigrants face multiple challenges as they navigate language barriers, adapt to unfamiliar cultures and systems, and adjust to a new way of life. Despite these challenges, many swiftly integrate into the workforce within their first year. As a result, each 1,000 new immigrants can be expected to earn a combined $21 million in annual wages, enhancing the economic vitality of their communities where they work and amplifying local spending power where they live. After five years, the same 1,000 immigrants can be expected to increase their wages by about 57 percent, totaling $33 million in aggregate wages.

As immigrants settle in and establish their roots in New Jersey, state and local tax revenues see an uptick. For every 1,000 workers, state and local tax revenues are poised to increase by $1.8 million. Over the span of approximately five years, each 1,000 newly arrived immigrants collectively add to state and local tax revenues a total of $2.9 million, a 61 percent increase from their initial year. Such increases in state and local tax revenues translate into broader benefits for all residents, providing additional funding for schools, libraries, transit infrastructure, and other public goods.

However, more work remains to be done at the federal level to reduce barriers to work authorization for newly arriving immigrants. Earnings and tax contributions are contingent upon pathways to work authorization, and for those unable to gain work authorization, the trajectory toward upward mobility is much more limited.

Supporting Immigrants Makes New Jersey Stronger and Fairer for All

New Jersey’s commitment to inclusivity and fairness is evident through past policies that extend vital resources such as driver’s licenses, health care for all kids, language services, and pandemic relief to all, regardless of their immigration status. As a state built on diversity and resilience, it is critical to reaffirm this commitment as a beacon of hope for those fleeing persecution and seeking refuge.

Lawmakers must translate these values into tangible action, aligning state policies with equity and hospitality by improving immigrants’ wages and lowering barriers to health care, legal services, quality education, affordable housing, and more. By doing so, New Jersey can be a stronger and fairer state where everyone is valued, protected, and given a chance to thrive.

End Notes

[i] 2022 American Community Survey data, https://www.census.gov/programs-surveys/acs/data.html.

Methodology

To model the likely outcomes for new arrivals, IRI looked at immigrants in New Jersey who had been in the country for less than two years, and who do not speak English very well.

To model the outcome for those who have been here for approximately five years, we expanded the analysis to include those who speak English “very well,” but did not include those who speak “only English” at home, reflecting the fact that most — though not all — immigrants learn to speak the language very well within five years. We did not include in the analysis people who speak “only English” at home. To get a robust sample size, IRI looked at two years for new arrivals and five to ten years for those who have been here longer.

The tax analysis is based on a simple use of the Institute on Taxation and Economic Policy report, “Who Pays: A Distributional Analysis of the Tax Systems in All 50 States.” According to the most recent, 7^th Edition, the bottom 20 percent of tax filers in New Jersey pay 8.8 percent of their income in state and local taxes. We use this as the effective tax rate for newly arriving immigrants as well as for those who have been here for five years.

Many, but not all, of the workers would have work authorization. Many newly arriving immigrants are eligible to apply for Temporary Protected Status, humanitarian parole, asylum, or other designations that give them temporary or permanent work permits. The Institute on Taxation and Economic Policy’s related report, “Undocumented Immigrants’ State and Local Tax Contributions,” shows that immigrants without work authorization pay an effective tax rate of 7.7 percent in New Jersey, a little lower than those with work authorization. The overall tax estimate might be increased by some families with incomes on the higher range, and decreased some by the proportion of immigrants who are undocumented.

About the Authors

Marleina Ubel is a senior policy analyst at New Jersey Policy Perspective.

Anthony Capote is a senior policy analyst at the Immigration Research Initiative.

David Dyssegaard Kallick is director of the Immigration Research Initiative.

Getting Back on Track: Fully Fund NJ Transit by Taxing Big Corporations

Posted on September 27, 2023October 4, 2023 by Alex Ambrose

Every day, hundreds of thousands of New Jersey residents rely on public transit to get around, taking trips to work, school, medical appointments, family visits, and to shop and dine. NJ Transit is at the heart of these daily journeys, helping more than 630,000 people statewide go where they need to be while keeping cars off the road and bringing the state closer to its climate and pollution reduction goals.^[i] NJ Transit is an engine of economic opportunity and everyday necessity, particularly for people who do not own or drive a car, as well as low-income, Black, and Hispanic/Latinx residents who are more likely to use mass transit.

However, the agency’s future is in jeopardy due to years of underfunding, the lack of a stable and dedicated source of revenue, and a looming deficit of nearly $1 billion once federal pandemic assistance expires.^[ii] This deficit would constitute nearly one-third of the system’s total budget and, without additional state funding, could lead to dramatic service cuts and fare hikes that would harm everyday commuters and the broader economy.^[iii]

Instead of relying on service cuts and fare hikes, state lawmakers should consider an alternative: have the largest and most profitable corporations help fund NJ Transit, a public service they directly benefit from, by simply extending the Corporation Business Tax surcharge on companies making more than $1 million in profit. The surcharge is only paid by the top 2 percent of corporations earning profits in New Jersey — including many large multinational companies headquartered outside of the state like Amazon and Walmart — providing a fair and stable revenue source that spares small businesses and commuters.^[iv] This tax generates $1 billion in revenue annually, filling almost precisely the budget hole left by expiring federal funds and years of state disinvestment.^[v]

As corporations earn record-breaking profits and working families struggle with rising prices, taxing multinational corporations to support critical infrastructure that we all benefit from is a fair, responsible, and commonsense solution to fix NJ Transit in the short and long term.^[vi]

NJ Transit is Vital to New Jersey’s Economy and Communities

Serving the densest state in the nation and providing direct access to New York City and Philadelphia, NJ Transit connects residents to millions of employment and economic opportunities, essential services, community resources, entertainment, and social activities. Being able to get around safely and reliably, and having transportation options for residents who do not or cannot drive, is vital to the region’s economy and the wellness of communities across New Jersey. A robust mass transit system also supports better health outcomes by significantly reducing trips made by car — an essential service given that transportation is the single largest source of air pollution in the state.

Mobility and Accessibility

Everyone in New Jersey benefits from NJ Transit and the options they provide to get around the state. From the white-collar worker taking the train to their office, to the building maintenance worker taking the bus, to the nurse taking the light rail to get to their shift at the hospital, all types of workers depend on mass transit to provide for their families and keep the state running.

Mass transit is also a critical lifeline for low-income families and those who cannot drive or afford their own car. Nearly half of NJ Transit bus riders do not own a car, more than half have an annual income of less than $35,000, and 80 percent rely on the bus more than five times per week.^[vii] The racial divide in commuting is also stark: Black workers are three times as likely as white workers to not have a car at home, while Hispanic/Latinx and Asian-American workers are twice as likely as white workers to not have a car.^[viii] Further, households in cities with higher concentrations of people of color, like Jersey City and Newark, are more likely to lack access to a vehicle compared to households statewide.^[ix] Mass transit ensures mobility and accessibility not only for these families but also for those who are disabled and cannot drive.

Economic Benefits

NJ Transit’s economic benefits build on the nearly 270 million individual trips made per year, connecting people within the state and beyond.^[x] Bus and train rides link people with higher-paid jobs, health care facilities, and higher education opportunities.^[xi] In addition to trips within the state, NJ Transit provides residents with direct access to New York City and Philadelphia, as well as connections to job centers across the Northeast Corridor in cities like Boston and Washington, DC. More than 78 million riders use NJ Transit-operated or supported trains and buses to travel into and out of Manhattan, with another 5.2 million riders going into and out of Philadelphia.^[xii]

And these trips go beyond everyday commuting for work. A survey of bus riders found that 40 percent of riders use the bus to get to places other than their job, including doctor’s appointments, school, and to shop and dine.^[xiii] This means that off-peak service is essential to keep the state’s economy moving. Hundreds of thousands of riders also travel down the shore on the North Jersey Coast Line and to concerts and events at stadiums and performing arts centers in Newark, the Meadowlands, and Atlantic City, attracting people from across the country and generating millions in income annually.^[xiv]

Access to these job opportunities not only benefit individual workers and their families, but businesses and the broader economy alike. Businesses benefit from access to a deep and talented pool of workers, and will often move near job centers served by mass transit as a result. This creates a self-reinforcing loop, making states like New Jersey a great place to live and station a business.^[xv]

Direct investments in NJ Transit also pay off for the state and the communities it serves. Roughly $5 billion is generated annually through spending on mass transit in the state, creating a return on an investment of two dollars in economic benefits for every dollar spent on NJ Transit.^[xvi]

Health and Environment

Robust public transit also benefits the state by reducing air pollution and improving the health of New Jersey families and the environment. With New Jersey’s expansive highway and road networks, the transportation sector is the state’s biggest source of air pollution.^[xvii] Replacing car trips with a bus or train helps reduce air pollution and greenhouse gas emissions everywhere, particularly in communities overburdened by pollution. In 2019, NJ Transit displaced enough carbon dioxide to replace more than 800,000 passenger cars.^[xviii] Increasing the use of public transportation will help New Jersey meet its goal of achieving an 80 percent reduction in greenhouse gas emissions by 2050.^[xix]

More access to mass transit can also improve public health by reducing traffic congestion and injuries from car crashes. With fatal crashes and pedestrian fatalities on the rise, traffic safety should be viewed as a matter of public health. New Jersey has seen an increase in fatal crashes over the past two years, and road traffic crashes remain the leading cause of death for people under the age of 54 in the United States.^[xx]

NJ Transit is Underfunded and Faces a Catastrophic Fiscal Cliff

Despite the crucial role of NJ Transit in morning commutes and the state’s economy, state lawmakers have routinely underfunded the agency over the last three decades. NJ Transit also lacks a dedicated and stable source of state funding, unlike comparable transit agencies across the country, making it near-impossible to balance annual budgets without forgoing capital improvements or raiding funds from other state programs. Now, with a one-time infusion of federal pandemic aid about to expire, NJ Transit faces a looming $1 billion budget shortfall that could lead to catastrophic service cuts and fare hikes.

Decades of Disinvestment

For decades, NJ Transit has not received enough state funding to cover its expenses, resulting in overcrowded buses, frequent train cancellations, and delays to much-needed service expansions like the Hudson-Bergen Light Rail. This underfunding is exemplified by the annual transfer of funding from NJ Transit’s capital budget — meant for updating and building new physical infrastructure — to cover annual operating costs, a practice that state lawmakers have allowed since 1990. Even so, lawmakers have historically provided NJ Transit with robust state funding until direct state aid was cut by 90 percent during the Christie administration.^[xxi] As recently as 2009, the state invested $500 million annually in NJ Transit — far more than the $140 million direct state aid in the Fiscal Year (FY) 2024 budget.^[xxii]

To cover its operating expenses, NJ Transit’s budget routinely raids hundreds of millions of dollars from other dedicated funds, most notably the Clean Energy Fund and NJ Transit’s own capital investment fund. Both raids are counterproductive: money from the Clean Energy Fund should support investments in new, green energy sources and technology, and raiding capital investments has left NJ Transit with more train breakdowns than its peer agencies.^[xxiii]

Lack of state funding has also resulted in an overreliance on farebox revenue, i.e., commuter tickets and fares, a revenue source that is volatile year over year.^[xxiv] Public transportation is a public service that benefits the state as a whole, not a “business” that should be expected to make a profit. Relying disproportionately on riders to balance NJ Transit’s budget functions as a regressive tax — shifting the financial burden on residents least able to afford it — and will never lead to a fully-funded, balanced budget.^[xxv] Across the country, transit agencies more reliant on farebox revenue, including NJ Transit, are facing steeper budget shortfalls than agencies with stronger public investment.^[xxvi]

Reliance on Pandemic Aid

Already operating on a shaky foundation, NJ Transit and its finances were especially vulnerable to the COVID-19 pandemic and subsequent dip in ridership. In the years since, lawmakers have balanced the agency’s budget with an infusion of federal pandemic assistance from the CARES Act and American Rescue Plan. In total, NJ Transit will have received approximately $4.5 billion in federal pandemic aid, including roughly $800 million for the current fiscal year and $750 million next year in FY 2025, after which the aid expires.^[xxvii]

A look at NJ Transit’s current budget shows that the agency faces deficits of approximately $1 billion — nearly 30 percent of its budget — once the pandemic aid runs out.

As pandemic-related federal relief ends with no congressional action on the horizon, state lawmakers will have to grapple with a severely underfunded and overstretched agency that service cuts and fare hikes alone will not be able to solve.^[xxviii]

Lack of Dedicated Funding

NJ Transit is not alone in experiencing a drop in ridership after the pandemic; however, it remains the only statewide transportation agency of its kind without dedicated state funding.^[xxix]

While comparable transit agencies receive more than half of their funding from dedicated state and local revenue sources, a mere 5 percent of NJ Transit’s budget comes from direct state aid. Pennsylvania, Massachusetts, California, and Illinois fund their mass transit systems through a statutorily dedicated portion of the sales tax.^[xxx] New York and Oregon fund their transit systems with corporate and payroll taxes on businesses within their service areas.^[xxxi]

Recently, New York resolved a $600 million deficit without drastic fare hikes or service cuts by raising taxes on corporations, many of which benefit from public transit.^[xxxii] Not only is the agency fully funded and with a balanced budget for the first time in 20 years, but projections show that this new revenue stream will help balance MTA’s budget through 2027. Dedicated revenue allows agencies to sustain operations in the short term as well as engage in long-term planning to ensure continued high-quality service for riders everywhere.

Recommendation: Dedicate the Corporate Surcharge to Fund NJ Transit

To balance NJ Transit’s budget and put the agency on a path of long-term stability, any dedicated revenue must be substantial enough to cover the nearly $1 billion deficit and protect against future crises and shocks. New funding should also come from those with the highest incomes and wealth rather than the low-income residents for whom fares already serve as a de facto tax.^[xxxiii] By simply extending the Corporation Business Tax surcharge, New Jersey can save NJ Transit with revenue generated by the world’s biggest and wealthiest corporations that have long benefited from the state’s infrastructure and workforce.

A Fair Source of Revenue

With many families struggling to keep up with rising costs, corporate profits have soared to record levels.^[xxxiv] This concentration of wealth and resources has not only failed to trickle down to workers and their families, but has also coincided with significant corporate tax cuts at the state and federal levels. Most notably, the Trump-era tax cuts lowered the federal corporate tax rate to its lowest level since 1946.^[xxxv] Tax avoidance is also on the rise, even with these lower tax rates, with more than one-third of large corporations paying nothing in taxes.^[xxxvi] Having profitable corporations that directly benefit from public transit help pay for those investments would promote fairness, spare low- and middle-income riders from drastic fare increases, and provide NJ Transit with a stable source of revenue now and into the future.

And when states have cut corporate tax rates, the promised economic boom times rarely reach workers, with corporate tax rates having little correlation with income growth.^[xxxvii] What corporate tax cuts do correlate with is rising inequality, with lower corporate taxes leading to more concentration of wealth in the top 1 percent of households.

When corporations pay a state tax, the dollars come from shareholders and highly paid executives, not average workers or consumers.^[xxxviii]

Dedicating the CBT Surcharge

New Jersey has already recognized how taxing highly profitable corporations can advance equity, fiscal responsibility, and smart economic investments. Enacted in 2018, the Corporation Business Tax (CBT) surcharge is a 2.5 percent tax on corporations with over $1 million in annual profits. This $1 billion revenue source targets the most profitable corporations in the world, but it is set to expire at the end of 2023 unless lawmakers extend it.

Because this tax is applied to profits, not revenue, the few affected corporations would remain incredibly profitable. And because the tax is applied to profits earned in New Jersey, not solely on companies headquartered in the state, it is primarily paid by large multinational corporations — like Amazon, Walmart, and Bank of America — that have no incentive to stop doing business in New Jersey. The $1 million profit threshold ensures that only the most profitable 2 percent of corporations operating in the state will pay it, meaning that 98 percent of New Jersey businesses will not pay the surcharge at all.^[xxxix] And since the surcharge has been a part of New Jersey’s tax code since 2018, extending it would not create a new tax or expense for the roughly 2,500 corporations that currently pay it.

To fix NJ Transit and give it the financial resources it needs to thrive in the coming decades, lawmakers should dedicate revenue from the CBT surcharge to pay for NJ Transit operations. The surcharge is estimated to bring in $1 billion in annual revenue, according to budget documents released by the Murphy administration, just as NJ Transit faces a nearly $1 billion budget deficit.^[xl] A dedication of corporate surcharge funds will allow the agency to reduce its reliance on money from its capital fund and the Clean Energy Fund, allowing those dollars to go to their intended uses rather than patching over the system’s operations.^[xli]

It is worth noting that NJ Transit is not the only agency or piece of state infrastructure that will require additional funding once federal pandemic assistance expires. Local school districts and child care providers, for example, are just two critical sectors that will need state investment to replace expiring federal aid.^[xlii]

If state lawmakers do not want to use the entire CBT surcharge on transit so they have additional funding for other programs, they should dedicate at least $500 million to NJ Transit to bring state aid back to historical levels prior to the Christie administration. When adjusted for inflation, state investment in NJ Transit averaged over $400 million in annual spending during the 1980s, early 1990s, and during the pre-recession 2000s.^[xliii] To be clear, this would not fully resolve NJ Transit’s budget deficit, but it would likely stave off the most disastrous cuts and fare hikes — if combined with other funding measures — while providing lawmakers time to find alternative funding sources.

Whichever path lawmakers choose, extending a tax on wealthy corporations to stabilize and fund NJ Transit can alleviate its fiscal woes and advance New Jersey’s economic and environmental goals, without pushing those costs onto low-income residents.

The Alternative is a Disaster

If lawmakers do not find a new, dedicated source of revenue for NJ Transit, the alternative is nothing short of a disaster. Given the scale of NJ Transit’s budget deficit, balancing the agency’s budget primarily through fare hikes and service cuts could lead to a transit “death spiral,” a vicious cycle in which higher fares and reduced service lead to fewer riders, less revenue, and further cuts.^[xliv] This would gut what remains of NJ Transit’s ridership base, jeopardizing the state’s economic growth, cutting off access to jobs from hundreds of thousands of residents, and dooming any progress towards the state’s climate and emission reduction goals. It shouldn’t have taken a crisis for lawmakers to finally dedicate funding to NJ Transit, but with a nearly $1 billion shortfall and no good alternative, they have no choice but to act.

End Notes

^[i] NJ Transit averaged 637,100 rides on weekdays in the 2nd quarter of fiscal year 2023. See Appendix A, NJ Transit Minutes for April 19, 2023, https://content.njtransit.com/sites/default/files/board/meeting_minutes/2023_04_19_OpenSessEXP.pdf.

^[ii] The nearly $1 billion in NJ Transit deficits can be seen in Appendix D of the NJ Transit Minutes for April 19, 2023, https://content.njtransit.com/sites/default/files/board/meeting_minutes/2023_04_19_OpenSessEXP.pdf at exh. B, app’x D, p. 64876.

^[iii] John Reitmeyer, NJ Transit Fare Hikes: Only a matter of time? NJ Spotlight News, Aug. 21, 2023, https://www.njspotlightnews.org/2023/08/nj-transit-money-woes-make-fare-hikes-service-cuts-possible/. The overall budget of NJ Transit for FY 2026 is approximately $3 billion. See Appendix D of the NJ Transit Minutes for April 19, 2023, https://content.njtransit.com/sites/default/files/board/meeting_minutes/2023_04_19_OpenSessEXP.pdf at exh. B, app’x D, p. 64876.

^[iv] N.J. Stat. 54:10A-5.41 (2023).

^[v] The nearly $1 billion in NJ Transit deficits can be seen in Appendix D of the NJ Transit Minutes for April 19, 2023, https://content.njtransit.com/sites/default/files/board/meeting_minutes/2023_04_19_OpenSessEXP.pdf at exh. B, app’x D, p. 64876.

^[vi] Governor’s FY 2024 Budget in Brief, https://www.state.nj.us/treasury/omb/publications/24bib/BIB.pdf at p. 65.

^[vii] New Jersey Transit, NJ Transit Sustainability Plan 2023: Draft (2023) at p. 19 https://content.njtransit.com/sites/default/files/sustainability/NJ%20TRANSIT%20Sustainability%20Plan_DRAFT_05312023.pdf

^[viii] National Equity Atlas, Car Access: New Jersey 2020, Percent of households without a vehicle by race/ethnicity, https://nationalequityatlas.org/indicators/Car_access?geo=02000000000034000 (last accessed Sept. 21, 2023). See generally Demos, To Move Is To Thrive: Public Transit and Economic Opportunity for People of Color, Algernon Austin, November 15, 2017. https://www.demos.org/research/move-thrive-public-transit-and-economic-opportunity-people-color

^[ix] See National Equity Atlas, Car Access: New Jersey vs. Newark, NJ, 2020, Percent of households without a vehicle by race/ethnicity, https://nationalequityatlas.org/indicators/Car_access?geo_compare=07000000003451000&geo=02000000000034000 (last accessed Sept. 21, 2023); National Equity Atlas, Car Access: New Jersey vs. Jersey City, NJ, 2020, Percent of households without a vehicle by race/ethnicity, https://nationalequityatlas.org/indicators/Car_access?geo_compare=07000000003436000&geo=02000000000034000 (last accessed Sept. 21, 2023).

^[x] New Jersey Transit, About Us, last accessed Sept. 17, 2023, https://www.njtransit.com/about/about-us.

^[xi] See Jon Carnegie, Deva Deka & Andrea Lubin, Marketing Research for the Quantifiable Benefits of Transit in New Jersey, New Jersey Dep’t of Transportation Bureau of Research Paper No. FHWA-NJ-2021-006, https://rosap.ntl.bts.gov/view/dot/61821 at 35.

^[xii] Jon Carnegie, Deva Deka & Andrea Lubin, Marketing Research for the Quantifiable Benefits of Transit in New Jersey, New Jersey Dep’t of Transportation Bureau of Research Paper No. FHWA-NJ-2021-006, https://rosap.ntl.bts.gov/view/dot/61821 at 3.

^[xiii] https://tstc.org/wp-content/uploads/2019/12/Bus-Survey-Results-Report.pdf

^[xiv] Jon Carnegie, Deva Deka & Andrea Lubin, Marketing Research for the Quantifiable Benefits of Transit in New Jersey, New Jersey Dep’t of Transportation Bureau of Research Paper No. FHWA-NJ-2021-006, https://rosap.ntl.bts.gov/view/dot/61821 at 36.

^[xv] Siqi Zheng, MIT Climate Portal, Explainer: Public Transportation, Feb. 21, 2023, https://climate.mit.edu/explainers/public-transportation.

^[xvi] See Jon Carnegie, Deva Deka & Andrea Lubin, Marketing Research for the Quantifiable Benefits of Transit in New Jersey, New Jersey Dep’t of Transportation Bureau of Research Paper No. FHWA-NJ-2021-006, https://rosap.ntl.bts.gov/view/dot/61821 at 2.

^[xvii] A recent federal estimate puts the transportation sector at 47.9% of New Jersey’s carbon emissions. U.S. Energy Information Administration, Table 3: State Energy-Related Carbon Dioxide Emissions by Sector, 2021, July 12, 2023, https://www.eia.gov/environment/emissions/state/excel/table3.xlsx.

^[xviii] Analysis of NJ Transit Draft Sustainability Plan, p. 6. https://content.njtransit.com/sites/default/files/sustainability/NJ%20TRANSIT%20Sustainability%20Plan_DRAFT_05312023.pdf. Analysis done using NJ Transit carbon impact and US EPA greenhouse gas equivalencies calculator. Environmental Protection Agency, Greenhouse Gas Equivalencies Calculator (July 2023), https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator

^[xix] New Jersey Dep’t of Environmental Protection, New Jersey’s Global Warming Response Act 80×50 report, p. v, https://dep.nj.gov/wp-content/uploads/climatechange/nj-gwra-80×50-report-2020.pdf.

^[xx]New Jersey State Police Fatal Accident Investigation Unit, Fatal Motor Vehicle Crash Comparative Data Report for the State of New Jersey, p. 2 (2022) https://nj.gov/njsp/information/pdf/fcr/2021_fatal_crash_report.pdf; Centers for Disease Control and Prevention, Road Traffic Injuries and Deaths – A Global Problem, Jan. 10, 2023, https://www.cdc.gov/injury/features/global-road-safety/index.html.

^[xxi] Emma G. Fitzimmons & Patrick McGeehan, New Jersey Transit, a Cautionary Tale of Neglect, N.Y. Times, Oct. 13, 2016, https://www.nytimes.com/2016/10/14/nyregion/new-jersey-transit-crisis.html

^[xxii] NJPP analysis of NJ budget documents from FY 1985 to present.

^[xxiii] See Alex Ambrose, New Jersey Policy Perspective, Stop the Raids: The Clean Energy Fund Should Fund Clean Energy, Jan. 12, 2023, https://www.njpp.org/publications/report/stop-the-raids-the-clean-energy-fund-should-fund-clean-energy/. Elise Young, NJ Transit’s Creaky, Empty Trains Stir Worry of Fare Increases, Bloomberg, Feb. 24, 2023, https://www.bloomberg.com/news/articles/2023-02-24/nj-transit-delays-hit-record-high-despite-gov-murphy-pledge-to-fix-trains

On the capital-to-operating raid, the New Jersey Department of Transportation notes that because of underfunding, NJ Transit has to use capital funding for basic maintenance and operations, rather than on long-term purchasing of new trains, buses, and equipment. See Nikita Biryukov, No dedicated funding source for NJ Transit this year, budget chair says, New Jersey Monitor, May 4, 2023, https://newjerseymonitor.com/2023/05/04/no-dedicated-funding-source-for-nj-transit-this-year-budget-chair-says/.

^[xxiv] Over the past two decades, farebox revenue has fluctuated from highs of over $1 billion to lows of $375 million during the peak of the COVID-19 pandemic.

^[xxv] Based on 2021 consumer expenditure data, the average household in the bottom 10 percent in income spent roughly 2.3% of income on public and other transportation, compared with a mere 0.5% in the top 10 percent. See Bureau of Labor Statistics, Consumer Expenditure Surveys, Table 1110, Deciles of income before taxes: Annual expenditure means, shares, standard errors, and coefficients of variation (2022). https://www.bls.gov/cex/tables/calendar-year/mean-item-share-average-standard-error/cu-income-deciles-before-taxes-2021.pdf

^[xxvi] The Metropolitan Transportation Authority has analyzed its finances and identified volatile farebox revenue as a prime driver of its fiscal risks. See Office of the State Deputy Comptroller for the City of New York, Fare Revenue Considerations for the Metropolitan Transportation Authority (November 2022), https://www.osc.state.ny.us/reports/osdc/fare-revenue-considerations-metropolitan-transportation-authority.

^[xxvii] Governor’s Disaster Recovery Office, COVID-19 State Funding Financial Table, Responsible Agency: NJ Transit, last updated June 30, 2023, https://gdro.nj.gov/tp/en/financial-analysis/table-view/state?bureau=376369859&sortColumn=agency&sortValue=asc&pageSize=15&pageOffset=0&lang=en.

^[xxviii] Transit agencies were fortunate that unexpended pandemic aid avoided the chopping block, as a target of House Republican cuts to federal aid nationally. See Ian Duncan & Justin George, Ailing Transit Agencies to Keep Pandemic Funding in Debt Ceiling Deal, Washington Post, June 2, 2023 https://www.washingtonpost.com/transportation/2023/06/02/covid-aid-transit-debt-ceiling/.

^[xxix] American Public Transportation Association, Policy Brief: Public Transit Agencies Face Severe Fiscal Cliff, June 2023, p. 2 https://www.apta.com/wp-content/uploads/APTA-Survey-Brief-Fiscal-Cliff-June-2023.pdf

^[xxx] Pennsylvania deposits 4.4% of sales tax into its Public Transportation Trust Fund. See Southeastern Pennsylvania Transportation Authority, Fiscal Year 2024 Operating Budget, Fiscal 2025-2029, Financial Projections (2023), https://planning.septa.org/wp-content/uploads/2023/04/FY2024-Operating-Budget-Proposal-4.pdf, p. 80; Phineas Baxandall, Massachusetts Budget and Policy Center, How Slow Sales Tax Growth Causes Funding Problems for the MBTA, Jan. 10, 2018, https://www.massbudget.org/reports/pdf/MBTA%20Sales%20Tax%20Explainer%20FINAL%201-8-2018.pdf p. 1; California has two separate dedicated funds for transit, one based on a quarter-cent of the general sales tax and a separate formula for state transit assistance, see Caltrans, Transportation Development Act, accessed Sept. 21, 2023, https://dot.ca.gov/programs/rail-and-mass-transportation/transportation-development-act; Illinois Dep’t of Revenue, Mass Transit District Sales Tax, accessed Sept. 21, 2023, https://tax.illinois.gov/localgovernments/masstransit.html.

^[xxxi] Trimet, Payroll and Self-Employment Tax Information, Employer Payroll Tax, accessed Sept. 21, 2023, https://trimet.org/taxinfo/#employer

^[xxxii] Metropolitan Transit Authority, MTA Announces Balanced Budget Through 2027 in July Financial Plan, July 17, 2023, https://new.mta.info/press-release/mta-announces-balanced-budget-through-2027-july-financial-plan.

^[xxxiii] For an overview on how progressive taxes in which higher-income and higher-wealth residents pay a higher effective tax rate than their lower-income neighbors, see Carl Davis & Meg Wiehe, Institute on Taxation and Economic Policy, Taxes and Racial Equity, Mar. 31, 2023, https://itep.org/taxes-and-racial-equity/. For the de facto tax imposed on low-income residents, see endnote 25 above.

^[xxxiv] Corporate profits in Q2 2023 were 38 percent higher than they were in Q2 2019, at nearly $3.2 trillion. U.S. Bureau of Economic Analysis, National income: Corporate profits before tax (without IVA and CCAdj) [A053RC1Q027SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/A053RC1Q027SBEA, September 6, 2023.

^[xxxv] Tax Policy Center, Historical Corporate Income Marginal Tax Rates, Tax Years 1942-2022, February 2022. https://www.taxpolicycenter.org/statistics/marginal-corporate-tax-rates

^[xxxvi] Steve Wamhoff, Institute on Taxation and Economic Policy, GAO Report Confirms: Trump Tax Law Cut Corporate Taxes to Rock Bottom, Jan. 13, 2023, https://itep.org/government-accountability-office-report-confirms-trump-tax-law-cut-corporate-taxes-increased-corporations-paying-zero-taxes/

^[xxxvii] Josh Bivens, Economic Policy Institute, Reclaiming Corporate Tax Revenues, April 14, 2022, https://www.epi.org/publication/reclaiming-corporate-tax-revenues/.

^[xxxviii] William G. Gale & Samuel I. Thorpe, Brookings Institution, Rethinking the incidence of the corporate income tax, May 10, 2022, https://www.brookings.edu/articles/rethinking-the-incidence-of-the-corporate-income-tax/.

^[xxxix] Sheila Reynertson, New Jersey Policy Perspective, Stop the Sunset: Corporate Tax Cut Would Benefit the Biggest and Most Profitable Businesses (Feb. 22, 2023), https://www.njpp.org/publications/report/stop-the-sunset-corporate-tax-cut-would-benefit-the-biggest-and-most-profitable-businesses/

^[xl] See Governor’s FY 2024 Budget in Brief (2023) https://www.state.nj.us/treasury/omb/publications/24bib/BIB.pdf at p. 65.

^[xli] See Alex Ambrose, New Jersey Policy Perspective, Stop the Raids: The Clean Energy Fund Should Fund Clean Energy, Jan. 12, 2023, https://www.njpp.org/publications/report/stop-the-raids-the-clean-energy-fund-should-fund-clean-energy/. On the capital-to-operating raid, Transportation Commissioner Diane Gutierrez-Scaccetti notes that because of underfunding, NJ Transit has to use capital funding for basic maintenance and operations, rather than on long-term purchasing of new trains, buses, and equipment. See Nikita Biryukov, No dedicated funding source for NJ Transit this year, budget chair says, New Jersey Monitor, May 4, 2023, https://newjerseymonitor.com/2023/05/04/no-dedicated-funding-source-for-nj-transit-this-year-budget-chair-says/.

^[xlii] See Peter Chen et al., New Jersey Policy Perspective, Red Flags Amid a Sea of Green: Breaking Down New Jersey’s FY 2024 Budget, Aug. 8, 2023, https://www.njpp.org/publications/report/red-flags-amid-a-sea-of-green-breaking-down-new-jerseys-fy-2024-budget/.

^[xliii] See Chart 1 above.

^[xliv] Colleen Wilson, NJ Transit has had many fiscal crises. Here’s why the one that’s looming will be worse, NorthJersey.com, Jul. 17, 2023, https://www.northjersey.com/story/news/transportation/2023/07/17/nj-transit-fare-increases-service-cuts-new-fiscal-crisis/70407492007/

Unlocking Academic Success: Revitalizing New Jersey’s School Funding Formula for Student Achievement

Posted on September 14, 2023September 15, 2023 by Bruce Baker

All students, regardless of their background, should have access to a high-quality education to help them reach their full potential. In the past few years, New Jersey has moved steadily toward fully funding its schools through the 2008 School Funding Reform Act (SFRA), the state’s school finance law. This landmark legislation requires funding alignment with student outcomes.

Since SFRA was enacted in 2009, however, New Jersey has raised student achievement expectations: state exams are more rigorous, and students are expected to meet higher standards. While there have been small changes in SFRA funding targets since its inception, the current law does not provide all the resources students need to reach these new standards because it is still aligned with outdated learning goals.

The state can fine-tune the formula by making small but significant tweaks. Specifically, the state can adjust the funding needed to adequately educate a student, which is called the base student amount, and align that with the additional costs for students who need extra help, like special education students, English language learners (ELL), and more, which are called weights for student characteristics. Other states have recently used updated and improved data and methods, and New Jersey can do the same.

History has shown — and we have documented in previous work — that systemic, institutional racism has fostered the segregative trends that led to the current concentration of low property values and high student need in many of New Jersey’s towns and cities.^[1] Properly adjusting SFRA is, therefore, a matter of both racial justice and educational adequacy. This report explores what it means to fund our schools adequately and meet the constitutionality of SFRA, explains the school funding formula, and offers recommendations to fine-tune SFRA to ensure its constitutionality and that it better supports today’s students and their futures.

What is “Adequate” School Funding?

Research conclusively shows that school funding has a significant effect on student success.^[2] At the same time, research also shows that different communities require different funding levels to provide equal educational opportunities for their students. But how much funding should be given to each district based on the unique needs of their student populations? Adequacy refers to the level of funding needed for a specific population of students to achieve a specific educational outcome. A school district with adequate funding has the resources to provide an education that allows its students to meet a specific goal: an average test score, a particular graduation rate, or some other measurable outcome.

Adequacy considers the characteristics of a school district’s students that affect their abilities to achieve learning outcomes. For instance, adequacy acknowledges that more revenue is needed when student poverty is more highly concentrated, or students have greater educational needs. Adequacy also accounts for differences in labor markets and other factors that drive up district costs to staff their schools properly. Finally, adequacy considers the rigor of the educational outcomes that students are expected to achieve. Put simply, meeting higher standards costs more than meeting lower standards.

Exactly how school funding positively affects outcomes continues to be studied; however, researchers have found compelling evidence that reductions in class size, more support and instructional staff, early childhood education, increases in instructional time, and more competitive wages for school staff benefit students.^[3] All of these reforms are made possible when school funding is adequate and equitable.

New Jersey’s Constitutional Mandate for Adequately Funded Schools

The New Jersey Constitution requires that the Legislature “…provide for the maintenance and support of a thorough and efficient system of free public schools….” However, in a series of lawsuits throughout the last 50 years, including the Abbott decisions, the state Supreme Court found that the Legislature was still not meeting its obligations and demanded increased school funding.^[4] In this context, the School Funding Reform Act of 2008 was enacted, a public education finance formula connecting school funding to the state’s broader adoption of academic content standards and performance assessments.

Even when the law passed — as pointed out in previous reports — the outcome standards and cost estimates used to set adequacy levels in SFRA were already several years old.^[5] The general tone of the court suggested that SFRA looked like a reasonable effort to meet the standard it had laid out a decade earlier and that SFRA could be implemented — but only with certain conditions attached.

The court held:

To the extent that the record permitted in this review, SFRA is constitutional and may be applied in Abbott districts subject to the State continuing to provide school funding aid during this and the next two years at the levels required by SFRA’s formula each year, and subject further to the mandated review and retooling of the formula’s weights and other operative parts after three years of implementation.

– Abbott XX, 199 N.J. 140, May 2009. Emphasis ours.

In addition to the law requiring that the SFRA formula must be reviewed and, if necessary, recalibrated every three years, the court found SFRA is also only constitutional if it is fully funded. The court reaffirmed this point when funds were cut from Abbott districts in 2011.^[6] Under the Murphy administration, the Legislature has moved closer to fully funding the current formula; this is an important step forward. However, SFRA must also be aligned with current standards and student outcome goals to remain constitutional.

Understanding the School Funding Formula (SFRA)

While it is well understood that schools need adequate funding, setting adequacy levels is a complex task. New Jersey’s School Funding Reform Act (SFRA) outlines a formula to set adequacy levels for all school districts. As noted in previous work, the SFRA formula needs updating to be constitutional and fix the significant underestimation of the adequacy level for many school districts.^[7]

Fortunately, lawmakers don’t need to start from scratch; they need only follow the law and reset a few key components in the formula to ensure that all schools and their students receive adequate funding. But, to understand how the SFRA formula can be adjusted, we must first understand how it works. The formula uses a “weighted student enrollment” method that can be simplified into three basic steps:

Step 1: Set the “Base Amount”

In theory, the base amount determines the funding needed to adequately educate students in Grades 1 through 5, assuming they are not economically disadvantaged and speak English as their native language. If a school district only had these students and received the base amount per pupil — currently $12,451, as shown in the table below — it would, according to the SFRA formula, have the resources it needs to achieve the educational goals the state has set.

Step 2: Determine the “Weighted Student Enrollment”

The SFRA formula does more than count the number of students in a school district; it also tracks important student characteristics that increase costs, “weighting” students with those characteristics more heavily. For example, elementary school students are considered the baseline, and each are counted as 1.00 student, absent of all other factors. For every student who does not speak English as their native language — Limited English Proficient (LEP) — an additional 0.5 for each LEP student is counted in the weighted enrollment count. Also, students in poverty (as measured by their eligibility for free or reduced-price lunch) are weighted between 1.47 and 1.57 times more heavily in the enrollment count, depending on the concentration of poverty in their district. Further, high school students are weighted more heavily than elementary students and vocational tech students receive additional weights. The latest weights are listed in the table below.

Step 3: Multiply the Weighted Student Enrollment by the Base Amount

The total adequacy budget is the student enrollment, weighted by student characteristics, multiplied by the base amount (and further weighted by geographic cost adjustments).

To be clear: this is a simplified explanation of only one part of the SFRA formula. Other factors affect the final school aid calculation a district receives from the state, such as special education, categorical aid, local fair share, etc.

Understanding the steps above yields a key insight: The SFRA formula can be adjusted by changing the base amount and the weights used to determine weighted student enrollment. When the base and the weights are set correctly, the amount a district should spend to provide an adequate education is calculated accurately; when the base and weights are wrong, the adequacy budget calculation is wrong. Getting the base and the weights right is, therefore, critically important for maintaining the constitutionality of SFRA. By law, the base and weights must be adjusted every three years.

Current SFRA Adequacy: An Update

A previous NJPP report explains how the outcome standards required of New Jersey’s students over time have changed, becoming more demanding and requiring more intensive instruction.^[8] Therefore, the current SFRA formula likely underestimates the funding schools need to achieve adequacy. In 2018, over 100,000 students were in schools that were severely underfunded — more than $5,000 per pupil less than SFRA’s targets. That number has been cut in half in recent years; however, many New Jersey children are still enrolled in underfunded schools as assessed by SFRA’s formula.

New Jersey’s New, More Rigorous Standards

To maintain constitutionality, adjustments to the SFRA formula must be linked to learning outcomes, especially if those outcomes have changed — which they have. In a previous report^[9], we explained how the outcome standards required of New Jersey’s students over time have become more demanding and, therefore, require more intensive instruction. To illustrate this change, this report uses the best consistent measure for determining a state’s goals for student proficiency: the National Assessment of Education Progress (NAEP)^[10], a national test considered the gold standard of student assessment.

Because the NAEP is designed to be a consistently challenging exam across time, it can compare the relative difficulty of achieving a proficient score on New Jersey’s state tests in different years — even if the tests and their definition of “proficient” change. As the graph below shows, the difficulty of New Jersey’s tests has increased considerably; a score considered “proficient” two decades ago would not be today.

In 2005, for example, the state’s assessment score on the NJASK,^[11] the state’s standardized test, determined proficiency in 4^th-grade reading to be statistically equivalent to a 191 NAEP score. This was when funding targets for SFRA were originally adjusted; however, it took another four years before the law was fully enacted. By then the proficiency standard in 4^th-grade reading increased to a 221 NAEP-equivalent score.For more context on the state’s increase in school education standards, when the state changed its standardized test from the NJASK to PARCC in 2015,^[12] the proficiency equivalent on the NAEP leapt up to 233. In 2019, the state again switched its test to the NJSLA;^[13] the standards dropped slightly to a 225 NAEP score, still well above the original 2005 level. Other subjects and grade levels saw similar increases.

At the time of SFRA’s inception, methods for making these estimates, or “costing out” an adequate education, primarily revolved around making what are best described as educated guesses. Documented here and in previous work,^[14] estimates were below what is needed to provide an adequate education, especially for schools serving large proportions of students experiencing economic disadvantage.

Fine-Tuning the Formula With Evidence

The SFRA formula can and should be fine-tuned with better data and methods. Recent examples from other states show New Jersey how the school funding formula can be improved to better estimate the costs of an adequate education. This is not only important to meet the needs of New Jersey students but also to comply with the state constitution, which calls for regular updating.

In the last several years, data collection and methods to analyze those data have improved significantly: policymakers have better access to data on student characteristics, area poverty, wage competitiveness, and other factors that affect educational costs than they had before. Cost estimates based on data analysis have the advantage of being based on actual spending and measurable student outcomes. Other states have taken advantage of these improvements to adjust their formulas and better estimate educational costs. Examples include:

Kansas: In 2017, Legislators contracted with independent researchers to estimate an updated cost model based on new outcome standards to revise their weighted foundation aid formula as ordered by the state courts. Kansas had used similar, rigorous statistical methods ahead of other states a decade earlier.^[15]
Vermont: Legislators contracted the American Institutes for Research (AIR) in collaboration with the University of Vermont to use similar methods to guide reforms of their pupil need weights. While COVID slowed the process, in the spring of 2022, the Vermont legislature and governor adopted reforms to the weighting system guided by those findings.^[16]
New Hampshire: In 2020, the New Hampshire Commission on School Funding worked with the same researchers to estimate models of the costs to achieve that state’s desired outcome goals but has not yet acted on the report findings.^[17] (One of the authors of this brief, Dr. Bruce D. Baker, was part of the teams that performed the Vermont and New Hampshire analyses.)

Studies like these can be completed in under a year with lower expense and greater validity than other methods that estimate educational costs. They have the additional advantage of being able to be easily updated as new data is collected.

Adjusting SFRA: An Example

How might New Jersey use a data-informed approach to adjust SFRA? The state can use a data-informed approach that uses national datasets and modern cost-modeling methods. Over the past several years, for example, the authors of this brief have developed a National Education Cost Model (NECM), which is used in our national reporting on the adequacy and fairness of state school finance systems.^[18] The model uses data on over 13,000 school districts per year over a decade to estimate the relationship between existing and past spending, district characteristics, student characteristics, and outcomes in reading and math. The resulting estimations allow us to set appropriate outcome goals and estimate the cost of attaining them for individual school districts.

We have used this model in earlier NJPP reports to evaluate the adequacy of SFRA concerning the costs of achieving different outcomes on state tests in English and math.^[19] Importantly, we arrived at different estimations based on different outcome goals. The cost per pupil is relatively modest if we set a relatively low goal — for example, the national average outcomes on state tests. If we set a higher goal — say, average outcomes for Massachusetts students, the highest in the nation — the cost estimates are higher.

The table below shows estimates from the NECM with two outcomes goals, compared to a simulation of the SFRA adequacy budget’s funding targets. Standard 1 — the low standard — is the estimated cost of achieving national average outcomes of state tests. Standard 2 is higher: average Massachusetts outcomes. The estimates are broken down into five poverty levels, ranging from low to high.

If New Jersey were to set a low target for national average test scores, the SFRA, in its current form, would provide more than enough revenue to meet that goal, especially in lower-poverty districts. However, New Jersey is relatively high performing, surpassing national averages. If the state sets the higher goal of meeting Massachusetts’s average outcomes (again, the highest outcomes in the nation), only wealthier districts would have the revenues needed under SFRA to meet that goal. The highest-poverty districts would need more than $7,000 additional dollars per student to achieve this more rigorous standard.

It’s important to note that we are using Massachusetts outcomes as a benchmark because of their high average test scores; this does not mean, however, that New Jersey can simply spend as much as Massachusetts and achieve similar results. There are substantial differences between the two states in poverty and English Language Learner rates, labor costs, urban density, and other factors that affect school costs. Our models account for those differences, creating estimates of what funding levels are needed for New Jersey, with its unique characteristics, to attain Massachusetts’ outcomes.

The higher standard model where wealthier districts have adequate funding (and that middle-poverty districts are close) suggests that while the base amounts per pupil set is near or at the level it needs to be, the weighting for economically disadvantaged students is too low. Therefore, adjusting the weights is important for the state to move towards adequacy and fulfilling the constitutionality of SFRA.

Again, these estimates are based on actual fiscal and outcome data, not simply educated guesses. The models use methods other states have already employed to better calibrate their school funding formulas toward the goal of educational adequacy. Of course, different outcome goals and different statistical models can and will yield different estimates. We explore these differences in the Technical Appendix.

Recommendation: Adjust SFRA With Input From School Finance Experts

New Jersey’s school funding law, SFRA, must be regularly adjusted to maintain its constitutionality. But it must be adjusted correctly, based on student outcome and fiscal data, valid methods, and rigorous yet achievable standards. Fortunately, other states have shown how the Legislature could proceed, using cost modeling approaches that yield estimates far more likely than previous ones to reflect the true cost of providing New Jersey’s students with an adequate education.

We recommend that the Legislature consider directing the Joint Committee on the Public Schools to hold hearings on SFRA’s adjustment. The Committee should hear from experts in the field of public school finance as to why recalibration is necessary, options for performing the recalibration, and the experiences of other states in reworking their school funding formulas. The final work product of the hearings should be a report (likely produced by contracted experts in school finance, as in other states) that estimates costs and sets SFRA base amounts and weights based on various scenarios and outcome goals.

Adjusting SFRA is necessary to retain its constitutionality and help ensure New Jersey’s students get the schooling they deserve. The Legislature should act now and begin the process of SFRA recalibration so all of New Jersey’s children have equal educational opportunities.

Technical Appendix

Over the past several years, we have developed a National Education Cost Model (NECM), which is used in our national reporting on the adequacy and fairness of state school finance systems.^[20] Specifically, the current version of the model uses data on over 13,000 school districts per year from 2009 to 2019 to estimate the relationship between existing and past spending, district characteristics, student characteristics, and outcomes in reading and math to generate predictions of the spending needed to achieve specific outcome levels in each district.

In this appendix, we include additional estimates of costs derived from our national data sources and national model specification. Specifically, we provide estimates here to isolate New Jersey and neighboring states, running a regional cost model. In addition, we run a cost model using our national data, but on New Jersey districts alone. Our experience with the model has shown us that sometimes cost variations within regions and specific states differ from those in other regions of the United States. These differences may occur because of the geographic and demographic differences that exist from region to region and the fact that school districts tend to be organized differently from state to state and region to region.

Again, we set lower and higher standards for outcomes for which we predict per pupil costs for each district and compare against existing spending:

Standard 1 = National Average Outcomes
Standard 2 = Massachusetts Average Outcomes (National Model), New Jersey Average (Regional & State Models)

The table below summarizes our national cost model results, comparing cost predictions to alternative per-pupil spending measures and the budgeted adequacy calculation produced under SFRA. The most directly relevant spending figure is the U.S. Census Bureau’s current operating expense figure because that is the measure on which the model is estimated. The model compares spending to outcome measures, considering student and context measures to establish the relationships from which we predict the spending needed to achieve desired outcomes.

The New Jersey Department of Education budgetary per pupil cost measure is less inclusive than the Census Current Spending measure. But, for either the budgetary per pupil cost or current spending measure, we see that the lowest poverty 20% of districts spend marginally more than the highest poverty 20% of districts. That is, actual spending is “regressive” concerning poverty. This is even though predicted per pupil costs to achieve common outcomes are much higher in the highest poverty districts. Indeed, SFRA provides a higher adequacy budget for those districts, but not enough. And the “progressiveness” of SFRA adequacy budgets is insufficient to offset the regressiveness of what New Jersey school districts raise and spend. We can also see that where spending falls short of costs, outcomes fall short of targets.

The table below compares three models estimated for this brief to SFRA adequacy budgets for 2023, starting with the model estimates from the table above. We use our cost estimates from 2020, one year beyond the available outcome data. An interesting twist is that these cost estimates are slightly lower than those for 2019. This is because student outcomes in recent years have declined nationally, and our model finds logically that lower outcomes cost less to achieve. Our outcome targets are based on existing and historical averages here, nationally, and for Massachusetts and New Jersey.

By 2023, SFRA adequacy budgets have increased from the 2019 figures in the previous table. The highest poverty districts are, on average, at or near the per pupil costs to achieve national average outcomes. Recall that if we strive to achieve a specific outcome target, on average, about half of students will fall below that target and about 16% substantially below (as noted above, below average outcomes of low-income students in states like Alabama or Mississippi). On average, shooting for a higher target is necessary for meeting reasonable targets for those in the lower half of the distribution.

As with the comparison in the previous table: when compared against the higher target, adequacy budgets by 2023 approximate the cost target for the two lowest-poverty quintiles. However, adequate budgets for the two highest-poverty quintiles fall short of cost targets. The high outcome standard in the National and Regional model is the Massachusetts average, and in the New Jersey model is New Jersey’s average, similar to that of Massachusetts. Suppose we believe that the current state of average math and reading outcomes in New Jersey meets the constitutional standard of adequacy. In that case, this may be a reasonable starting point for calibration.

Recall that the differences in adequacy budgets under SFRA have been achieved through a series of pupil weightings or multipliers times a base level of funding. The latest Educational Adequacy Report (EAR) puts the formula weight at 0.5 for Limited English Proficient (LEP) students and 0.47 to 0.57 for Free and Reduced-Price Lunch students. This should mean that every LEP student in a district generates at least 1.5 times the base amount; in reality, however, the SFRA adequacy budget and the actual spending of districts are significantly less. The table below shows the “actual” weights that result from either our simulation of the SFRA adequacy budget or from spending as reported in the Taxpayers Guide to Educational Spending.

Below these are weights derived from our cost models. The Free Lunch weight for the model using Massachusetts mean outcomes as the goal is 1.2; the models suggest that the SFRA weight should be adjusted from about .5 to 1.2 if the goal is to achieve average Massachusetts outcomes on state tests. The LEP weight should be adjusted to 0.68 from 0.5.

End Notes

^[1] Baker, B. D. and Weber, M.A. (2022) Separate and Unequal: Racial Segregation and the Case for School Funding Reparations in New Jersey. Trenton, NJ: New jersey Policy Perspective. https://www.njpp.org/publications/report/separate-and-unequal-racial-and-ethnic-segregation-and-the-case-for-school-funding-reparations-in-new-jersey/

^[2] Baker, B. D., & Weber, M. A. (2016). Beyond the echo-chamber: State investments and student outcomes in US elementary and secondary education. Journal of Education Finance, 42(1), 1–27.

Baker, B. D., Weber, M., & Srikanth, A. (2021). Informing Federal School Finance Policy with Empirical Evidence. Journal of Education Finance, 47(1), 1–25.

Jackson, C. K., Johnson, R. C., & Persico, C. (2016). The effects of school spending on educational and economic outcomes: Evidence from school finance reforms. The Quarterly Journal of Economics, 131(1), 157–218. https://doi.org/10.1093/qje/qjv036

Jackson, K. (2018). Does School Spending Matter? (Working Paper 25368). National Bureau of Economic Research. http://www.nber.org/papers/w25368

Lafortune, J., & Schönholzer, D. (2022). The Impact of School Facility Investments on Students and Homeowners: Evidence from Los Angeles. American Economic Journal: Applied Economics, 14(3), 254–289. https://doi.org/10.1257/app.20200467

Rothstein, J., & Schanzenbach, D. W. (2021). Does Money Still Matter? Attainment and Earnings Effects of Post-1990 School Finance Reforms. 48.

^[3] Baker, B. D. (2017). How Money Matters for Schools. Learning Policy Institute. https://learningpolicyinstitute.org/product/how-money-matters-report

Finn, J. D., & Achilles, C. M. (1999). Tennessee’s Class Size Study: Findings, Implications, Misconceptions. Educational Evaluation and Policy Analysis, 21(2), 97–109.

^[4] Abbott decisions, a series of cases before the state Supreme Court that mandated that the Legislature increase funding to a select group of high-needs districts; https://edlawcenter.org/litigation/abbott-v-burke/abbott-history.html

^[5] Baker, B. D. and Weber, M.A. (2022) New Jersey School Funding: The Higher the Goals, the Higher the Costs. Trenton, NJ: New Jersey Policy Perspective. https://www.njpp.org/publications/report/new-jersey-school-funding-the-higher-the-goals-the-higher-the-costs/

^[6] Abbott XXI, 206 N.J. 332 (May 2011)

^[7] Baker, B.D. and Weber, M.A. (2020) New Jersey’s School Funding Reform Act at 10 Years. Trenton, NJ: New Jersey Policy Perspective. http://www.njpp.org/wp-content/uploads/2019/03/NJPP-Bruce-Baker-School-Funding-Reform-Act-at-10-Years-Full-Report.pdf

^[8] Baker, B. D. and Weber, M.A. (2022) New Jersey School Funding: The Higher the Goals, the Higher the Costs. Trenton, NJ: New Jersey Policy Perspective. https://www.njpp.org/publications/report/new-jersey-school-funding-the-higher-the-goals-the-higher-the-costs/

^[9] Baker, B. D. and Weber, M.A. (2022) New Jersey School Funding: The Higher the Goals, the Higher the Costs. Trenton, NJ: New Jersey Policy Perspective. https://www.njpp.org/publications/report/new-jersey-school-funding-the-higher-the-goals-the-higher-the-costs/

^[10] https://nces.ed.gov/nationsreportcard/

^[11] New Jersey Assessment of Skills and Knowledge.

^[12] The Partnership for Assessment of Readiness for College and Careers.

^[13] New Jersey Student Learning Assessments.

^[14] Baker, B.D. and Weber, M.A. (2020) New Jersey’s School Funding Reform Act at 10 Years. Trenton, NJ: New Jersey Policy Perspective. http://www.njpp.org/wp-content/uploads/2019/03/NJPP-Bruce-Baker-School-Funding-Reform-Act-at-10-Years-Full-Report.pdf

^[15] Taylor, L., Willis, J., Berg-Jacobson, A., Jaquet, K., & Caparas, R. (2018). Estimating the costs associated with reaching student achievement expectations for Kansas public education students: A cost function approach. San Francisco, CA: WestEd. Retrieved from https://probstforprogress.com/wp-content/uploads/2018/03/kansas_adequacy_study_cost_function_approach_20180315_final.pdf

Duncombe, W., Yinger, J. (2006) Estimating the Costs of Meeting Student Performance Outcomes Adopted by the Kansas State Board of Education. Prepared for the Kansas Legislative Division of Post Audit https://www.maxwell.syr.edu/uploadedFiles/cpr/research/cpr_research_education_finance_policy/Kansas_Report.pdf

^[16] Kolbe, T., Baker, B.D., Atchison, D., Levin, J. (2019) Pupil Weighting Factors Report. State of Vermont, House and Senate Committees on Education. https://legislature.vermont.gov/assets/Legislative-Reports/edu-legislative-report-pupil-weighting-factors-2019.pdf

^[17] Baker, B.D., Atchison, D., Levin, J., Kearns, C. (2020) New Hampshire Commission to Study School Funding, Final Report: https://carsey.unh.edu/sites/default/files/media/2020/09/20-12685_nh_final_report_version_v5_draft_1.pdf

^[18] Baker, B.D., Di Carlo, M., Weber, M. (2022) Ensuring Adequate Education Funding for All: A New Federal Foundation Aid Formula. Albert Shanker Institute: https://www.shankerinstitute.org/fedformula

Baker, B.D., Di Carlo, M., Weber, M. (2021) The Adequacy of School District Spending in the U.S. Albert Shanker Institute. https://www.schoolfinancedata.org/wp-content/uploads/2021/03/SFID_DCDbrief_Mar2021.pdf

^[19] Baker, B.D. and Weber, M.A. (2022). School Funding in New Jersey: A Fair Future for All. Trenton, NJ: New Jersey Policy Perspective. https://www.njpp.org/publications/report/school-funding-in-new-jersey-a-fair-future-for-all/

^[20] Baker, B.D., Di Carlo, M., Weber, M. (2022) Ensuring Adequate Education Funding for All: A New Federal Foundation Aid Formula. Albert Shanker Institute: https://www.shankerinstitute.org/fedformula

Red Flags Amid a Sea of Green: Breaking Down New Jersey’s FY 2024 Budget

Posted on August 8, 2023August 9, 2023 by Peter Chen

Negotiated behind closed doors and voted on without public input, the latest state budget wasted a historic opportunity to fix New Jersey’s finances and boost investments in historically underfunded areas. Instead, lawmakers used record-setting revenue collections to fund costly tax cuts and credits for wealthy households and profitable corporations, threatening the state’s long-term fiscal health.

On the positive side, the $54.3 billion budget for Fiscal Year (FY) 2024 includes another full pension payment and a record level of school funding.^[i] The budget also continues investments in the many building blocks of a strong and healthy state: expanded pre-K, increased college tuition assistance, increased access to affordable health care, and much more.

However, three major red flags in the budget undermine the sustainability of these essential public services and programs.

Red Flags: A Shaky Fiscal Footing

New Jersey, like every state, is required to pass a balanced budget, meaning it must raise enough revenue to account for all of its expenses. The major changes in this year’s budget, to both the tax code and expenditures, have the state spending more than it takes in, raising three red flags about the state’s ability to pass a balanced budget in subsequent years. First, the growing investments in the budget rely on a temporary boost in tax collections that is already declining. Second, new corporate tax cuts and tax credits for wealthy homeowners will further weaken future revenue collections. Third, the budget relies on federal pandemic aid that will soon expire, creating looming funding shortfalls that must be addressed as early as next year.

Despite the budget’s continuation of important investments, it will largely be remembered for its short-term giveaways to profitable corporations, wealthy individuals, and politically-connected insiders who loaded up line items and side deals, while kicking long-term structural budget problems down the road.

Red Flag 1: Declining Revenues, Shrinking Surplus

The FY 2024 budget includes new and growing investments that will require consistent funding in future years. Yet, the revenue streams supporting these investments are already starting to wane. Recent revenue snapshots show that last year’s unprecedented boost in tax collections was temporary, with the state’s major revenue sources on the decline.^[ii] Bringing in less revenue threatens the sustainability of the investments made in the latest state budget and could hamper future improvements to public services and programs that New Jersey families, communities, and businesses rely on.

Increased spending and declining revenues leave the state at a structural deficit, with expenditures now surpassing revenue collections by roughly $1.5 billion. This deficit is already eroding the state’s historic surplus, as the Governor’s original $10 billion projected surplus for FY 2024 has already come down to $8.1 billion.^[iii] That means the state has less of a safety net if revenue collections continue to decline in the near future.

The shift in revenues and expenditures between the budget initially proposed by Governor Murphy and the one ultimately signed into law should serve as a clear warning signal for the state.

Table: Appropriations Surpass Revenue Collections in FY 2024 Budget

	Original Proposed Budget	Final Approved Budget
Revenues	$53,828,554	$52,801,265
Appropriations	$53,084,949	$54,357,547
Net difference	+$743,605	-$1,556,282

Source: FY 2024 Appropriations Bill Scoresheet: https://pub.njleg.state.nj.us/publications/budget/Scoresheet,%20As%20Introduced.pdf

The surplus funds won’t last long if New Jersey continues to spend more than it generates in revenue, a trend likely to continue given the elimination of the corporate business tax surcharge and other tax giveaways buried in the budget deal. The state’s Rainy Day Fund also remains woefully drained, leaving New Jersey unprepared to weather bumpier economic conditions in the years to come.^[iv]

During the Great Recession, the state saw the devastating consequences of costly tax cuts and an empty reserve.^[v] New Jersey cannot afford to repeat the mistakes of the past, especially now, as far too many families are struggling to keep up with rising costs and afford basic expenses. Lawmakers must prioritize tax policies that generate enough revenue to both cover the state’s expenditures and build up reserves so vital state services are there for families and communities when they need them the most.

Red Flag 2: Costly Corporate Tax Cuts and Credits

Even with increased investments that will require consistent funding in future years, the new state budget contains a $1 billion tax cut for the world’s biggest and most profitable corporations.^[vi] Add in other corporate tax changes that reward offshoring of profits to foreign countries, hundreds of millions in tax credits for specific industries, and a costly property tax credit program that will disproportionately benefit wealthy households, and New Jersey could experience significant revenue losses in the face of rising costs and potential economic turmoil.

For context, the Corporation Business Tax currently includes an additional 2.5 percent surcharge on businesses with more than $1 million in profit. The surcharge, which will expire unless it is renewed before the end of the calendar year, only applies to the top 2 percent of businesses earning the most in profit.^[vii] This includes all corporations that generate profit in New Jersey — including multinational corporations, e-commerce sites, and chain retailers like Amazon, Walmart, and Starbucks — not merely companies headquartered in the state. Eliminating the surcharge would enrich a select few corporations and their shareholders at the expense of workers and families who benefit from the various investments in infrastructure, transit, schools, and safety net programs that the surcharge helps fund.

The budget also includes new legislation that will open up more loopholes in the corporate tax code, which may accelerate the erosion of the corporate tax base even further.^[viii] These changes would allow multinational corporations to evade taxation by shifting their income to subsidiaries based in foreign tax havens. Though billed as “revenue-neutral,” these changes would reward corporations who shift profits abroad, reducing their tax liability in future years and continuing a trend of eroding corporate tax bases at the state level.^[ix]

On top of these risky corporate tax changes, the budget also incorporates the costly Stay NJ proposal, which provides a significant property tax credit to senior homeowners. If implemented fully, the program will cost approximately $1.7 billion, all of which is unfunded.^[x] And due to its proposed structure benefiting wealthy homeowners, Stay NJ would overwhelmingly go to the highest-income households and would widen the state’s racial wealth gap.^[xi]

As revenues already appear to be declining and spending continues to increase, wealthy corporations experiencing record profits have managed to pay less towards the state’s core investments and keep more for their shareholders and high-paid executives.

Red Flag 3: Unaddressed Fiscal Cliffs

While the new budget includes enough revenue and surplus funds to cover investments for FY 2024, looming funding gaps across various areas have been kicked down the road with no plans to address them. This includes fiscal cliffs from expiring federal pandemic assistance that has propped up local and county budgets, school districts, and state agencies that now anticipate major deficits in future years.^[xii] Federal pandemic aid will have to be expended in the next few years, leaving a funding cliff when they expire.

Key programs facing cliffs include:

NJ Transit: In FY 2025, NJ Transit, which does not have a sustainable funding source, has budgeted $749 million in federal relief. In FY 2026, that drops to $0.^[xiii] Expiring federal aid, combined with lower fare collections, leave NJ Transit with a projected shortfall of roughly $1 billion in FY 2026.
Child care: By September 2024, nearly $890 million in federal funds will expire, leaving the child care sector vulnerable to more closures.^[xiv]
K-12 schools: In September 2023, $1.2 billion in federal education funds will expire, followed by another $2.7 billion in September 2024.^[xv] As it stands, the state currently does not fully fund its school funding formula.

Although these funds were designed to be temporary, a failure to replace them with sustainable state funding could lead to harmful cuts that would hamstring New Jersey’s economy and damage the very assets that make the state a great place to live, raise a family, and start a business: infrastructure, education, and robust government services. Lawmakers will face difficult decisions sooner than they might like, as they must find new ways to continue funding these services or determine which ones to cut. Past experience has shown that when spending cuts come, they disproportionately harm Black and Hispanic/Latinx communities and low-income households.^[xvi]

Sea of Green: Notable Investments and Budget Lines

Looking past the red flags, New Jersey’s FY 2024 budget includes many important investments in public services and programs that support New Jersey families, communities, and the broader economy. From tax credits for working families, to increased funding for education, to health insurance subsidies that increase access to comprehensive health care, the initiatives highlighted below are designed to uplift individuals and families across the state, raise the standard of living, and contribute to the future prosperity of the state.

Economic Security

Working Family Tax Credits

The New Jersey Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) pay workers and their families money back in their tax returns, supporting strong families, reducing poverty, and helping to make New Jersey affordable for working- and middle-class households.

The FY 2024 budget doubles the Child Tax Credit (CTC), providing up to $1,000 for every child under age 6 to families earning up to $80,000, benefitting up to 372,000 children.^[xvii] While the CTC expansion passed with overwhelming bipartisan support, and the increased credit is welcome news, the budget did not include a proposal to expand eligibility and access to the benefit for children up to 12 years old.^[xviii]

It’s worth noting that the cost of the CTC expansion, roughly $120 million, pales in comparison to new tax credits for businesses included in the budget. Film and television studios alone will receive more than $230 million in new tax credits in FY 2024.^[xix]

The FY 2024 budget also leaves the EITC unchanged, despite pending legislation to reduce barriers in the program and increase benefit levels to further boost workers’ wages.^[xx] To better support working families struggling with rising living costs, lawmakers should increase the EITC to 50 percent of the federal credit and expand eligibility to immigrants with Individual Tax Identification Numbers. These changes would get more money back into the pockets of families who need it, reducing poverty and strengthening local economies across the state.

WorkFirst NJ

New Jersey’s Temporary Assistance for Needy Families (TANF) program, WorkFirst NJ, is supposed to provide basic financial support to very low-income households. While it is well-known that this program is underfunded and falls short for low-income families, the FY 2024 budget failed to increase WorkFirst NJ benefits.^[xxi] The current grant amount — the maximum benefit is $559 a month for a family of three — remains far too low to meet the program’s goal of helping families afford their most basic needs.^[xxii] For this program to succeed at helping families get by and break the cycle of poverty, lawmakers must commit to raising WorkFirst NJ benefits, reworking the program to meet the realities of today’s families, and moving TANF away from its racist “welfare reform” roots.^[xxiii]

Education

The FY 2024 budget continues to bring New Jersey closer to fully funding the state’s school funding formula, investing $11 billion in K-12 education, which includes $103 million in stabilization aid for school districts facing cuts.^[xxiv] This is an increase of more than $800 million compared to the prior year. This increase, as well as those made throughout Governor Murphy’s tenure, are critical to ensuring that New Jersey meets its constitutional obligation to fully fund education. Pre-kindergarten funding also received a boost of $116 million over the prior year, bringing New Jersey closer to its statutory goal of universal preschool.^[xxv]

The number of children attending schools that receive less than adequate aid under the formula has reduced substantially since 2015.^[xxvi] However, there is evidence that the School Funding Reform Act (SFRA) targets are too low to meet New Jersey’s current and more rigorous educational standards.^[xxvii] While fully funding the school funding formula remains an important short-term goal, resetting its adequacy targets to meet the new, higher outcome standards must become a priority for lawmakers.

Health

Cover All Kids

Cover All Kids is a hallmark achievement of the Murphy administration, with all income-eligible children now able to receive public health insurance, regardless of immigration status.^[xxviii] This initiative reduces barriers to health care and is responsible for recent progress in lowering the number of uninsured children across the state.^[xxix] The FY 2024 budget includes $14.1 million for this initiative.^[xxx] It is unclear how much of last year’s funding will carry forward, and the program’s continued success will require ongoing investments to maintain outreach and enrollment efforts. The budget also includes language allowing the state to explore affordable health insurance options for all children, regardless of immigration status, who are not income-eligible for NJ Family Care, closing the final implementation gaps and providing universal coverage for all kids in New Jersey.^[xxxi]

Health Insurance

Over the last few years, increased health insurance subsidies have helped get a record number of people insured, and the FY 2024 budget continues to invest $25 million to support health insurance marketplace subsidies.^[xxxii] However, with the end of the COVID-19 public health emergency, many people will likely lose their public health insurance coverage, forcing them to find coverage elsewhere.^[xxxiii] It’s unclear whether flat funding will be sufficient to maximize coverage.

Medical Debt Relief

The burden of medical debt has widespread consequences on the economic stability of individuals and families. The FY 2024 budget includes a novel pilot program with a $10 million investment of pandemic relief funds to assist families reduce their medical debt.^[xxxiv] This program will focus on helping low- and middle-income residents, with eligibility limited to residents who have a household income below 400 percent of the federal poverty level ($99,440 for a family of three in 2023) or have medical debt equal to 5 percent or more of the household’s income.^[xxxv] Although details on the program are still forthcoming, similar programs in other states have helped eliminate residents’ medical debt for pennies on the dollar.^[xxxvi]

Reproductive Health

Last year, Governor Murphy signed legislation to codify abortion rights in New Jersey, solidifying the state’s commitment to protecting the right to reproductive freedom.^[xxxvii] The FY 2024 budget reaffirms this commitment with a $10 million investment to increase reimbursement rates for reproductive health care providers.^[xxxviii] This will help support clinics and health care professionals currently overwhelmed and under-resourced, serving New Jersey and out-of-state residents seeking a safe haven in the Garden State.^[xxxix] The budget also continues to invest in family planning services through the state’s Department of Health with a $30 million allocation.^[xl] Similarly, the new initiatives from last year’s budget to address the post-Dobbs threats to reproductive health — for training OBGYNs, facilities upgrades, and security needs — are maintained at $20 million. ^[xli]

To build on the state’s recent successes in reproductive health, lawmakers must consider expanding access to abortion care for uninsured and underinsured residents just as the state does for other prenatal care.^[xlii]

Maternal Health

Funding in the FY 2024 budget also reflects the Murphy administration’s commitment to addressing New Jersey’s wide racial disparities in maternal and infant health. The budget includes a $200,000 investment in the Restorative Maternal Health Birthing Center in Trenton.^[xliii] Additionally, the budget includes a $4.5 million increase in funding for the Universal Home Visiting program, which entitles all parents with newborn infants to at least one free postpartum home visit.^[xliv] The program will receive a total of $15.6 million for FY 2024.^[xlv]

Prescription Drugs

The high cost of prescription drugs has reached crisis levels: Nearly a quarter of New Jersey residents have not taken medicine as prescribed due to concerns about cost.^[xlvi] The FY 2024 budget takes initial steps toward addressing this urgent issue. Thanks to new laws and investments in the budget, residents will see EpiPen, insulin, and asthma inhaler costs capped on certain state-regulated insurance plans, in addition to lower prices at the pharmacy for some medications, depending on their insurance plan, in the coming months.^[xlvii] The budget also includes expanded affordability measures for seniors on Medicare.^[xlviii]

The budget also created the Drug Affordability Council (DAC) to bring transparency to the pharmaceutical industry. The DAC will research the underlying factors behind high drug costs and make recommendations to lawmakers on ways to further rein in costs and make prescription drugs affordable for more residents.^[xlix] State leaders will need to provide sufficient support for the DAC and act quickly on its recommendations to lower prescription drug prices further.

Harm Reduction Services

Harm reduction services are essential to support people who use drugs, keep people out of the criminal legal system, and promote long-term health and public safety. The FY 2024 budget maintains funding levels for existing harm reduction centers at $4.5 million.^[l] In supporting the expansion of local harm reduction centers, the new harm reduction center operated by Black Lives Matter Paterson will receive a grant for $250,000.^[li] There is also funding for expanded access to naloxone, so pharmacies across the state can provide the life-saving drug anonymously and for free.^[lii] Separate from the state budget, New Jersey will receive $600 million over the next two decades from settlements with opioid manufacturers, which should be allocated to harm reduction service expansion and healing the harms of the War on Drugs.^[liii]

Public Safety

Public Defender Fees

The constitutional right to counsel guarantees legal representation for those accused of a crime, regardless of their ability to pay. Until now, one’s right to legal representation from a state-issued public defender in New Jersey came with a price tag, sometimes in excess of $1,000.^[liv] These high fees not only contributed to the cycle of poverty but also created perverse incentives for defendants, as accepting a plea bargain came with lower fees than fighting a case. The latest state budget eliminates state-level public defender fees — a huge win for the residents of New Jersey and a major step toward a more equitable justice system for all.

The FY 2024 budget appropriates $4.4 million to both cover the costs of public defender fees and provide modest pay increases for attorneys that assist the Office of the Public Defender (OPD).^[lv] The Legislature also repealed the statute requiring fees and wiped out existing liens owed to the OPD.^[lvi]

Unfortunately, municipal and county-level public defenders may still require fees for service. Eliminating public defender fees across the board is the logical next step for state lawmakers, as access to a constitutional right should not exist behind a paywall and result in debt.

Crisis Response and Violence Intervention Programs

The current approach to public safety, premised on punishment and rooted in racism, often falls short of keeping residents safe, while doing active harm to Black and brown communities through over-policing and unnecessary use of force. This was exemplified by the tragic death of Najee Seabrooks, who was shot and killed by Paterson Police earlier this year while experiencing a mental health crisis. Mental health crises are one of many situations where armed police are not the best equipped to respond. Even so, legislation that would have provided $10 million to fund new community-led crisis response teams did not make it into the final state budget, as the bill passed through the Assembly but has yet to be heard in the Senate.^[lvii]

However, the state budget continues to invest in community-led violence intervention programs, which help resolve high-risk conflicts and disputes, connecting residents to needed supports and keeping them out of the criminal legal system. The FY 2024 budget includes $15 million — $10 million from the state and $5 million in federal funds — to support and expand the state’s existing community-based violence intervention programs.^[lviii] Community-led responses are an evidence-based approach to improve public safety, centering restorative justice and harm reduction without resorting to armed police response.^[lix]

In stark comparison, the FY 2024 budget includes far-greater investments in conventional policing across the state. Some examples include: Camden County Metro Police received $8 million for technology upgrades,^[lx] the police headquarters in the Borough of Haddonfield received $5 million,^[lxi] and the Paterson Police Department received $10 million.^[lxii] Additionally, ARRIVE Together, the Attorney General’s crisis response initiative operated by State Police, receives roughly $10.6 million.^[lxiii]

As the need for a non-police response to crises becomes increasingly evident, future budgets should prioritize funding for more community-based solutions.

Environment and Transit

Clean Energy Fund

New Jersey’s Clean Energy Fund aims to help the state transition to 21st-century technologies that reduce our dependence on fossil fuels, cut air pollution, and save families money. However, more than $2 billion has been raided from the fund over the last decade, including $70 million in the new state budget.^[lxiv] This is a minor improvement compared to the raid in last year’s budget, but every dollar raided makes it less likely New Jersey will meet its ambitious clean energy goals. If used as intended, the Clean Energy Fund will drive investments in areas like offshore wind and bus electrification, reducing air pollution and creating good-paying jobs across the state.

NJ Transit

NJ Transit is a cornerstone of mobility in New Jersey, providing residents with transportation to their jobs, doctors, schools, and more. But years of underfunding have left NJ Transit in a state of disrepair and passengers without a reliable source of transportation. The FY 2024 budget contains $2.87 billion for NJ Transit with no new fare hikes, but that does not tell the whole story.^[lxv] The transit agency’s budget relies on expiring federal funds, diversions from the Clean Energy Fund, and it once again diverts NJ Transit’s capital funds to cover operating costs, transferring $334 million to cover routine maintenance.^[lxvi] Without additional state funding, NJ Transit faces a $1 billion deficit by FY 2026 due lower than expected fare collections and federal pandemic assistance about to expire.^[lxvii]

NJ Transit remains the only transit agency of its size in the United States without a reliable, dedicated funding source. If lawmakers do not act quickly to fully fund NJ Transit, the state may experience a transit death spiral, with drastic service cuts, fare hikes, and breakdowns that leave passengers stranded.^[lxviii]

Conclusion: Sustainable Investments Need Sustainable Revenues

The investments made in New Jersey’s FY 2024 will pay great dividends in years to come. But sustainable tax revenue is required to maintain and build on these investments in future years. With tax collections already declining, even a small economic downturn could lead to reduced revenues that throw the state budget out of balance. Coupled with costly tax cuts and expiring federal pandemic relief funds, lawmakers may soon face difficult choices and potentially devastating cuts to programs and services.

A period of economic uncertainty is not the time to cut taxes for billion-dollar corporations or to direct tax giveaways to wealthy individuals and special interests. A strong tax code where those with the most pay what they owe is the only way to guarantee the promise of the budget’s investments for years to come.

End Notes

^[i] The final approved appropriations in the FY 2024 Appropriations Act was $54,319,047,000 after the Governor’s line-item veto. See Governor Philip Murphy, Veto Message and Summary, A5669/S2024 (June 30, 2023), p. 2, https://d31hzlhk6di2h5.cloudfront.net/20230630/07/c4/38/35/b3a57fbddd9e9af6a3e5a3bd/FY2024_Veto_Message_and_Summary.pdf.

^[ii] New Jersey Department of the Treasury, State of New Jersey, Month and Year-to-Date Cash Collections, Fiscal Year 2023 – May 2-23 versus 2022 (June 19, 2023), https://www.nj.gov/treasury/news/2023/pdf/MonthlyReport%20with%20Snapshot-FY23May.pdf.

^[iii] See Office of Legislative Services, FY 2024 Appropriations Bill Scoresheet, June 30, 2023, p.1 https://pub.njleg.state.nj.us/publications/budget/Scoresheet,%20As%20Introduced.pdf.

^[iv] Justin Theal & Alexandre Fall, Record State Budget Reserves Buffer Against Mounting Fiscal Threats, Pew Charitable Trusts, March 22, 2023, https://www.pewtrusts.org/en/research-and-analysis/articles/2023/03/16/record-state-budget-reserves-buffer-against-mounting-fiscal-threats.

^[v] Sheila Reynertson, New Jersey Policy Perspective, Don’t Forget to Fix New Jersey’s Shrinking Rainy Day Fund, July 19, 2017,

https://www.njpp.org/publications/blog-category/lets-not-forget-to-fix-new-jerseys-shrinking-rainy-day-fund/.

^[vi] The Governor’s FY 2024 Budget in Brief, hereinafter “FY 2024 Budget in Brief”, February 2023, p. 65, https://www.state.nj.us/treasury/omb/publications/24bib/BIB.pdf. The FY 2024 Budget in Brief is cited when budget allocations do not appear as specific line items in the Appropriations Act, Assembly Bill 5669, hereinafter “FY 2024 Appropriations Act.”

^[vii] Sheila Reynertson, Stop the Sunset: Corporate Tax Cut Would Benefit the Biggest and Most Profitable Businesses, New Jersey Policy Perspective, Feb. 22, 2023, https://www.njpp.org/publications/report/stop-the-sunset-corporate-tax-cut-would-benefit-the-biggest-and-most-profitable-businesses/.

^[viii] Peter Chen, New Jersey Policy Perspective, GILTI as Charged: New Corporate Tax Proposal Would Accelerate Tax Avoidance, April 6, 2023, https://www.njpp.org/publications/blog-category/gilti-as-charged-new-corporate-tax-proposal-would-accelerate-tax-avoidance/.

^[ix] For more on this trend nationally, see Josh Bivens, Economic Policy Institute, Reclaiming Corporate Tax Revenues, April 14, 2022, https://epi.org/247534.

^[x] Assembly Budget Committee Statement to Assembly Bill No. 1, June 28, 2023, https://www.njleg.state.nj.us/bill-search/2022/A1/bill-text?f=A0500&n=1_S2.

^[xi] Peter Chen, New Jersey Policy Perspective, StayNJ 2.0: Senior Tax Cut Still 2 Regressive and 2 Expensive, Jun. 27, 2023, https://www.njpp.org/publications/report/staynj-2-0-senior-tax-cut-still-2-regressive-and-2-expensive/.

^[xii] The Treasurer’s May Supplemental Budget Update showed total revenues of $52.8 billion in FY 2023, compared to $54.6 billion in expenditures. See New Jersey Department of the Treasury, FY 2024 Budget, May 17, 2023, p. 3, https://www.nj.gov/treasury/news/2023/pdf/TreasurersMayPacket.pdf. However, additional associated bills not included in the FY 2024 Appropriations Act, notably the Stay NJ property tax credit program, increased the total cost of the budget to $54.5 billion. See Press Release, Governor Phil Murphy, Governor Murphy Signs Fiscal Year 2024 Budget Into Law, June 30, 2023, https://nj.gov/governor/news/news/562023/approved/20230630f.shtml.

^[xiii] New Jersey Transit Budget Proposal Transmittal, April 19, 2023, at Exhibit B, appendix D, p. 41, https://content.njtransit.com/sites/default/files/board/meeting_minutes/2023_04_19_OpenSessEXP.pdf.

^[xiv] Linda Smith & Victoria Owens, Bipartisan Policy Center, States Face a $48 Billion Child Care Funding Cliff, June 3, 2022, https://bipartisanpolicy.org/blog/states-face-a-48-billion-child-care-funding-cliff/.

^[xv] New Jersey Department of Education, Text Version: New Jersey One-Time Grants and Timelines Charts, (June 22, 2022), https://www.nj.gov/education/federalfunding/understanding/TextVersion_OneTimeGrants.shtml.

^[xvi] For a summary of how economic austerity during the Great Recession harmed racial and economic equity, see Asha Banerjee & Emma Williamson, Center for Law and Social Policy, Fighting Austerity for Racial and Economic Justice, October 2020, https://www.clasp.org/wp-content/uploads/2022/01/2020_Fighting-Austerity-for-Racial-and-Economic-Justice.pdf.

^[xvii] FY 2024 Budget in Brief, p.13; Office of Legislative Services, Fiscal Note, Senate, No. 3940, June 23, 2023, https://pub.njleg.state.nj.us/Bills/2022/S4000/3940_F1.PDF.

^[xviii] Assembly Bill 3857, https://www.njleg.state.nj.us/bill-search/2022/A3857.

^[xix] Peter Chen & Pat Garofalo, New Jersey Policy Perspective, Reel Regret: The High Cost of Expanding Film Tax Credits in New Jersey, June 26, 2023, https://www.njpp.org/publications/blog-category/reel-regret-the-high-cost-of-expanding-film-tax-credits-in-new-jersey/.

^[xx] Senate Bill 2458, https://www.njleg.state.nj.us/bill-search/2022/S2458.

^[xxi] FY 2024 Appropriations Act, p. 141, lines 31-33.

^[xxii] New Jersey State Plan for Temporary Assistance for Needy Families (TANF) FY 2021-2023, at attachment B, https://www.nj.gov/humanservices/dfd/programs/workfirstnj/tanf_2021_23_st_plan.pdf; Raymond Castro, New Jersey Policy Perspective, Promoting Equal Opportunities for Children Living in Poverty, April 13, 2020, https://www.njpp.org/publications/report/promoting-equal-opportunities-for-children-living-in-poverty/.

^[xxiii] Center on Budget and Policy Priorities, TANF Policies Reflect Racist Legacy of Cash Assistance, 2021. https://www.cbpp.org/research/income-security/tanf-policies-reflect-racist-legacy-of-cash-assistance.

^[xxiv] Press Release, Governor Murphy Signs Fiscal Year 2024 Budget Into Law, June 30, 2023, https://www.nj.gov/governor/news/news/562023/20230630f.shtml.

^[xxv] Press Release, Governor Murphy Signs Fiscal Year 2024 Budget Into Law, June 30, 2023, https://www.nj.gov/governor/news/news/562023/20230630f.shtml.

^[xxvi] Mark Weber & Bruce Baker, New Jersey Policy Perspective, School Funding in New Jersey: A Fair Future for All, November 17, 2020, https://www.njpp.org/publications/report/school-funding-in-new-jersey-a-fair-future-for-all/.

^[xxvii] Bruce Baker & Mark Weber, New Jersey Policy Perspective, New Jersey School Funding: The Higher the Goals, the Higher the Costs, February 2, 2022, https://www.njpp.org/publications/report/new-jersey-school-funding-the-higher-the-goals-the-higher-the-costs/.

^[xxviii] Pub. L. 2021, c. 132.

^[xxix] New Jersey Department of Human Services, Response to OLS Questions, FY 2024 Budget, p. 9, https://pub.njleg.state.nj.us/publications/budget/governors-budget/2024/DHS_response_2024.pdf.

^[xxx] FY 2024 Budget in Brief, p. 33.

^[xxxi] FY 2024 Appropriations Act, p. 30.

^[xxxii] FY 2024 Appropriations Act, p. 29.

^[xxxiii] New Jersey Department of Human Services, Stay Covered NJ, Eligibility Unwinding, 2023, https://nj.gov/humanservices/dmahs/staycoverednj/unwinding/. Last accessed July 2023. Page on file with author.

^[xxxiv] FY 2024 Appropriations Act, p. 275, line 36.

^[xxxv] United States Department of Health and Human Services, 2023 Poverty Guidelines, https://aspe.hhs.gov/sites/default/files/documents/1c92a9207f3ed5915ca020d58fe77696/detailed-guidelines-2023.pdf; FY 2024 Appropriations Act, p. 275, lines 55-74.

^[xxxvi] Amanda Holpuch, Medical Debt Is Being Erased in Ohio and Illinois. Is Your Town Next?, New York Times, Dec. 29, 2022, https://www.nytimes.com/2022/12/29/us/toledo-medical-debt-relief.html.

^[xxxvii] Pub. L. 2021, c.375.

^[xxxviii] FY 2024 Appropriations Act, p. 126, lines 36-41.

^[xxxix] Heather Howard, New Jersey should increase Medicaid reimbursement rates for reproductive health care, New Jersey Globe, May 15, 2023, https://newjerseyglobe.com/health/opinon-new-jersey-should-increase-medicaid-reimbursement-rates-for-reproductive-health-care/.

^[xl] FY 2024 Appropriations Act, p. 95, line 47. The Family Planning Services line-item was funded at $19,529,000 in FY 2022 and $30,029,000 in FY 2023. See FY 2024 Governor’s Detailed Budget, p. D-159, https://www.nj.gov/treasury/omb/publications/24budget/FY2024BudgetDetail-Full.pdf.

^[xli] FY 2024 Appropriations Act, p. 163, p. 96, line 4, p. 160, line 35.

^[xlii] FY 2024 Appropriations Act, p. 121, lines 31-39.

^[xliii] Lilo Stainton, Not one, but two birthing centers in the works for Trenton, NJ Spotlight, October 26, 2022, https://www.njspotlightnews.org/2022/10/two-trenton-birthing-centers-maternal-infant-health-mortality-tammy-murphy/; FY 2024 Appropriations Act, p. 44, p. 202, lines 14-16.

^[xliv] FY 2024 Budget in Brief, p. 29.

^[xlv] FY 2024 Appropriations Act, p. 31.

^[xlvi] Altarum Healthcare Value Hub, New Jersey Residents Worried about High Drug Costs; Support a Range of Government Solutions, 2023, https://healthcarevaluehub.org/advocate-resources/publications/new-jersey-residents-worried-about-high-drug-costs-support-range-government-solutions-1.

^[xlvii] P.L.2023, c. 105. Bill text is available at https://www.njleg.state.nj.us/bill-search/2022/S1614.

^[xlviii] P.L.2023, c. 79. Bill text available at https://www.njleg.state.nj.us/bill-search/2022/S3.

^[xlix] P.L.2023, c. 106.

^[l] FY 2024 Appropriations Act, p. 96, line 33; FY 2024 Governor’s Detailed Budget, p. D-161.

^[li] FY 2024 Appropriations Act, p. 96, line 32.

^[lii] FY 2024 Budget in Brief, p. 38.

^[liii] FY 2024 Budget in Brief, p. 38.

^[liv] Marleina Ubel, New Jersey Policy Perspective, The High Cost of “Free” Representation: Why New Jersey Should Eliminate Public Defender Fees, October 24, 2022, https://www.njpp.org/publications/blog-category/the-high-cost-of-representation-public-defender-fees/; Marea Beeman et al., National Legal Aid and Defender Association, At What Cost? Findings from an Examination into the Imposition of Public Defense System Fees, July 2022, pp. 98-99, https://www.nlada.org/sites/default/files/NLADA_At_What_Cost.pdf?v=2.0.

^[lv] FY 2024 Budget in Brief, p. 41.

^[lvi] P.L.2023, c. 69.

^[lvii] Assembly Bill 5326, https://www.njleg.state.nj.us/bill-search/2022/A5326.

^[lviii] FY 2024 Budget in Brief, p. 39.

^[lix] New Jersey Policy Perspective, To Protect and Serve: Investing in Public Safety Beyond Policing, October 13, 2021, https://www.njpp.org/publications/report/to-protect-and-serve-investing-in-public-safety-beyond-policing/

^[lx] FY 2024 Appropriations Act, p. 52.

^[lxi] FY 2024 Appropriations Act, p. 49.

^[lxii] FY 2024 Appropriations Act, p. 159, line 35.

^[lxiii] FY 2024 Appropriations Act, p. 156, line 50, p. 153, line 34.

^[lxiv] FY 2024 Budget in Brief, p. 99; Alex Ambrose, New Jersey Policy Perspective, Stop the Raids: The Clean Energy Fund Should Fund Clean Energy, Jan. 12, 2023, https://www.njpp.org/publications/report/stop-the-raids-the-clean-energy-fund-should-fund-clean-energy/.

^[lxv] FY 2024 Budget in Brief, p 43.

^[lxvi] FY 2024 Appropriations Act, p. 271, lines 19-20.

^[lxvii] NJ Transit Board Minutes, April 20, 2023, appendix D, p. 41. https://content.njtransit.com/sites/default/files/board/meeting_minutes/2023_04_19_OpenSessEXP.pdf.

^[lxviii] Elise Young, NJ Transit’s Creaky, Empty Trains Stir Worry of Fare Increases, Bloomberg, Feb. 24, 2023, https://www.bloomberg.com/news/articles/2023-02-24/nj-transit-delays-hit-record-high-despite-gov-murphy-pledge-to-fix-trains.

StayNJ 2.0: Senior Tax Cut Still 2 Regressive and 2 Expensive

Posted on June 27, 2023June 28, 2023 by Peter Chen

The latest draft of StayNJ, a proposal to credit home-owning seniors for up to half of their property tax bills, would still direct the largest benefits to wealthy households while providing much less to lower-income homeowners and renters. Despite amendments that lower the maximum tax credit and add a much-needed income cap on eligibility, the new proposal still ties the total benefit to property taxes paid, resulting in the biggest tax cuts going to people with high incomes who own the most valuable homes.

As written, the proposal would make New Jersey’s tax code more regressive and worsen the racial wealth gap. It would also come at an enormous cost to the state, with a total price tag of $2.2 billion at a time when the state can ill afford it.

1. Still Regressive

The new StayNJ proposal, a compromise between Governor Murphy and legislative leaders, has been modified to include an income cap of $500,000 and a lower maximum benefit of $6,500. These changes fail to address the fundamental flaw at the heart of StayNJ: By tying benefit amounts to total property tax bills, the program directs larger payments to owners of larger, higher-valued homes. Further, an income cap of $500,000 still includes many high-income seniors with substantial wealth and economic advantages. To put this new income cap in perspective, it is double that of the state’s ANCHOR property tax rebate, which phases out at $250,000 in annual income.

The majority of StayNJ benefits would still go to the top 40 percent of households, leaving lower-income seniors with much less. In total, 28 percent of benefits would go to the top 20 percent of households, while those in the bottom 20 percent would receive only 7 percent of the benefits. As long as the program continues to disproportionately benefit homeowners at the expense of renters, and direct bigger benefits to those with more valuable homes, it will continue to reward the rich at the expense of the rest of the population.

Even with an additional $250 payment for seniors who rent included in the proposal, renters would still receive thousands less than their wealthier home-owning peers. The average benefit for seniors in the top 5 percent (with incomes of at least $360,000) would be $4,508, while seniors in the bottom 20 percent (with incomes less than $26,000) would receive an average benefit of $369. Because renters are disproportionately nonwhite and have lower incomes on average, the new StayNJ program would still widen the racial wealth gap.

2. Still Expensive

Based on modeling of income and homeowner data, NJPP estimates the program’s cost at $1.9 billion for the homeowner component alone, with another $300 million in ANCHOR payments for a total cost of $2.2 billion per year. With declining tax collections, federal pandemic aid set to expire, and no revenue source to pay for StayNJ, this proposal will make it extremely difficult for lawmakers to balance the state budget in future years.

Good Intentions, Poor Execution

The new StayNJ proposal remains too regressive and too expensive, directing the biggest benefits to already-wealthy households. Whatever its good intentions, StayNJ will put more in the pockets of those who need it least, while doing little to support the low-income seniors most at risk of losing their homes.

Stay Away from StayNJ: Proposal Cuts Taxes for the Rich, Leaves Low-Income Seniors Behind

Posted on June 8, 2023June 27, 2023 by Peter Chen

Housing affordability is one of the most pressing challenges facing New Jersey, but not all policies aimed at making the state affordable are equally effective, efficient, or equitable. When evaluating new proposals and changes to the tax code, it’s critical to consider who stands to benefit, by how much, and who is left behind. In other words, “Affordable for who?”

The newly proposed property tax cut for seniors, StayNJ, has a laudable goal of helping seniors who are struggling with high costs stay in their homes. However, by the program’s very design, StayNJ would accomplish the exact opposite by providing huge tax cuts to the wealthiest homeowners in the largest homes, while providing little-to-no benefit to the lowest income homeowners and renters.

With no income cap on eligibility, higher tax cuts for more expensive homes, and no credit for renters, the StayNJ proposal represents a massive transfer of wealth and state resources to those who already have the most. As currently written, the proposal diverts billions of dollars away from much-needed investments in schools, transit, health care, and infrastructure we all rely on just as federal pandemic aid expires and state revenue collections decline.

Despite its name, A1 is decidedly second-rate when it comes to helping make New Jersey affordable for all.

1. StayNJ is Robin Hood in Reverse: Wealthy Residents Would Benefit the Most

The proposed tax cuts from StayNJ would benefit the wealthiest New Jersey residents the most and the lowest-income residents the least. According to an NJPP analysis of modeling from the Institute on Taxation and Economic Policy (ITEP), the top 1 percent of New Jersey residents would receive the an average tax cut of $2,688, while the lowest-income 20 percent would receive a mere $103, largely due to the high percentage of low-income residents who rent.^[1] Among those who would receive a tax cut from StayNJ, the average cut for those in the top 1 percent is roughly three times the average tax cut for those in the bottom 40 percent.

When looking at the total cost of the proposal — $2.2 billion, according to ITEP’s modeling — roughly 40 percent would go to the wealthiest 20 percent of residents, while only 5 percent would go to the lowest-income 20 percent of residents. The top 1 percent of residents alone would get a bigger share of the benefits than the entire lowest-income 20 percent.

Considering the structure of StayNJ, it’s not surprising that the proposal disproportionately benefits those with the highest incomes.

In order to get the maximum tax cut of $10,000, a homeowner must pay $20,000 in property taxes, a rare occurrence reserved for the highest-valued homes. For reference, the average property tax bill in New Jersey is less than half that amount.^[2]

As a result, the average homeowner in Alpine (average home value of $2.8 million) would receive $10,000. Meanwhile, the average homeowner in Trenton (average home value of $62,863) would receive $1,700.^[3]

It’s worth noting that this analysis does not account for the residents who already receive property tax credits through ANCHOR and the Senior Freeze — which each have income limits on eligibility — meaning fewer low- and middle-income seniors would receive benefits under StayNJ. As written, the StayNJ benefit is half off a senior’s property tax bill, or their Senior Freeze and ANCHOR benefits combined, whichever is more.^[4]

Add it all up and the lion’s share of the StayNJ benefit would go to the wealthy, with bigger benefits the wealthier the taxpayer. This undermines the state’s progressive tax code and the principle that government benefits should flow towards those with the least, not those with the most.

2. StayNJ Fails to Accomplish Its Stated Goal by Leaving Renters and Low-Income Seniors Behind

Seniors on fixed incomes often have a difficult time keeping up with rising costs, and there is evidence that New Jersey’s low-income seniors need additional financial help. The poverty rate for seniors in New Jersey (9.2 percent) is actually higher than the poverty rate for other adults (9.1 percent).^[5]

The StayNJ proposal leaves many of these low-income seniors behind, however, as the program excludes renters entirely. Renters have significantly less wealth and lower incomes than their home-owning peers. Renters also make up a substantial percentage of New Jersey’s senior population: Roughly one in five New Jersey seniors rent their homes, including more than half of Hispanic/Latinx and Black seniors.^[6] Given the disparities in homeownership, this proposal will widen the racial wealth gap instead of helping close it. As noted in the appendix, senior renters number in the thousands in each legislative district.

With lower incomes, less wealth, and no equity in their home, seniors who rent are at high risk of being priced out and evicted.^[7] This is illustrated by recent Census survey data showing that one in five New Jersey senior renters reported missing the last month’s rental payment.^[8]

The concentration of homeownership in wealthier income brackets is clear when looking at how many people in each income range would qualify for StayNJ. Of those in the top one percent of earners in New Jersey, 40 percent would receive a tax cut from StayNJ, while a mere 5 percent of those in the lowest-income quintile would receive anything.

Beyond the exclusion of renters, this program may actually make senior housing affordability more challenging. Research shows property tax cuts for wealthy homeowners can stifle housing development and growth, stagnating the housing market and decreasing affordability, as Proposition 13 did in California.^[9]

Instead of a tax cut targeted to wealthy homeowners, state lawmakers have other avenues to help reduce senior poverty: expanding outreach for enrollment in food assistance programs like SNAP, reducing health care and prescription drug costs, and increased funding for rent assistance,^[10] foreclosure assistance, and housing counseling.

Using the tax code to assist seniors with high costs can only be successful if the changes are targeted to help those who need it most. StayNJ fails to do so.

3. StayNJ Threatens New Jersey’s Fiscal Health

During the Murphy administration, state lawmakers have made great progress towards fixing New Jersey’s financial health after years of mismanagement and not paying the bills. Thanks to a series of full pension payments, increased taxes for millionaires and the most profitable corporations, and strong investments in key factors that promote economic growth like public schools and infrastructure, the state finds itself on solid fiscal footing for the first time in decades.^[11]

But StayNJ would jeopardize this progress by pouring billions of dollars into the hands of those who need it least, all without a revenue source to pay for it. To put the sheer size of StayNJ in perspective, its $1.2 billion sticker price is roughly equivalent to the entire budget for the state Department of Health.^[12] The bill also lacks funding for administrative costs associated with the new program at the local or state level, which could balloon the cost even further. The $1.2 billion fiscal note for StayNJ may also be an undercount: The Murphy administration estimates that the annual cost is closer to $2 billion, and NJPP’s analysis indicates a cost of $2.2 billion for the state, though we were unable to model the impact of ANCHOR given the lack of public data on who has received tax credits through the new program thus far.

This expensive proposal takes place against a backdrop of reduced revenues and tax cuts for billion-dollar corporations. The Treasury forecast already anticipates $2 billion less in revenue collections over Fiscal Years 2023 and 2024.^[13] And those forecasts do not include $1 billion in annual revenue that will be lost if lawmakers cut the corporate tax rate at the end of the calendar year, as they are poised to do.^[14] Even a small economic downturn could wipe out the already-tenuous state surplus and make it difficult for lawmakers to balance future budgets without severe cuts to other programs and services.

There are More Efficient and Effective Ways to Help Seniors Stay in New Jersey

When designing policies to make the state more affordable for seniors, lawmakers should target support to the residents who need the most help. Instead, StayNJ would do the opposite by targeting benefits to New Jersey’s wealthiest households while leaving many low-income seniors behind entirely. The program’s poor design, coupled with its billion-dollar price tag and lack of a funding source, should have lawmakers looking for other ways to help seniors stay in New Jersey.

Appendix: Senior Renters by Legislative District

Source: U.S. Census Bureau, 2020 Demographic and Housing Characteristics Table H13

End Notes

^[1] NJPP analysis of Institute on Taxation and Economic Policy modeling. Data on file with author.

^[2] NJ Dep’t of Community Affairs, 2022 Property Tax Information (2023), https://www.nj.gov/dca/divisions/dlgs/resources/property_docs/22_data/22taxes.xls

^[3] NJ Dep’t of Community Affairs, 2022 Property Tax Information (2023), https://www.nj.gov/dca/divisions/dlgs/resources/property_docs/22_data/22taxes.xls

^[4] Derek Hall, N.J. senior tax relief bill fueling sudden drama and talk of state shutdown. Here’s what’s in it., NJ.com, May 28, 2023, https://www.nj.com/politics/2023/05/nj-senior-tax-relief-bill-fueling-sudden-drama-and-talk-of-state-shutdown-heres-whats-in-it.html

^[5] Kaiser Family Foundation, Poverty Rate by Age, 2021, https://www.kff.org/other/state-indicator/poverty-rate-by-age/?currentTimeframe=0&sortModel=%7B%22colId%22:%2265%2B%22,%22sort%22:%22desc%22%7D.

^[6] U.S. Census Bureau, 2020 Demographic and Housing Characteristics: H13B (Black), H13D (Asian), H13H (White Non-Hispanic), H13I (Hispanic/Latino).

^[7] Annie Nova, He’s 75 and facing eviction. Many other older renters are, too. CNBC.com, June 22, 2021, https://www.cnbc.com/2021/06/22/millions-of-renters-may-soon-be-evicted-heres-one-familys-story-.html

^[8] U.S. Census Bureau, Household Pulse Survey Week 57 (April 26 – May 8, 2023), Housing Table 1b, https://www2.census.gov/programs-surveys/demo/tables/hhp/2023/wk57/housing1b_week57.xlsx

^[9] İmrohoroğlu, Ayşe, Kyle Matoba, and Şelale Tüzel. 2018. “Proposition 13: An Equilibrium Analysis.” American Economic Journal: Macroeconomics, 10 (2): 24-51. https://www.aeaweb.org/articles?id=10.1257/mac.20160327

^[10] Will Fischer, Douglas Rice & Alicia Mazzara, Center on Budget and Policy Priorities, Research Shows Rental Assistance Reduces Hardship and Provides Platform to Expand Opportunity for Low-Income Families, Dec. 5, 2019, https://www.cbpp.org/research/housing/research-shows-rental-assistance-reduces-hardship-and-provides-platform-to-expand.

^[11] Christian Wade, New Jersey receives ratings upgrade over ‘solid’ recovery, The Center Square, Apr. 7, 2023, https://www.thecentersquare.com/new_jersey/article_8f8ef360-d550-11ed-b2e5-4b80b8a6a8b7.html

^[12] State of New Jersey, Budget in Brief: Summary of Budget Recommendations, Fiscal Year 2024, https://www.state.nj.us/treasury/omb/publications/24bib/BIB.pdf at p. 70.

^[13] Derek Hall, N.J. tax revenues plummet billions below Murphy budget estimate. Are the good times over?, NJ.com, May. 18, 2023, https://www.nj.com/politics/2023/05/nj-tax-revenues-plummet-billions-below-murphy-budget-estimate-are-the-good-times-over.html

^[14] State of New Jersey, Budget in Brief: Summary of Budget Recommendations, Fiscal Year 2024, https://www.state.nj.us/treasury/omb/publications/24bib/BIB.pdf at p. 65.

Stop the Sunset: Corporate Tax Cut Would Benefit the Biggest and Most Profitable Businesses

Posted on February 22, 2023June 2, 2023 by Sheila Reynertson

Editor’s Note: This report was updated on March 15, 2023 to reflect that the proposal to eliminate the Corporate Business Tax surcharge would cost New Jersey $1 billion in annual revenue, according to Governor Murphy’s FY 2024 Budget in Brief. A previous version of the report estimated it would cost at least $600 million annually.

With corporate profits at record-breaking levels and tax evasion on the rise, New Jersey lawmakers are poised to give the biggest and most profitable businesses operating in the state a multi-million dollar tax break at the end of 2023. A proposal to eliminate the Corporate Business Tax surcharge will cost New Jersey at least $1 billion in annual revenue, threatening the state’s ability to sustainably fund programs and infrastructure that families, communities, and businesses rely on.^[1] This change would only benefit a select few highly profitable corporations, providing an average tax cut of $5 million to companies with more than $100 million in annual profits.

The Corporate Business Tax Surcharge is Targeted to Corporations That Can Afford It

The Corporate Business Tax (CBT) is New Jersey’s third largest source of revenue, supporting vital investments — like transportation infrastructure, open space, pre-K-12 schools, and so much more — that make the state an attractive place to raise a family or start a business. In 2018, state lawmakers amended the corporate tax code by adding a surcharge on profits over $1 million.^[2] This targeted change helped the state meet its longstanding obligations, like ramping up school funding and making full pension payments, and generated sustainable funding for safety net programs and public services at the height of the pandemic.^[3]

Only the wealthiest corporations are required to pay the 2.5 percent tax on every dollar of net profit above $1 million, including multi-national businesses like Amazon, Walmart, and Bank of America that do business in New Jersey but are not headquartered here. The vast majority of New Jersey businesses, 98 percent, do not pay the surcharge at all because their annual profits fall below the $1 million profit threshold. In fact, just over 2,500 corporations pay the surcharge, according to the most recent state data.^[4] By targeting mega-corporations that make millions, if not billions, in profits every year, the surcharge is a sustainable revenue stream paid by the businesses that can afford it, sparing “mom-and-pop” businesses across the state.

Allowing the CBT surcharge to sunset at a time of unprecedented corporate profit margins would come at a significant cost while primarily benefiting a select few, ultra-profitable businesses. Roughly 70 percent of the corporate tax cut would go to businesses with more than $10 million in annual profits. Corporations with more than $100 million in profits would receive the largest tax cut, averaging $4,952,000.

Corporations Are Making Record Profits While Paying Less in Taxes

New Jersey’s strong CBT revenue collections in the last few years are a clear indicator that corporations are thriving, and the surcharge has neither hurt their bottom line nor driven them out of the state — an exaggerated talking point favored by business lobbyists to lower their tax obligations. From 2009 to 2021, corporate tax revenue in New Jersey increased by 212 percent, with the largest increase happening between 2020 and 2021, the latest year data is available.^[5]

And while the most profitable corporations in New Jersey may be paying slightly more in state taxes, they continue to avoid paying what they truly owe by taking advantage of loopholes in the tax code and lobbying for tax cuts at the federal level. Wealthy corporations received a massive tax cut during the Trump administration, as the 2017 “Tax Cuts and Jobs Act” cut the U.S. federal corporate tax rate from 35 percent to 21 percent,^[6] its lowest level since 1946.^[7] The tax law also maintained blatant tax loopholes commonly used by wealthy corporations, allowing them to send their profits to tax havens like the Cayman Islands, completely disinvesting from the United States.

Tax avoidance is so common — and without consequence — that the amount of questionable tax dodging by corporations has nearly doubled in a decade’s time from $164 billion in 2010 to $235 billion in 2020.^[8] Until the Internal Revenue Service rebuilds its hollowed out workforce, especially employees with experience working with complex tax filings, wealthy corporations can and will continue to reap the benefits of a rigged tax code.^[9] Recouping a portion of this foregone revenue at the state level is an entirely appropriate countermeasure to these blatant efforts to minimize business tax obligations.

Maintaining the Surcharge Benefits Working Families and the State’s Finances

Revenue generated by the surcharge will be necessary to balance the state budget as pandemic-related federal assistance expires. Signed into law in March 2021, the American Rescue Plan (ARP) provided billions of dollars in flexible funding for states and local governments to begin reversing the harms done by the pandemic and promote an equitable economic recovery. New Jersey’s state government received $6.2 billion in flexible aid, helping lawmakers maintain funding for public programs and services and expand financial assistance to renters, public hospitals, small businesses, and child care providers, among others in need.^[10]

Once federal funds are gone, new and recently expanded programs and services will require funding from the state, and there will be less revenue to go around if the CBT surcharge is eliminated. The state’s new universal newborn home visit program, for example, tapped $6 million in one-time fiscal recovery dollars to fund the first year. That casts doubt on whether the state will be able to sustainably fund the program in future years. Similar concerns arise around ARP allocations for programs that are normally supported by state funds, like grants for mental health services ($15 million) and capital improvement projects across the state ($50 million).

With rising costs, growing obligations, and looming end of federal relief aid, policymakers must provide a path of sustainability for the economic future of the Garden State. That starts with a commitment to long-lasting renewable revenue to meet the state’s current and future needs and a permanent surcharge on wealthy corporations is a smart first step.

End Notes

^[1] State of New Jersey, Department of the Treasury, Office of Revenue and Economic Analysis, New Jersey Corporation Business Tax: Statistical Report for Return Years 2016–2018, August 2022. https://www.state.nj.us/treasury/economics/documents/pdf/stats/CBT-100-SOI-TY2016-2018.pdf#page=22;Legislative Fiscal Note for A4721, September 2020. https://www.njleg.state.nj.us/bill-search/2020/A4721/bill-text?f=A5000&n=4721_E1

^[2] Chapter 48. https://pub.njleg.state.nj.us/Bills/2018/PL18/48_.PDF

^[3] Chapter 95. https://pub.njleg.state.nj.us/Bills/2020/PL20/95_.PDF

^[4]State of New Jersey, Department of the Treasury, Office of Revenue and Economic Analysis, New Jersey Corporation Business Tax: Statistical Report for Return Years 2016–2018, August 2022. https://www.state.nj.us/treasury/economics/documents/pdf/stats/CBT-100-SOI-TY2016-2018.pdf#page=22

^[5] U.S. Bureau of Economic Analysis and U.S. Census Bureau at Federal Reserve Bank of St. Louis Economic Research Division, Federal Reserve Economic Data, https://fred.stlouisfed.org (Last updated Dec. 22, 2022). Without comprehensive public data on corporate profits in New Jersey, CBT revenue collections can be used as a proxy given that the tax is paid as a percentage of profits made in the state.

^[6] The Tax Cuts and Jobs Act (TCJA), Public Law 115–97.

^[7] Tax Policy Center, Historical Corporate Income Marginal Tax Rates, Tax Years 1942-2022, February 2022. https://www.taxpolicycenter.org/statistics/marginal-corporate-tax-rates

^[8] The Washington Post, As IRS audits waned, big businesses racked up unapproved tax breaks, July 2021. https://www.washingtonpost.com/business/2021/07/14/corporate-tax-break-irs/?itid=hp-more-top-stories

^[9] ProPublica, How the IRS was gutted, December 2018. https://www.propublica.org/article/how-the-irs-was-gutted

^[10] New Jersey Policy Perspective, New Jersey Has Less than $1 Billion Left in American Rescue Plan Funds, August 2022. https://www.njpp.org/publications/blog-category/new-jersey-has-less-than-1-billion-left-in-american-rescue-plan-funds/

How an Expanded Child Tax Credit Would Help More Hard-Working New Jersey Families

Posted on January 31, 2023January 31, 2023 by Peter Chen

In 2022, New Jersey became the seventh state to enact a refundable state-level Child Tax Credit to help families meet the high costs of raising kids.^[i] Under the new program, eligible families will receive up to $500 for every child under six years old as early as January 2023.^[ii]

The success of the Child Tax Credit lies in its simplicity: It directs cash relief to families with kids who need it most. It is a straightforward, commonsense program with long-lasting benefits. When families can pay for basic expenses — like groceries, housing, and child care — and save for their children’s futures, it improves child wellbeing immediately and makes it more likely for children to reach their full potential later in life.

Recognizing the power of direct cash relief for families, the Legislature passed the Child Tax Credit with substantial bipartisan support in both houses.^[iii] Indeed it was Republican lawmaker Aura Dunn who urged her colleagues on the Assembly floor to “go bold” and expand the tax credit when it was first created, saying that more children and families should qualify as bigger kids come with bigger costs.^[iv]

To build on the success of the Child Tax Credit, state lawmakers can and should expand the program with a higher maximum credit and so more families qualify for financial support. This report lays out the logical next steps for the Child Tax Credit and would make New Jersey a more affordable place to start and raise a family.

NJPP proposes a two-fold expansion to the existing law: expanding the Child Tax Credit to $1,000 for young kids under six years old, and opening eligibility to children ages 6-11.

This expansion targets two important limitations of the original credit:

Its higher dollar amount reflects the needs of New Jersey families and the higher costs that they face with rising inflation.
It recognizes that children have costs that do not end when they turn six and assists families whose children have aged out of the original credit.

The expanded credit would help 441,000 more families, including 713,000 children, across the state. On average, families receiving the credit would get $567.^[v]

A History of Expanding Tax Credits Proven to Work

New Jersey created its Child Tax Credit just last session. Why expand it again so soon?

There’s certainly precedent. State lawmakers expanded New Jersey’s Earned Income Tax Credit (EITC) for working families in three straight years after it was created in 2000.^[vi] In recent years, lawmakers have continued expanding the credit, reaching 40 percent of the federal credit amount in 2020.^[vii]

Like the Earned Income Tax Credit, an expanded Child Tax Credit has a strong track record at the federal level for reducing child poverty and increasing household budgets for food, housing, and basic expenses.^[viii] These programs also have a “multiplier effect” as the tax credits are often spent immediately and locally, stimulating the broader economy.^[ix] But with the federal Child Tax Credit back to its pre-pandemic levels, families in New Jersey will see their benefits decline at a time when high costs cut deeply into working-class family budgets and financial security.^[x]

In short, the Child Tax Credit is a highly effective anti-poverty and pro-family policy that should be expanded similar to other working families tax credits.

Measuring the Benefits of an Expanded Child Tax Credit

NJPP’s proposed expansion to the existing Child Tax Credit has two key components: a higher age limit so children up to 11 years old can be claimed, and a higher credit amount to better support families.

Increased Age Range

The age limit would be lifted from children under age 6 to children under age 12. Children do not stop having costs as time goes on.^[xi] Expanding the age range will also cover a wider range of families and boost the credit amount for already-eligible families who also have children in the older age range.

Increased Credit Amount

The proposed credit would continue to honor the much-needed public investment in young children by providing a credit up to $1,000 for the current age range of children under age 6. A higher benefit for young children recognizes that young children are more likely to live in poverty than their older counterparts.^[xii] For children ages 6-11, the maximum credit amount would be $500.

This expansion would reach roughly 441,000 families and provide benefits for 713,000 additional children. On average, a family receiving the credit would get $567, helping defray the daily costs of raising children.

These changes would provide meaningful relief to families who are experiencing the effects of high post-pandemic inflation, especially working-class and middle-class families, who reap the lion’s share of the benefits.

These higher dollar amounts also push the credit towards more poverty reduction. Recent estimates by the Institute on Tax and Economic Policy show that to achieve a 25% reduction in child poverty, maximum credit amounts would have to be upwards of $2,000, but a $1,000 maximum credit pushes the state in the right direction.^[xiii]

Making New Jersey the Best Place to Raise a Family

The New Jersey Child Tax Credit is an effective, popular, and bipartisan program that gives working families the cash relief they need to make child-rearing more affordable. New Jersey should build on its successful program to expand the eligible age range and increase the benefit amount, especially for young children.

As Assemblywoman Dunn argued on the Assembly floor, it’s time for New Jersey lawmakers to go big and go bold when it comes to making the state the best place in the country to raise a family.

End Notes

^[i] California, New York, Massachusetts, Colorado, New Mexico, and Vermont also have refundable state child tax credits. Other states have non-refundable or temporary credits. See Sophie Collier et al., State Child Tax Credits and Child Poverty: A 50-State Analysis (2022) at p. 9, https://itep.sfo2.digitaloceanspaces.com/Report-State-Child-Tax-Credits-and-Child-Poverty-A-50-State-Analysis-2022.pdf.

^[ii] P.L. 2022, c. 115.

^[iii] The final votes were 76-2 in the Assembly and 31-6 in the Senate. See New Jersey Legislature, Bill S2523 Sca (1R), Session 2022-2023, https://www.njleg.state.nj.us/bill-search/2022/S2523.

^[iv] New Jersey Assembly GOP, Democrats reject Dunn’s “big and bold” child tax credit (June 30, 2022), https://www.youtube.com/watch?v=DtfMHBanHoM at 1:40.

^[v] Analysis of New Jersey taxpayer data by Institute on Taxation and Economic Policy, on file with author.

^[vi] New Jersey Division of Taxation, New in 2001 (2002), https://www.nj.gov/treasury/taxation/pdf/new2001.pdf at p. 1.

^[vii] N.J. Stat. § 54A:4-7(2). The credit amount started at 10% in 2000, increasing to 15% in 2001, 18% in 2002, and 20% in 2003.

^[viii] See Bradley L. Hardy, Center on Budget and Policy Priorities, Child Tax Credit Has a Critical Role in Helping Families Maintain Economic Stability (April 14, 2022). https://www.cbpp.org/research/federal-tax/child-tax-credit-has-a-critical-role-in-helping-families-maintain-economic

^[ix] Natalie Holmes and Alan Berube, Brookings Institute, The Earned Income Tax Credit and Community Economic Benefits (November 20, 2015).

The Earned Income Tax Credit and Community Economic Stability

^[x] See Chuck Marr et al., Center on Budget and Policy Priorities, Year-End Tax Policy Priority: Expand the Child Tax Credit for the 19 Million Children Who Receive Less Than the Full Credit (December 7, 2022), https://www.cbpp.org/research/federal-tax/year-end-tax-policy-priority-expand-the-child-tax-credit-for-the-19-million; Joshua Klick & Anya Stockburger, Bureau of Labor Statistics, Inflation Experiences for Lower and Higher Income Households (December 2022), https://www.bls.gov/spotlight/2022/inflation-experiences-for-lower-and-higher-income-households/home.htm.

^[xi] See Mark Lino et al., U.S. Dep’t of Agriculture, Expenditures on Children by Families, 2015 (March 2017), https://fns-prod.azureedge.us/sites/default/files/resource-files/crc2015-march2017.pdf at 24, tbl. 1.

^[xii] See Areeba Haider, The Basic Facts about Children in Poverty, January 12, 2021 at fig. 4, https://www.americanprogress.org/issues/poverty/reports/2021/01/12/494506/basic-facts-children-poverty/

^[xiii] Institute on Taxation and Economic Policy, Columbia Center on Poverty and Social Policy, Child Tax Credit Options for Reducing Child Poverty: New Jersey (2022), https://itep.sfo2.digitaloceanspaces.com/Child-Tax-Credit-Options-New-Jersey-2022.pdf at p. 3

Stop the Raids: The Clean Energy Fund Should Fund Clean Energy

Posted on January 12, 2023 by Alex Ambrose

The health and safety of every New Jersey resident is threatened by the state’s reliance on fossil fuels to power our homes, businesses, and transportation. Fossil fuels — such as gas, oil, and coal — account for a majority of carbon dioxide and greenhouse gas emissions, with a large percentage generated by energy produced for heat and electricity.^[i] Air pollution and environmental toxins disproportionately harm New Jersey’s low–income families and residents of color, who are more likely to live and work closest to sources of pollution.^[ii]

In recent years, state lawmakers and the Murphy administration have set ambitious goals to reduce emissions that will require a transition to alternative energy sources that are clean, affordable, sustainable, and reliable. Renewable sources of energy have many advantages to fossil fuels — they are abundant, increasingly cost-efficient, healthier, and create jobs — but they require investments in new technology and infrastructure. The state’s Clean Energy Fund, which is supported by a surcharge on monthly utility bills, is designed to support these investments in renewable energy, but the fund has been consistently raided by lawmakers to plug holes in the state budget. Since Fiscal Year 2010, lawmakers have raided nearly $2 billion from the fund, hampering the state’s ability to meet its clean energy goals, improve air quality, and mitigate against the worst harms of the climate crisis.^[iii]

New Jersey’s Reliance on Fossil Fuels Threatens Public Health and Safety

Almost all of the energy consumed and produced in New Jersey comes from nonrenewable sources that pollute the air we breathe and the environment more broadly. In 2020, nearly 95 percent of energy consumed in the state came from nonrenewable sources, with nearly three-quarters of New Jersey families relying on natural gas as their primary heating fuel^[iv]. In 2021, 90 percent of New Jersey’s energy production came from nonrenewable sources such as natural gas^[v].

As a result of this overreliance on nonrenewable energy, New Jersey consistently ranks among states with the worst air quality in the nation, and this burden is not shared equally. People of color are significantly more likely to live in a county that received an ‘F’ on the American Lung Association’s most recent air quality report card than white people.^[vi]^[vii] Air pollution cuts life expectancy by more than 2 years, and particulate matter poses a larger threat to human health than cigarettes.^[viii]

Gas- and diesel-powered transportation are the biggest sources of air pollution in New Jersey, and natural gas and oil account for almost all of the state’s energy-related emissions.^[ix]^[x] Natural gas leaks also release air toxins into the atmosphere which are linked to illnesses such as cancer.^[xi]

The burning of fossil fuels and the resulting air pollution come at a severe cost to New Jersey families in regard to both their health and personal finances. In addition to the costs associated with treating illnesses linked to pollution, the prices of nonrenewable energy are on the rise, as exemplified by a recent double-digit rate increase by gas providers serving millions of residents across the state.^[xii] A recent report from the New Jersey Board of Public Utilities found that gas energy prices may continue to rise, particularly for low-income families who cannot afford more efficient appliances and heating and cooling systems.^[xiii] Investing in 21st century technologies that promote clean energy would not only reduce nonrenewable energy consumption and improve air quality, but also save families money in the short- and long-term.

The Clean Energy Fund: A Path to Funding New Jersey’s Clean Energy Future

New Jersey lawmakers recognize the threats associated with fossil fuels and the importance of transitioning to a clean energy economy. Since 2018, state lawmakers and the Murphy administration have set the following clean energy goals:

50 percent of energy consumed must come from renewable energy sources by 2030,^[xiv] and 100 percent of energy consumed must come from clean energy by 2050^[xv]
80 percent reduction in greenhouse gas emissions by 2050 (compared to 2006 levels)^[xvi]
100 percent of new NJ Transit bus purchases are electric by 2032^[xvii]
100 percent of state-owned light-duty vehicle (i.e. passenger car) sales are electric by 2032^[xviii]
11,000 MW of offshore wind production by 2040^[xix]
2,000 MW of energy storage by 2030^[xx]

Meeting these clean energy targets will not happen on their own, however; they will require the right policies and funding mechanisms to steward the transition to a clean energy economy.

The Clean Energy Fund is New Jersey’s primary mechanism for financing clean energy investments and incentivizing the use of clean energy through the state’s Clean Energy Program. Established in 1999, the fund is supported by the Societal Benefits Charge on residential and commercial energy bills, which is set by the Board of Public Utilities and funds numerous social and clean energy programs.^[xxi] In 2021, the fund collected more than $380 million in revenue to invest in clean energy, with the average customer paying less than $65 annually on their household electricity bill, and less than $63 annually on their gas bill, into the Societal Benefits Charge. ^[xxii]^[xxiii]

The Clean Energy Program primarily funds two types of investments: energy efficiency measures and renewable energy infrastructure. The energy efficiency measures provide funding for businesses and homeowners to retrofit existing buildings for clean energy technology and purchase more energy-efficient appliances. Investments in renewable energy infrastructure include support for solar technology, development of an offshore wind industry, creation of energy storage, and more.

The Clean Energy Fund is not as effective as it should be, however, as it has been raided for years by Republican and Democratic administrations alike. Since Fiscal Year 2010, lawmakers have raided the Clean Energy Fund to plug budget holes and finance line items unrelated to clean energy, such as state park maintenance and utility bills for state buildings. In total, lawmakers have raided $1.98 billion (in 2022 dollars) from the Clean Energy Fund.^[xxiv] The diversions include $242 million under Governor Corzine, more than $1.2 billion under Governor Christie, and more than $533 million under Governor Murphy.^[xxv]

While the Clean Energy Fund has been used to plug various budget holes over the years, the largest percentage of funds were diverted to NJ Transit operations. Public transportation is essential to a thriving New Jersey and deserves to be fully funded, but not at the expense of much-needed investments in clean energy. Ideally, NJ Transit would be funded through the state budget or a new, dedicated source of revenue, and the Clean Energy Fund would be used for its intended purpose. Lawmakers should not be robbing Peter to pay Paul.

In the FY 2023 budget, new language was added that states the Clean Energy Fund raids directed to NJ Transit can be used to pay for bus electrification and other clean energy projects.^[xxvi] However, there is no mandate or guarantee that the funds will be used for those purposes. Since the funding is directed to NJ Transit operations, not capital projects, it is unlikely it will be invested in clean energy projects as the new budget language suggests. Until these raids end, New Jersey will continue to shortchange and delay its transition to a clean energy future.

End the Raids, Invest in New Jersey’s Future

There is no shortage of opportunities to use the Clean Energy Fund for its intended purpose, from electrifying NJ Transit’s bus fleet, to assisting low-income families with purchasing new energy efficient appliances and heating systems, to developing clean energy infrastructure. Investing in clean energy projects will reduce air pollution across the state, make energy more affordable for families, and create good-paying jobs in the burgeoning green energy economy. State lawmakers have already set admirable goals for the state’s clean energy future, now it’s time to stop raiding the Clean Energy Fund to make these goals a reality.

End Notes

Note:
In the context of this report, clean energy means any energy that does not produce greenhouse gas emissions. Renewable energy means any energy that uses a source like sunlight or wind that cannot be consumed or depleted.

^[i]New Jersey Department of Environmental Protection, New Jersey Greenhouse Gas Inventory, December 2022. https://dep.nj.gov/wp-content/uploads/ghg/2022-ghg-inventory-mcu_final.pdf pages 3-4

^[ii] American Lung Association, Disparities in the Impact of Air Pollution, 2022. https://www.lung.org/clean-air/outdoors/who-is-at-risk/disparities

^[iii]Reported in 2022 dollars. NJPP Analysis of FY2010-FY2023 Appropriations Acts.

^[iv]New Jersey State Profile and Energy Estimates, 2020. U.S. Energy Information Administration. https://www.eia.gov/state/?sid=NJ#tabs-1

^[v]New Jersey State Profile and Energy Estimates. U.S. Energy Information Administration. https://www.eia.gov/state/?sid=NJ

^[vi]American Lung Association, State of the Air Report Card Key Findings, 2022. https://www.lung.org/research/sota/key-findings

^[vii]NJ Spotlight News, Air quality worse for communities of color, 2022. https://www.njspotlightnews.org/2022/04/air-pollution-ozone-particle-pollution-communities-of-color-american-lung-association/

^[viii]Air Quality Life Index, Pollution Facts. https://aqli.epic.uchicago.edu/pollution-facts/

^[ix]New Jersey Department of Environmental Protection, Bureau of Mobile Services. https://dep.nj.gov/stopthesoot/

^[x]U.S. Energy Information Administration, State Energy-Related CO2 Emission Data Tables. https://www.eia.gov/environment/emissions/state/excel/table2.xlsx

^[xi]Environmental Protection Agency, Basic Information about Oil and Natural Gas Air Pollution Standards. https://www.epa.gov/controlling-air-pollution-oil-and-natural-gas-industry/basic-information-about-oil-and-natural-gas

^[xii]NorthJersey.com, NJ heating bills in line for double-digit increases after state OKs big rate hikes, 2022. https://www.northjersey.com/story/news/2022/09/08/nj-natural-gas-bills-approved-hikes-pseg-njng/66934128007/

^[xiii]New Jersey Energy Master Plan Ratepayer Impact Study, August 2022. https://nj.gov/bpu/pdf/reports/2022-08-13%20-%20BPU,%20EMP%20Ratepayer%20Impact%20Study%20Report_PUBLIC_Brattle.pdf#page=6

^[xiv]N.J. Stat. Sec. 48:3-87.8. (d)(2) 2022. https://pub.njleg.gov/bills/2018/PL18/17_.HTM

^[xv]Executive Order No. 28, 2018. https://www.nj.gov/infobank/eo/056murphy/pdf/EO-28.pdf

^[xvi]N.J. Stat. Sec. 26:2C-38.2. 2022. https://pub.njleg.state.nj.us/Bills/2018/PL19/197_.PDF

^[xvii]N.J. Stat. Sec. 48:25-3a.(9)(b). 2022. https://pub.njleg.gov/bills/2018/S2500/2252_U2.PDF

^[xviii]N.J. Stat. Sec. 48:25-3a.(8)(b). 2022 https://pub.njleg.gov/bills/2018/S2500/2252_U2.PDF

^[xix]Executive Order No. 307, 2022. https://nj.gov/infobank/eo/056murphy/pdf/EO-307.pdf#page=5

^[xx] N.J. Stat. Sec. 48:3-87.8. 1(d). https://pub.njleg.gov/bills/2018/PL18/17_.HTM

^[xxi]N.J. Stat. Sec. 48:3-60.12a. 2022. https://www.njcleanenergy.com/files/file/23_.pdf

^[xxii]Reported in 2022 dollars. New Jersey Board of Public Utilities Response to Office of Legislative Services Budget Analysis, Fiscal Year 2022. https://pub.njleg.state.nj.us/publications/budget/governors-budget/2023/BPU_Response_2023.pdf#page=7

^[xxiii]Reported in 2022 dollars. NJPP Analysis of New Jersey Board of Public Utilities Response to Office of Legislative Services Budget Analysis, Fiscal Year 2022. https://pub.njleg.state.nj.us/publications/budget/governors-budget/2023/BPU_Response_2023.pdf#page=8

^[xxiv]Reported in 2022 dollars. NJPP Analysis of FY2010-FY2023 Appropriations Acts.

^[xxv] Reported in 2022 dollars. NJPP Analysis of FY2010-FY2023 Appropriations Acts.

^[xxvi]New Jersey Office of Management and Budget, FY 2022 Appropriations Act, 2021. Page 187, lines 44-48. https://www.nj.gov/treasury/omb/publications/23bill/AppropriationsAct.pdf

People Pay, Hospitals Profit: Rising Prices Drive High Health Care Costs

Posted on November 16, 2022March 15, 2023 by Brittany Holom-Trundy

Editor’s note: This report was updated on March 15, 2023 to include new hospital data from RAND and clarify that the cost of hospitals overcharging was $1.2 billion from 2016 to 2018.

Everyone in New Jersey deserves access to affordable health care, yet rising health care prices put high-quality coverage out of reach for far too many. The cost of medical care has outpaced both income growth and inflation for decades, driven in part by increasing hospital prices.^[1] When hospitals charge beyond what’s needed to cover their daily operating costs, working families pay more for the same level of care. Recent spikes in premiums for New Jersey state employees highlight how rising health care costs are also passed on to public employees and state and local governments, stretching their budgets thin and costing the state more than $1.2 billion between 2016 and 2018.^[2] By reining in high hospital prices, state lawmakers can make health care more affordable for patients, public employees, and state and local governments alike.

Excessive Prices Cost State and Local Governments Billions

Escalating prices for health insurance coverage are often attributed to increased utilization, costs to cover services, and inflation; however, these changes do not fully account for the significant climbs. This leaves rising prices and profits as not-so-hidden factors that could be costing state and local governments hundreds of millions of dollars each year.^[3]

In New Jersey, increases in spending have outpaced utilization increases for years.^[4] The state health benefits programs for public employees — the State Health Benefits Program (SHBP) and the School Employees’ Health Benefit Program (SEHBP) — are estimated to cover nearly 54,000 fewer people in Fiscal Year 2023 than in Fiscal Year 2015.^[5] At the same time, medical benefit costs have increased by approximately $417 million (2022 Dollars).^[6] Because of rising health care costs, the state must dedicate more funds toward this coverage each year despite having fewer people covered.

Hospital prices make up a significant portion of rising insurance costs, as the more that hospitals charge, the higher the price of coverage. There is little standardization of hospital prices paid by insurance plans, which are privately negotiated between insurance companies and hospitals.^[7] As a result, the “Allowed Amount,” as these prices are known on insurance claims, often exceeds what experts estimate is needed for efficient, quality care.^[8] In New Jersey, hospital prices far outpace Medicare rates, which the Centers for Medicare and Medicaid Services sets at amounts that “reasonably efficient providers would incur in furnishing high-quality care.”^[9] They also outpace the higher commercial breakeven rate, an estimated “rate a hospital needs to receive from commercial payers to cover all of its expenses for hospital inpatient and outpatient services, without profit.”^[10] This includes coverage for uncompensated care, bad debt, and expenses that Medicaid and Medicare do not cover. In New Jersey, the breakeven rate for hospitals is estimated to be approximately 150 percent of Medicare rates.

Claims data shows just how significantly the Allowed Amount for hospital prices in the state health benefits plans outweigh the costs for those same services and procedures at Medicare and commercial breakeven rates. From 2016 to 2018, state health benefits programs paid, on average, prices equal to 230 percent of Medicare rates for inpatient and outpatient care, and 1.5 times the commercial breakeven rate.^[11]

With prices like these, programs like the SHBP and the SEHBP could be paying at least $400 million more per year than what we would expect to cover medical costs if prices were set to cover costs at the commercial breakeven level.

State Lawmakers Need to Rein in Rising Health Care Costs

With the potential loss of at least $400 million every year, New Jersey policymakers should look to better regulate and reduce high hospital prices. Cracking down on rising prices would provide savings to public employees and state and local governments alike, protecting the health care of the public workforce, reducing health care costs, and freeing up funds for other public investments.

While the state’s Office of Health Care Affordability and Transparency has spearheaded a new benchmark program to rein in the growth of health care costs with data-driven analysis, state lawmakers should explore other ways to contain costs driven by hospital pricing, such as price caps and reference-based pricing.^[12] To put New Jersey on a path toward a more equitable future, the state cannot simply stick to one-time fixes as bandaids and continue to raise the cost of premiums on public employees and state and local governments. Instead, leaders must do more to rein in hospital costs to control premium costs.

End Notes

^[1] New Jersey Office of Health Care Affordability and Transparency, New Jersey Health Care Affordability, Responsibility, and Transparency (HART) Program Blueprint, 2022, pg. 6. http://www.cshp.rutgers.edu/Downloads/Benchmark_Blueprint_March_31_2022.pdf

^[2] New Jersey Monitor, Double-digit hike in insurance premiums approved for government workers, 2022. https://newjerseymonitor.com/2022/09/14/double-digit-hike-in-insurance-premiums-approved-for-government-workers/

^[3] Health Affairs, It’s Still The Prices, Stupid: Why The US Spends So Much On Health Care, And A Tribute To Uwe Reinhardt, 2019. https://www.healthaffairs.org/doi/10.1377/hlthaff.2018.05144

^[4] Health Care Cost Institute, 2018 Health Care Cost and Utilization Report: State Spending Trends, 2019. https://healthcostinstitute.org/interactive/2018-health-care-cost-and-utilization-report

^[5] NJPP Analysis of FY 2017 – FY 2023 Budget Detail. New Jersey Office of Management and Budget, Budget Detail FY 2017 – FY 2023. https://www.nj.gov/treasury/omb/

^[6] Ibid.

^[7] For a study of the variability of prices charged by hospitals, see RAND Corporation, Prices Paid to Hospitals by Private Health Plans, 2022. https://www.rand.org/pubs/research_reports/RRA1144-1.html

^[8] HealthCare.Gov, Allowed Amount, 2022. https://www.healthcare.gov/glossary/allowed-amount/

^[9] RAND Corporation, Nationwide Evaluation of Health Care Prices Paid by Private Health Plans, 2020. https://www.rand.org/pubs/research_reports/RR4394.html; Centers for Medicare and Medicaid Services, Medicare Inpatient Prospective Payment System (IPPS) & New Technology Add-on Payment Provision, 2020, pg. 2. https://www.hhs.gov/sites/default/files/1.3-treitel-cms-508.pdf; Medicare Payment Advisory Commission, March 2022 Report to the Congress: Medicare Payment Policy, 2022. https://www.medpac.gov/wp-content/uploads/2022/03/Mar22_MedPAC_ReportToCongress_v3_SEC.pdf

^[10] The commercial breakeven rate is calculated from annual hospital filings with the Centers for Medicare and Medicaid Services, and takes into account a variety of factors, including patient hospital costs, shortfalls or profit from public coverage programs, administrative costs, revenue from all sources, and much more. The details on how this is calculated can be found at: National Academy for State Health Policy, Understanding NASHP’s Hospital Cost Tool: Commercial Breakeven, 2022. https://www.nashp.org/policy/health-system-costs/understanding-hospital-costs/commercial-breakeven/

^[11] RAND Corporation, Nationwide Evaluation of Health Care Prices Paid by Private Health Plans, 2020. https://www.rand.org/pubs/research_reports/RR4394.html; National Academy for State Health Policy, Hospital Cost Tool, 2022. https://d3g6lgu1zfs2l4.cloudfront.net/

^[12] New Jersey Office of Health Care Affordability and Transparency, Home Page, 2022. https://nj.gov/governor/admin/affordablehealthcare/index.shtml; New Jersey Office of Health Care Affordability and Transparency, New Jersey Health Care Affordability, Responsibility, and Transparency (HART) Program Blueprint, 2022. https://nj.gov/governor/news/news/562022/docs/20220331a_Benchmark-Blueprint.pdf; National Academy for State Health Policy, Disrupting Hospital Price Increases: Using Growth Caps in Insurance Rate Review, 2021. https://www.nashp.org/disrupting-hospital-price-increases-using-growth-caps-in-insurance-rate-review/; National Academy for State Health Policy, Overview of States’ Hospital Reference-Based Pricing to Medicare Initiatives, 2021. https://www.nashp.org/overview-of-states-hospital-reference-based-pricing-to-medicare-initiatives/

Newly Arriving Immigrants Immediately Get to Work and Contribute to the Economy

Supporting Immigrants Makes New Jersey Stronger and Fairer for All

Methodology

About the Authors

NJ Transit is Vital to New Jersey’s Economy and Communities

Mobility and Accessibility

Economic Benefits

Health and Environment

NJ Transit is Underfunded and Faces a Catastrophic Fiscal Cliff

Decades of Disinvestment

Reliance on Pandemic Aid

Lack of Dedicated Funding

Recommendation: Dedicate the Corporate Surcharge to Fund NJ Transit

A Fair Source of Revenue

Dedicating the CBT Surcharge

The Alternative is a Disaster

What is “Adequate” School Funding?

New Jersey’s Constitutional Mandate for Adequately Funded Schools

Understanding the School Funding Formula (SFRA)

Step 1: Set the “Base Amount”

Step 2: Determine the “Weighted Student Enrollment”

Step 3: Multiply the Weighted Student Enrollment by the Base Amount

New Jersey’s New, More Rigorous Standards

Fine-Tuning the Formula With Evidence

Adjusting SFRA: An Example

Recommendation: Adjust SFRA With Input From School Finance Experts

Technical Appendix

Red Flags: A Shaky Fiscal Footing

Red Flag 1: Declining Revenues, Shrinking Surplus

Red Flag 2: Costly Corporate Tax Cuts and Credits

Red Flag 3: Unaddressed Fiscal Cliffs

Sea of Green: Notable Investments and Budget Lines

Economic Security

Education

Health

Public Safety

Environment and Transit

Conclusion: Sustainable Investments Need Sustainable Revenues

1. Still Regressive

2. Still Expensive

Good Intentions, Poor Execution

1. StayNJ is Robin Hood in Reverse: Wealthy Residents Would Benefit the Most

2. StayNJ Fails to Accomplish Its Stated Goal by Leaving Renters and Low-Income Seniors Behind

3. StayNJ Threatens New Jersey’s Fiscal Health

There are More Efficient and Effective Ways to Help Seniors Stay in New Jersey

The Corporate Business Tax Surcharge is Targeted to Corporations That Can Afford It

Corporations Are Making Record Profits While Paying Less in Taxes

Maintaining the Surcharge Benefits Working Families and the State’s Finances

A History of Expanding Tax Credits Proven to Work

Measuring the Benefits of an Expanded Child Tax Credit

Increased Age Range

Increased Credit Amount

Making New Jersey the Best Place to Raise a Family

New Jersey’s Reliance on Fossil Fuels Threatens Public Health and Safety

The Clean Energy Fund: A Path to Funding New Jersey’s Clean Energy Future

End the Raids, Invest in New Jersey’s Future

Excessive Prices Cost State and Local Governments Billions

State Lawmakers Need to Rein in Rising Health Care Costs

Affiliations

Contact NJPP

Links