The COVID-19 pandemic is a major threat to New Jersey, presenting unique and pressing challenges to the state’s public health infrastructure and broader economy. As the number of positive cases climbs daily, state and local leaders have called for mandatory business closures and restrictions, as well as a voluntary curfew to contain the spread of the virus. These are necessary measures to avoid inundating the state’s health care system, but they come with an enormous cost to working families who will see their hours cut or jobs eliminated entirely.
The economic fallout from COVID-19 will not be felt evenly. Those who earn the least are the most likely to suffer from a loss of income or loss of health coverage as a result of business closings and quarantines. New Jerseyans of color will particularly be harmed as they have fewer earnings on average and minimal amounts of wealth to fall back on in an emergency. And, because the state has not sufficiently invested in its Rainy Day Fund to help mitigate the challenges of the pending recession, the damage to people of color will be even greater. As such, the tax and budget policy decisions made by state lawmakers in the coming days and weeks will be critical in determining the size and scale of New Jersey’s recovery — and whether or not those harmed most by COVID-19 are centered in the state’s response. What follows is a list of tax and budget policies to pursue and avoid to help ensure New Jersey has the resources necessary to support and protect its residents in the coming months.
Do: Strengthen and Stabilize State Finances
New Jersey requires significant financial resources to adequately address the combined public health and economic crises from COVID-19. However, as the pandemic unfolds, unanticipated public health care costs will inevitably increase while state revenues, specifically from income and sales taxes, decline sharply. Implementing a more progressive tax code in this year’s budget will provide the state with the necessary revenue and flexibility to rapidly respond with targeted interventions. Restoring the millionaires tax and estate tax, strengthening the inheritance tax, and extending the corporate business tax surcharge would ensure wealthy individuals and corporations who have not been paying their fair share in taxes finally do so.
Workers who become unemployed, have their work hours reduced, or are laid off will be the first to experience economic insecurity under this health crisis. Therefore, lawmakers must expand access to all workers in the following state programs: earned sick days, temporary disability insurance, family leave insurance, and unemployment insurance. Access for these interventions can be improved by waiving eligibility requirements, removing waiting periods that prevent workers from accessing benefits right away, speeding up application and approval processes, and utilizing emergency funds to pay for these policy expansions. It is paramount that New Jersey leave no one behind in the COVID-19 recovery.
In addition, state lawmakers must ensure that existing social safety net programs remain well-funded so that more families have their needs met, even if the state experiences a revenue shortfall. More families will likely need public assistance during this crisis. Programs like emergency nutritional assistance, food pantries, Medicaid coverage, cash assistance (TANF), subsidized child care, shelters, and other critical services provide necessary and stabilizing support and they must be funded to deliver payments and benefits as fast as possible.
Finally, New Jersey must respond to this health crisis by eliminating barriers to health care. For instance, the state can waive costs for everyone seeking treatment for the COVID-19 virus. Funding should be provided to support better outreach regarding policies implemented in response to the pandemic so that all communities stay informed of critical developments. This means communicating in multiple languages and working directly with institutions like worker centers, school districts, community clinics, as well as state agencies who are providing services. Finally, the state should expand access to CHIP and NJ FamilyCare to ensure all New Jersey children have comprehensive health coverage and can get the care they need during these challenging times.
Do: Provide Relief Directly to Small Businesses Who Need It
One immediate concern created by this crisis is the increased likelihood of small businesses laying off employees and closing down as the economy heads into a recession. During an ordinary recession, a sizable stimulus could be expected to keep businesses afloat and put people back to work. With a health crisis also underway, workers and businesses could be shut down for weeks if not months, leaving them unable to earn or spend money.
While some policymakers have proposed payroll tax cuts or sales tax holidays to provide relief to small businesses, those interventions are severely flawed and would do much more harm than good (as explained below in Don’ts). Instead, policymakers should focus on interventions that work quickly and target the most at-risk businesses. As the crisis unfolds, states need to implement policies that will directly encourage businesses to keep their employees and continue paying them.
Rather than throwing hundreds of millions of dollars at major corporations, the state should be prioritizing main street businesses and smaller firms. While the state Economic Development Authority (EDA) is largely known for providing tax subsidies to already wealthy and well-connected corporations, it would be much better off prioritizing smaller businesses, especially during this crisis. By extending lines of credit to troubled businesses, offering low or no-interest loans, and focusing the benefits of tax credits on those businesses most at-risk of employee layoffs and closure, New Jersey can help them stay afloat and protect local economies.
Finally, as much as possible, policymakers should seek to tie employee protections to any business assistance programs. The primary goal of providing relief to businesses is for them to maintain payroll and avoid layoffs. As such, the New Jersey Department of Labor should work in conjunction with the EDA and other organizations to ensure businesses guarantee they will meet these requirements and pay their workers as a condition for receiving assistance from the state.
Don’t: Declare a Sales Tax Holiday or Cut the Sales Tax
The sales tax is one of the biggest sources of revenue for the state of New Jersey, generating approximately $1 billion on a monthly basis. In 2016, New Jersey cut the sales tax from 7 percent to 6.625 percent, reducing revenue to the state by about $600 million a year and growing; by fiscal year 2022, the loss is expected to be $655 million annually.
The combined challenges of the coronavirus pandemic and pending recession will create a crisis of consumer demand in the short and long term. If people can’t get to work or don’t have disposable income to spend, suspending the sales tax won’t cause them to make purchases. In fact, they will end up doing more harm than good, starving the state of much needed revenue at a time when New Jersey needs to expend resources and expand public health services and assistance to workers, families, and businesses hit hardest by the fallout from this crisis.
Other sales tax holiday proposals are designed to delay the collection of sales tax for several months. This would not have the intended effects of stemming a recession or spurring consumer spending. It would do little more than withhold critical resources from the state at a time when it needs revenue and resources the most. Furthermore, New Jersey’s sales tax already exempts food and clothing, meaning there is little benefit to low-paid families and those in poverty who are already struggling to afford basic needs. This is easily understood by reviewing the regressive impact of New Jersey’s 2016 sales tax cut.
Consider, for example, a payroll tax cut of 2 percent of workers’ earnings:
A single parent getting by on $25,000 a year would receive just $500 over the course of a year, even as a couple with a combined $275,400 income (with each spouse earning half this amount) got $5,500. Even if the tax cut’s dollar value were capped, only higher earners would get the maximum benefit. That’s not sound economic policy, since affluent households generally spend a much smaller share of any added income than lower-income households do.
Chye-Ching Huang, Center on Budget and Policy Priorities
Further, cutting the payroll tax would not benefit people without earnings, even though they are most likely to spend any additional resources they receive on basic and immediate needs. This group includes those who are laid off from their jobs and no longer receiving a paycheck, as well as seniors and people with disabilities. Those supporting children or other dependents would also not receive any additional help from a payroll tax cut.
A payroll tax cut would benefit big businesses, however, as half of the payroll tax is paid by employers. Eliminating the employer side of these taxes would provide a windfall to corporations and other businesses that are not at greatest risk for failure. Better interventions would be extending lines of credit and no-interest loans to businesses in need of support.
To read a PDF version of the full report, click here.
Removing barriers to opportunity is necessary for growing strong economies and resilient communities. Over the past few years, 14 states, the District of Columbia, and Puerto Rico have expanded access to driver’s licenses to all residents, creating broadly-shared opportunity through safer roads, increased state revenue, and enhanced economic opportunities for working people while removing the fear of deportation for minor traffic offenses.[i]
The latest proposal in the New
Jersey legislature (A4743 / S3229) includes best practices from
other states and would make it possible for 737,418 more New Jersey
residents to obtain a much-needed driver’s license.[ii]
It would also give everyone the opportunity to apply for a standard license if
they do not want to get a REAL-ID due to privacy concerns.[iii]
Here are the top six reasons
why driver’s license expansion is good public policy for all New
Jersey residents.
1. Makes the Road Safer for Everyone
Driver’s license expansion would ensure that all drivers are
trained, tested, and insured, making New Jersey’s roads safer. Road safety is
critical in the Garden State, where over four in five workers commute to work
by some form of private transportation each day.[iv]
Based on the experiences of
some other states, licensing more drivers reduces fatal car accidents and the overall number of hit-and-run accidents. A 2017 study of California’s law
found that driver’s license expansion reduced hit-and-run accidents by 10
percent (or 4,000 accidents) within just a few years of implementation.[v]
Connecticut had a similar decline between 2016 and 2018 when hit-and-run
accidents dropped by nine percent.[vi]
New Jersey is primed to experience a similar reduction in accidents
with driver’s license expansion due in part to the state’s high percentage of
uninsured drivers. As of 2015, one in seven New Jersey drivers were uninsured,
ranking among the top 15 states with the highest rate of uninsured drivers in
the nation.[vii]
2. Keeps Families Together and Makes Communities Safer
Immigrants without documents are under constant threat of
deportation. In fact, routine traffic stops can lead to kids being separated
from their parents.[viii]
In addition, immigrants are uncertain how minor traffic violations can impact
their future in the country since they are asked about it on the application to
cancel their deportation and adjustment of status.[ix]
Family separation comes with a social cost to immigrant families in New Jersey. Across the state, there are 168,000 children — of which, 76 percent of U.S. citizens — who have a parent without status and at risk of deportation.[x] In total, there are more than 605,000 U.S. citizens in the state who have at least one family member without status living in the same household; these residents live in constant fear that their families will be torn apart.[xi] Driver’s license expansion will make these families more mobile with a renewed peace of mind.
In addition to helping families stay together, expanding access to driver’s licenses will make state and local law enforcement more efficient because new drivers will be more forthcoming in interacting with the police and other government agencies.[xii] Law enforcement would thus have more time to spend on critical priorities.[xiii]
3. Benefits a Large and Diverse Group of People
The
ability to drive legally and safely is central to vibrant New Jersey
communities where everyone can get where they need to go and provide for
themselves and their families. Some communities, however, cannot access the
documents they need to obtain a license. Driver’s license expansion would
address these barriers for a diverse group of New Jerseyans by expanding the
scope of documents accepted by the New Jersey Motor Vehicle Commission’s (MVC)
6 Point ID Verification process.
New Jersey Policy Perspective (NJPP) estimates that approximately
737,418 people will benefit from driver’s license expansion, 40 percent of whom
are low-income residents.
Those Earning Under $25,000 Per Year
Residents who work in low-paying jobs face financial barriers to obtaining a driver’s license. In the Garden State, there are 288,000 adult citizens (including naturalized citizens) who earn less than $25,000 per year and are thus less likely to have state-issued identification.[xiv] For example, some low-paid residents are less likely to use a lease or utility bill as proof of address to demonstrate New Jersey residence to the MVC because they lack the financial resources to rent an entire apartment on their own.[xv]
Allowing more documents to verify New Jersey residence, such as proof of eligibility or enrollment in a state or federal safety net program, could help low-paid residents secure a license and more fully participate in their community.
Formerly Incarcerated Individuals
Individuals who were formerly incarcerated are often prevented from obtaining a driver’s license because they lack basic identification documents like a birth certificate, Social Security card, or a state-issued photo ID. Allowing residents to verify their identify with a prison discharge slip or Department of Corrections identification card —neither of which are currently accepted by the MVC — would help thousands of New Jersey residents. In total, approximately 10,800 inmates are released each year,[xvi] about half of those individuals do not have basic identification.[xvii]
Survivors of Domestic Violence
Survivors of domestic violence often have to flee abusive partners and risk losing identifying documents. Under driver’s license expansion, the MVC would expand the scope of acceptable documents to verify one’s identity. This would benefit some of the estimated 40,000 annual survivors of domestic violence in the Garden State, helping them gain freedom and independence from their abusive partners and restart their lives.[xviii]
Immigrants Without Status
Expanding access to driver’s licenses will benefit 444,000
driving-aged residents who do not have status. Based on the experiences of
other states, NJPP projects that approximately half of these residents —
222,000 — will obtain a license for the first time during the first three years
of implementation.[xix]
Residents across the entire state will benefit from this proposal, especially
those in Central and North Jersey. Hudson County has the largest number of
driving-aged immigrants without status, followed by Middlesex, Bergen, Essex,
and Union Counties.[xx]
Residents Concerned About Privacy
To obtain a REAL ID license, identifying documents must be scanned into the MVC database and cross-checked by the federal government. Privacy concerns with the federal REAL ID implementation have been raised from groups on both sides of the political spectrum, including the Tea Party and the American Civil Liberties Union.[xxi] New Jersey residents who do not want their documents scanned into a federal database would be able to get a standard license without having sensitive information collected by the MVC.
New Jersey drivers pay some of the highest automobile insurance premiums in the nation, with an average payment of $1,309 per year.[xxii] At the same time, the state has among the highest rates of uninsured drivers in the nation at nearly 15 percent.[xxiii] When these uninsured drivers are in an accident, the associated costs are covered by drivers who are insured.
With driver’s license expansion comes a larger auto insurance pool, which would help hold down premium costs for all while generating fewer claims that originate with uninsured drivers. This was seen in California, where drivers saved $3.5 million in out-of-pocket expenses for car repairs.[xxiv]
In Utah, which has allowed immigrants without status to drive legally since 1999, the rate of uninsured motorists dropped from 28 percent in 1999 to 8 percent in 2011 — an astonishing 250 percent drop.[xxv] As a result, auto insurance rates increased at a lower rate than in other states that restricted access to driver’s licenses.[xxvi]
5. Promotes Healthier Communities
Expanding access to driver’s licenses not only broadens mobility for more residents in the state, it also addresses social determinants of health, which includes factors like neighborhood and physical environments and access to health care and education.
The effects of early childhood education are far-reaching. It can narrow achievement gaps, increase access to health-care screenings, improve nutrition, increase graduation rates, and decrease the chance of substance abuse as adults.[xxvii] However, due to the lack of a robust public transportation system, many low-income families without licenses cannot fully participate in early education and care programs.[xxviii] Yet, immigrant parents are three to five percentage points more likely to enroll their children if they have access to a driver’s license, according to a 2018 study by the University of Rhode Island.[xxix]
6. Increases State Revenue and Boosts Local Economies
Over the first three years of implementation, driver’s license expansion is projected to generate $21 million in revenue from permit, title, and driver’s license fees.[xxx] New Jersey could also expect an additional $90 million from registration fees, the gas tax, and taxes paid on the sales of motor vehicles and auto parts.
New
Jersey’s economy will benefit further from expanding driver’s licenses to
immigrants without status, who have $9.8 billion in spending power per year.
Immigrants support local businesses, contribute to our communities, and form an
essential part of our workforce. In fact, they pay over half a billion dollars
each year in state and local taxes.[xxxi]
[xx] The Migration Policy Institute estimates the undocumented population by county. We assume that New Jersey would have a high-end participation rate, similar to Illinois’ rate of 47 percent. We project New Jersey’s rate will be slightly higher at 50 percent given driving is necessary to getting around the state’s sprawling suburbs. The Fiscal Policy Institute (FPI) similarly uses this take-up rate in their projections for New York. Thus, we multiply the number of undocumented residents of driving age (93 percent) by the take-up rate of 50 percent to project that the number of immigrants without status by county who would obtain a driver’s license during the first three years of implementation.
To read a PDF version of the full report, click here.
For the past decade, New Jersey lawmakers fixated on big-ticket corporate tax subsidies as a key driver of economic development without any sound evidence that they worked. As a result, New Jersey is now a national outlier in both the size of its corporate subsidy awards and how little the state receives as a return on its investments. Thankfully, there has been a wealth of research and analysis in this area over the past several years that can help lawmakers better understand the true impact of these programs. The findings do not paint a pretty picture, an unfortunate reality that proponents of corporate tax subsidies must reckon with. As policy analyst Jason Brainerd told a special Senate committee in September, “There is no evidence the number of economic tax incentives bear any relation to the broader performance of a state’s economy.”[i]
At least 75 percent of the time, tax breaks for corporations do not affect a business’s decision on where to locate and expand.[ii] In other words, these tax breaks are often nothing more than a colossal giveaway with no additional benefit to a state’s economy. Even when subsidies do tip a location decision, they do not pay for themselves. Relocated workers raise costs to local public services offsetting at least 90 percent of any increased revenue.[iii] Nationally, only 10 to 30 percent of those new jobs go to state residents who are not already employed, doing little to boost overall employment rates and broadly shared local benefits.[iv]
Considering these damning findings, along with the fact that New Jersey’s fiscal situation is so poor that the state cannot afford such risky and poorly performing investments, the state would be far better off redirecting its economic development strategy away from corporate tax subsidies. Instead, New Jersey should focus on investments that are proven economic drivers, like public colleges, transportation infrastructure, development of affordable homes, and providing a stronger safety net for the growing numbers of working New Jersey families and children struggling to make ends meet.[v]
If the state is going to operate a corporate tax subsidy program as part of a broader economic development strategy, there are several critical and necessary reforms that must be implemented to mitigate further fraud, waste, and abuse of taxpayer dollars. The next generation of tax subsidy policies must be carefully designed to promote inclusive, local economic growth, target the right businesses in the right areas of the state with local hire and community input requirements, and have the safeguards necessary — namely hard caps on awards and robust assessment of programs — to ensure these investments provide a positive and significant return.
The next cycle of corporate tax subsidies must also break away from overly generous tax breaks to large corporations and instead focus on promising industries in areas of the state that have the greatest need for job opportunities. Economic development dollars saved can then be redirected back into public assets that benefit all New Jerseyans and have a more proven track record of economic growth.
Governor Murphy and the legislature have released competing drafts of legislation to replace New Jersey’s now-expired corporate tax subsidy programs.[vi] The legislature enlisted former state Senators Ray Lesniak and Joe Kyrillos to craft their version of what the next generation of corporate tax subsidies should look like. The legislature’s version (hereinafter referred to as Senator Lesniak’s proposal), largely mirrors the previous iteration — the Economic Opportunity Act (EOA) — and does not address the need for good government policy in the wake of findings of fraud made by the Governor’s task force and investigative journalists. The Murphy administration’s proposal addresses some of the bigger flaws of the EOA and incorporates a few proposals found in the legislature’s bill.
Overall, both plans include important improvements like targeting industries that demonstrate real economic potential and addressing community-centered investment needs, like affordable housing and food deserts. Both offer sizable tax subsidies for redevelopment projects in economically distressed areas and for high-tech businesses like wind energy and research and development. Community benefit agreements also appear in both plans, opening the door for job training and apprenticeships, which experts say accomplish development goals in a more cost-effective manner. Nonetheless, both proposals tend to overemphasis mega-projects rather than the tried-and-true cultivation of small- and medium-sized businesses. This caveat balloons the potential overall price tag of both proposals, paving the way for more foregone revenue that could be better spent on other state investments.
What’s New in Both Proposals
In the latest iteration of Governor Murphy’s corporate tax subsidy reform proposal, he has adopted three new provisions from Senator Lesniak’s draft bill. One would offer tax credits to large-scale developments “anchored” by a nonprofit or government institution. To qualify for the tax break, the project would need to be either be located in an opportunity zone (more on that later) or designed to help a targeted industry — like biotechnology and advanced transportation and logistics — to take root. Another proposal would provide state grants to cover some rental costs of collaborative workspaces for start-up companies in technology or renewable energy sectors.[vii] Additionally, in an effort to take a more active role in addressing food deserts, Governor Murphy’s proposal establishes the designation of up to 75 areas that lack access to a grocery store to help pinpoint qualifying communities.
Senator Lesniak’s bill makes a significant push to address New Jersey’s affordable housing crisis by offering up to $100 million a year to community development or nonprofit housing organizations for developments in low- and moderate-income areas. The bill also expands the existing Film and Digital Media tax credit program, a favorite of Governor Murphy’s, by five years and removes the annual spending cap after the first year.[viii]
Overall, Senator Lesniak’s bill shies away from new reforms with one exception: any commercial developer who is more than two years behind in loan payments is automatically disqualified from applying for tax subsidies.[ix] This restriction, however, would not apply to the biggest recipients of tax subsidies: residential developers or any business looking to relocate or expand in New Jersey.
What’s the Same: The Good
Governor Murphy and Senator Lesniak align on several key reforms, a positive sign that nationally recognized best practices — and reforms promoted in previous NJPP reports — will be incorporated in the next iteration of corporate subsidy programs. Important measures found in both bills include:
Preference to industries that show promise for economic growth[x]
Bonus structure for workforce housing development (this is a requirement for newly-constructed housing)
Mandated reporting to verify outcomes
Sunset provision (except in Senator Lesniak’s food desert and historic preservation proposals)
Bonus structure for labor agreements and fair wages (only Governor Murphy’s proposal covers all programs)
Clawback formula whereby the state can recoup some tax subsidies if a corporation breaks a promise (though Governor Murphy’s formula is stronger and includes wage level protections)
Smaller subsidies for jobs retained with no loopholes
Creation of a state-run venture capital program
Requirement of fair wages for construction and building service jobs
Requirement of minimal environmental and sustainability standards that promote best practices
Mandated disclosure of tax credit sales (excluding most programs in Senator Lesniak’s proposal)
What’s the Same: The Bad
Not all of the common measures are worthy of praise, however. Several important provisions in both bills do not reflect best practices of economic development and, left unchallenged, would repeat mistakes of the past.
Overly Generous Dollars-Per-Job Caps
The removal of spending caps in the EOA enabled the per-job cost of tax subsidies to skyrocket to unprecedented levels. Throughout the 1990s and early 2000s, the per-job cost of subsidized jobs was approximately $20,000. After the passage of the EOA, this cost ballooned to over $100,000 per job created or retained.
Senator Lesniak’s proposal does little to get this cost under control. The dollars-per-job caps in his bill range from $70,000 to a whopping $150,000 for new or retained jobs for a “mega-project,”[xi] or a project in a specified New Jersey investment zone.[xii] This sort of giveaway blatantly ignores the excessive spike in corporate tax breaks over the last decade and deprives the state of revenue needed for other state investments. Governor Murphy’s job creation proposal has a cap of $32,000 per job, which is within the range of the national average but still relatively high compared to other states. Virginia, for example, successfully secured the Amazon HQ2 deal with tax breaks capped at $20,000 per job.
Over Reliance on the “Material Factor” Eligibility Criteria
Governor Murphy’s proposal requires corporations to verify they are in “good standing” with the state departments of environmental protection, labor, and treasury, and allows the Economic Development Authority (EDA) to commission a third party background check on tax subsidy applicants. These good governance reforms should help ensure tax breaks are not given to corporations with a history of polluting their communities, violating wage and hour laws, or evading state taxation. Both proposals require that the potential tax subsidy award be a “material factor” in a corporation’s decision to relocate to or expand in New Jersey. To satisfy this requirement, a corporation must submit evidence showing that if not for the tax credits it would leave New Jersey or choose to set up shop in another state.
According to national experts, however, there is no agreed-upon method to assess this factor properly, making the requirement meaningless, untestable, and as found by the Governor’s task force, highly susceptible to manipulation.[xiii] Nonetheless, Governor Murphy’s proposal doubles-down on this provision with a laundry list of required documentation certified as truthful under threat of perjury. This provision is more likely to bolster the real estate consulting industry than it is to guarantee the credibility of the applicant’s need for tax subsidies. It also provides coverage for elected officials who might otherwise come under fire for handing over tax money to corporations and developers.
Over Reliance on the Flawed “Net Benefit” Test
To protect taxpayers and ensure that tax subsidies are only awarded when the benefits clearly outweigh the costs, stricter standards must be applied to the statutory formula the EDA uses to estimate the economic benefits of any proposed tax break. The EDA’s “net benefit test” looks at the direct and indirect costs and benefits of a new business or redevelopment project. This model has gone through some internal improvements through regulation, but further legislative reform is needed to restore financial integrity and bring transparency to this test.
One noteworthy improvement to the net benefit test in both proposals was instigated by a recent finding that large tax breaks were awarded under the EOA to corporations that tipped the scales in their favor by counting exempted taxes as a benefit.[xiv] The Governor’s and Senator Lesniak’s proposals address this egregious provision by disqualifying “phantom taxes” like property tax abatements from being calculated into the net benefit test. However, Senator Lesniak’s proposal excludes the entire redevelopment program from this basic protection.
Both proposals require that the largest programs and megadeals go through a state-conducted fiscal impact analysis with the glaring exception of Governor Murphy’s job creation program, which allows a corporation to submit their own analysis with a requirement that the net positive benefit equals a predetermined percentage of the award. Given that even the EDA’s cost-benefit benefit analysis is hidden from public scrutiny, a debate about who is most qualified to analyze them or about the standards being used to estimate the efficiency of tax incentives is seemingly impossible. The result is that the public doesn’t know if the costs and benefits are calculated in a way that accurately captures the local economy and its unique needs. Does it estimate the employment benefits, particularly the proportion of new jobs likely to go to local, unemployed residents? What effect would the wage rate have on similar local jobs? Does the analysis look at wage gains across the income distribution and per capita income growth? Can the existing infrastructure accommodate the expected job growth and can the local government absorb the added costs that come with new residents? The model used for the net benefit test should be made publicly available and calculated exclusively by the EDA, not the corporations vying for tax breaks, to ensure the state is not losing money on any tax subsidy deals.
Bonus Tax Subsidies for Community Benefit Agreements
Communities are rarely at the table of a statewide economic development strategy. A community benefit agreement (CBA) can address this, but too often the corporation receiving the tax break dictates the terms, leaving out community voices and crucial benefits that would meet their needs. Providing bonuses for businesses that enter a CBA without meaningful parameters and oversight is a recipe for manipulation and token investments that don’t contribute to the economic growth of struggling areas of the state. In the aftermath of Governor Murphy’s task force findings and multiple pieces of investigative journalism, the next generation of job creation and redevelopment program must require a truly inclusive CBA to protect communities from predatory corporate interests.
Senator Lesniak’s bill offers bonus tax subsidies to applicants of the job creation program if it and a local county or town enter a CBA based on the support or operation of a so-called “One Stop Career Center.” Senator Lesniak defines this as a clearing house of either customized job training apprenticeship programs or development of infrastructure, affordable housing and public transit. But it also includes options like “greenspaces” or “other community amenities,” providing a giant loophole for corporations to do the bare minimum in exchange for a bonus tax credit of $5,000 per job. The proposal contains no protections to ensure the corporation’s compliance of the CBA, opening the door to abuse or fraud.
For the most part, Governor Murphy’s proposal gets this right by making a CBA a requirement in both the job creation and redevelopment programs. The agreement may include job training, employment, youth development, and free services to underserved community members. Prior to entering a CBA, the county or town would be required to hold at least one public hearing to give the affected community a chance to voice their needs. The resulting CBA must include the establishment of a community advisory committee to oversee implementation and compliance. Should the developer break the agreement, Governor Murphy’s proposal includes clawback provisions to protect the affected community and New Jersey taxpayers.
Given the level of fraud that was allowed to prosper under the previous economic development legislation, the EDA must be given a stronger role to ensure community voices are heard and that compliance with this type of agreement is enforced. “At least one” public hearing before the establishment of a CBA has all the characteristics of a token gesture. The process needs to encourage meaningful community engagement and input. In fact, recipients of tax subsidies should first be put on mandatory probation for year one, and if compliance of a CBA is not established, the EDA would have the authority to rescind and recapture the tax subsidies. Job training should be required as a main component of the CBA given its proven long-term economic impact, even if the subsidized jobs no longer exist. The CBA proposal should also require that the advisory committee accurately reflect the demographics of the community and prohibit any advisory committee members from having a financial interest in the project or deriving any form of income from the corporation receiving the tax credits.
Tax Subsidies for Businesses Located in a Qualified Opportunity Zone
Created by the 2017 federal tax law, the opportunity zone (OZ) provision allows investors to defer tax on capital gains by putting those gains into funds that invest in properties or businesses located in designated communities. After a certain number of years, investors get more tax breaks, including a permanent tax exemption on capital gains on their OZ investment. Governor Murphy’s proposal dips its toes into this new provision by offering bonus tax subsidies to developers or businesses that invest in an opportunity zone. Senator Lesniak’s plan fully endorses the concept in both the job creation program and a mega-project proposal.
If the OZ tax break is truly intended to improve the lives and opportunities of low-income residents of the zones, it should target investments that focus on that goal. Instead, it encourages investors to abuse the provision.[xv] That’s because the provision was enacted with nearly no government oversight and very few restrictions. This no-strings-attached policy has drawn predatory capital into neighborhoods most at-risk of displacement. Members of Congress including Senator Cory Booker, who helped create opportunity zones in the first place, have called for an investigation into the program by the federal Government Accountability Office.[xvi] New Jersey should not subsidize real estate projects already poised to get a hefty federal tax break without assurances that they will help — not push out — current low-income residents. The state should regard investors looking for more tax breaks in opportunity zones as the least in need of state assistance and redirect these tax credits to small-to-moderate-sized businesses. Better yet, drop “opportunity zones” from the proposal and replace it with recognized qualifiers, like investment zone or qualified incentive tract, to describe areas of the state in need of economic investment.
Massive Tax Subsidies for “Transformative” or “Community-Anchored” Projects
Both proposals allow for so-called mega-deals by setting aside $50 million to $100 million in tax breaks that do not count against annual spending caps. Mega-deals, as defined by Good Jobs First, provide at least $50 million in tax subsidies to either large-scale development projects or well-established corporations with a large workforce.[xvii]
Over the past two decades, New Jersey has rewarded 30 mega-deals, more than half (16) of which received nine-figure awards, including Fortune 500 companies Prudential Financial, Subaru of America, and JPMorgan Chase Bank.[xviii] Given the mounting evidence that such large-scale tax subsidies do not pay for themselves, megadeals are a risky investment for New Jersey, a state struggling to pay its bills as the cost of already-approved tax subsidies explode.[xix]
These deals also help wealthy corporations avoid the competitive subsidy application process and parachute into a community without a thorough impact analysis. Similarly, opportunities for collaboration with research institutions, teaching hospitals, colleges or universities are plentiful and already market-driven. Let these assets speak for themselves without offering sweeteners like covering 100 percent of project costs or offering up to $250 million in tax subsidies.
Tax Credit Buyback Option
Both proposals would allow the Division of Taxation to buy back unused tax credits from businesses that don’t need them to lessen their tax bill — at a deep discount. Effectively, this allows businesses to convert tax credits into cash grants valued at 75 percent of the awarded credit. Such a provision should not be entertained without full transparency of all sellers and buyers.
What’s Missing
Hard Caps on Job Growth Programs and Commercial Redevelopment
New Jersey’s corporate tax subsidies have always included annual limitations on cost — until the passage of the Economic Opportunity Act of 2013. Bypassing such an important cost-control mechanism opened the door for enormous tax breaks for the next several years. As the state committed billions in lost tax revenue to already profitable corporations, the state simultaneously cut funding for public schools, NJ Transit, property tax relief, colleges and universities, and affordable housing — all proven drivers of widespread economic growth.
Senator Lesniak’s bill commits to annual spending caps for some programs but, most alarming, they are absent in the two largest programs: commercial real estate development and the job creation and retention program previously known as Grow NJ. This policy design contradicts extensive research that shows corporate tax breaks do not translate into more economic growth, and is based on the disproven notion that New Jersey must offer limitless tax incentives in order to compete with other states. Caps must be a central component of the next generation of corporate tax subsidies because they make New Jersey’s economic development policies less costly to the state budget and create more job opportunities for New Jersey residents.
Governor Murphy’s bill features annual spending caps for every program. However, the redevelopment program allows for some flexibility, making it vulnerable to the political pressures of a proposed megadeal and, in the end, costly to New Jersey taxpayers. In fact, the proposal has over $800 million worth of exemptions over the lifespan of the legislation to support up to six potential large-scale development projects and removes caps altogether for a qualifying wind energy support facility. These projects may not all come into fruition, but their presence undermines the Murphy administration’s top priority of reining in subsidies and abiding by realistic expectations of what a state government can do to foster economic growth. The Governor’s recent support of lifting the annual cap of the Film and Digital Media tax credit program demonstrates this willingness to revise what should be a non-negotiable budget item.[xx]
Shorter Award Timeframes
Senator Lesniak’s proposal allows for subsidy awards to be paid out annually for 10 to 20 years, depending on the program. This measure ignores research that shows corporations generally don’t consider tax subsidies ten or more years out as valuable as those offered within a shorter timeline, like one to five years.[xxi] They also absolve current lawmakers from the future costs while giving them political credit for new jobs. Offering shorter timeframes means New Jersey can control the cost of subsidies and better predict when a business will redeem them. In contrast, the Murphy administration’s job creation and retention proposal includes this best practice by imposing a maximum timeframe of five years. Most of the other proposals in the Governor’s plan have one-year timeframes.
Recurring Evaluation by an Independent Entity
Lawmakers must fully commit to establishing a regular, independent evaluation process to effectively analyze the design, administration, and effectiveness of the state’s subsidy programs. Both proposals require a biennial, independently produced report with a detailed analysis of the tax subsidies’ effect on a business’ relocation decision, the return on investment for the award, the impact on the state’s economy, and other metrics based on national best practices. However, Senator Lesniak’s bill fails to require such a report for the job creation program, the same proposal that has no annual spending cap. This key reform should be a requirement for every program to ensure accountability and fiscal responsibility. But to ensure objectivity, a biennial performance audit should be produced by the state Comptroller or a public advocate rather than a subcontracted college or university given that academic institutions are eligible for and have benefited from these tax subsidies in the past, and that public universities depend on the legislature for state aid.
Other Important Reforms Missing in Both Proposals to Further Bolster Accountability
Mandated annual forecasting/multi-year cost projection The Treasury must release the Unified Economic Development Report (UEDR), an annual report that enumerates the direct costs and indirect loss of revenue from tax breaks with detailed information about larger tax subsidies and the types of jobs they created. The EDA should also be required to release an annual 15-year forecast of the cost of each program to better estimate long-term future revenue losses.
Addition of hiring information in the UEDR To better ensure local and representative hiring, the Treasury should analyze the match between a business’s labor needs and the labor force potential in the relevant geographic area.
Requirement to put investment into state budget Putting tax subsidies into the budget process as a line item would promote a better debate about the best ways to foster broad prosperity in New Jersey. This would take corporate subsidies out of the abstract and explicitly state what they are costing the state and its taxpayers.
Requirement that application consultants register as lobbyists Tax subsidies support a cottage industry of real estate consultants working on commission to help corporations navigate through the application process and get the biggest tax breaks possible. Requiring these consultants to register as lobbyists means the disclosure of their identity, compensation terms and other contractual details which takes away the monetary incentive.
Regional corporate tax subsidy policy Implementing a corporate tax subsidy ceasefire with neighboring states would end the costly practice of giving tax credits to companies within the same metro area and demonetize the blackmail tactics corporations deploy in exchange for tax subsidies.
Update: This report was updated on December 5, 2019 to clarify that the cap exemptions in Governor Murphy’s Aspire NJ proposal are for the 5-year life of the program, not annually.
[ii] Prepared testimony of Dr. Timothy J. Bartik, Senior Economist, W.E. Upjohn Institute for Employment Research before New Jersey State Senate Select Committee on Economic Growth Strategies, September 2019. https://research.upjohn.org/presentations/60/
[vii] Targeted industries listed in Senator Lesniak’s rental assistance proposal: advanced computing, advanced materials, biotechnology, electronic device technology, information technology, food technology, life sciences, medical device technology, health care technology, logistics technology, mobile communications technology, agricultural technology, and renewable energy industries.
[ix] Senate Bill No.1576: Prohibits awarding of economic development subsidy to business if payment of principal and interest on previously awarded loan or loan guarantee is greater than 24 months overdue. https://www.njleg.state.nj.us/2018/Bills/S2000/1576_I1.PDF
[x] Governor Murphy’s job creation proposal targets advanced transportation and logistics, advanced manufacturing, aviation, clean energy, life sciences, information and high technology, finance and insurance, and non-retail food and beverage businesses. Murphy’s mega-development proposals target wind energy, food deserts and R&D. Targeted industries listed in Senator Lesniak’s mega-project proposal: biotechnology, life sciences, pharmaceuticals, aeronautics, clean energy, advanced manufacturing, large-scale food and beverage production, advanced transportation and logistics, finance, financial technology, insurance, media, information technology, machine learning, and artificial intelligence.
[xi] “Mega” means a business other than a warehouse or distribution business at which the business intends to employ at least 1,000 new or retained full-time jobs and having a capital investment in excess of $100 million.
[xii] “Investment zone” means means a distressed, densely populated municipality or a government-restricted municipality.
To read a PDF version of the full report, click here.
The Earned Income Tax Credit (EITC) is one of the most effective anti-poverty programs for working-age households in the U.S.[1] It raises incomes for workers with low-wages and advances income and racial equity. In fact, the EITC has helped millions of workers better make ends meet and afford basic needs for themselves and their families, particularly among Black and Latino households.[2]
In 2000, New Jersey created its own version of the EITC, building upon the federal credit and providing a bigger boost to the state’s working families. Originally, the state credit provided a benefit at 10 percent of the federal credit. Over the years, the value of the state credit has increased – and occasionally decreased – to the point where it now provides a benefit at 40 percent of the federal credit.
Nearly two decades after adopting an EITC in New Jersey, the impact of the program is clear. In 2018 alone, the state EITC infused $400 million into local economies and provided a much-needed boost to over 500,000 workers and families struggling to meet basic needs.[3] While both Republican and Democratic lawmakers recognize the program’s value and have supported several expansions to the credit, the EITC’s reach is still limited. Specifically, workers, who are not raising children at home, have a disproportionately lower income cap and lower maximum credit than qualifying families with children. Further, single workers who are not raising children at home lose the benefit completely after earning more than $15,570, and childless workers under the age of 25 and over 64 are completely ineligible for the credit.
Recognizing such disparities in the federal EITC, several lawmakers have proposed changes to the program. However, New Jersey does not need to wait for federal changes to be enacted. The state, like several others, can take steps to expand eligibility beyond federal rules. The following report examines these proposals and evaluates the potential impact of strengthening New Jersey’s EITC.
This report makes three recommendations to improve parity and accessibility of the state EITC:
Reduce the minimum age requirement for workers without qualifying children from 25 to 18.
Increase the refundability of the New Jersey EITC for workers without qualifying children from 40 percent to 100 percent of the federal credit.
Increase the income threshold for workers without qualifying children from $15,570 to $25,000.
If all three recommendations are implemented, over 400,000 workers would benefit, infusing $156 million into local New Jersey economies.
Introduction
The Earned Income Tax Credit (EITC), a refundable tax credit for low- and moderate-income working individuals and families, has long been one of the most successful tools for reducing poverty, promoting economic security, and improving the quality of life of working families. In 2017 alone, the federal EITC lifted approximately 5.7 million people out of poverty, including about 3 million children. And the credit further reduced the severity of poverty for an additional 19.5 million people, including about 7.3 million children.[4]
Recognizing the effectiveness of the EITC, federal lawmakers have repeatedly expanded the credit since its enactment as a temporary provision in 1975, including adjustments to both the amount of the credit and eligibility rules.[5] The federal EITC is now among the nation’s largest anti-poverty programs, with 25 million taxpayers receiving approximately $63 billion in 2018.[6]
In 2000, New Jersey enacted a state EITC to supplement the federal EITC. While the EITC has since boosted the economic security of workers and families in the Garden State, several groups of New Jersey workers receive little or no benefit from this program. The EITC for workers who are not raising children at home, in particular, is currently not available for people under the age of 25. Further, relative to the credit for households with children, the childless EITC has a disproportionately small income cap and low maximum credit amount. In short, the current state (and federal) EITC falls short for childless workers in New Jersey as compared to other groups.
With common-sense changes to the state EITC, New Jersey could better support hard-working taxpayers who are just entering the workforce. Further, expanding the credit for childless workers would improve parity between families with children and families who do not have qualifying children at home. The following report provides an overview of New Jersey’s EITC program, as well as an examination of other jurisdictions’ efforts to expand EITC eligibility. This report also provides an analysis of the impact of targeted expansions of EITC eligibility in the state as well as recommendations for improving the New Jersey’s EITC program.
Federal EITC Rules Exclude Childless Workers
Enacted as a part of the Tax Reduction Act of 1975 to reduce participation in federal assistance programs, encourage employment, and promote economic recovery from the recession, the EITC reduces the tax liability of low- and moderate-income workers. Each year, the federal EITC improves the economic security of Garden State residents and strengthens state and local economies. In 2018, for example, the EITC benefitted over 576,000 New Jersey workers and infused $1.4 billion into New Jersey’s economies.[7]
In order to qualify for the credit, households must have earned income and file a tax return with the IRS. The amount of the credit is a function of the worker’s income; the percentage of income increases with the amount of income until reaching a maximum credit threshold, at which point the value of the credit remains flat until it reaches a phase-out point.[8] After the phase-out point, the amount of the credit incrementally declines with additional income. If the amount of the credit that an individual or family qualifies for is greater than their tax liability, they can receive the balance as a refund.
Eligibility for the federal EITC is contingent on several factors, including age, citizenship, residency, number of qualifying children, marital status, tax filing status, and income.[9] The adjusted gross-income cap for eligibility for the federal EITC increases based on family size. In tax year 2019, for families with one qualifying child, the income cap is $41,094 ($46,884 if married filing jointly).[10] The cap rises to $46,703 ($52,493 for married filing jointly) for families with two qualifying children, and to $50,162 ($55,952 for married filing jointly) for families with three or more qualifying children. For workers without qualifying children, the income cap is substantially lower than for families with children: $15,570 ($21,370 for married filing jointly).
While the maximum credit for families with children ranges from $3,526 (for families with one child) to $6,557 (for families with three or more children), the maximum credit for childless workers is only $529. As a result, the amount of the tax credit received by the eligible childless workers is often less than their tax liability and fails to provide sufficient support to low-income workers.[11]
In addition to a very low adjusted gross income cap and low maximum credit for workers without qualifying children, age and residency restrictions further limit the EITC eligibility. In order to qualify for the EITC, childless workers must be older than 25 years old and younger than 65.[13] Accordingly, while the majority of households that qualify are childless, over 90 percent of the federal EITC is distributed to families with children.[14] While this program was designed with the assumption that workers under 25 are dependent on parents, the reality is that many young New Jersey workers are struggling financially to meet their basic needs.[15]
Federal Proposals Recognize Shortfalls in EITC
During the past year, federal lawmakers have announced several proposals to mitigate poverty by strengthening tax credits for low- and moderate-income people. While the details of these proposals vary substantially, several of these proposals would improve parity between the EITC for families with children and families who do not have qualifying children at home.
The table below provides an overview of the impact of three of these proposals—the Cost of Living Refund Act of 2019, the Working Families Tax Relief Act, and the LIFT the Middle Class Act—on tax credits for childless workers. While the Cost of Living Refund Act and Working Families Tax Relief Act would expand the EITC, the LIFT the Middle Class Act would create a new credit that supplements the EITC.[16]
Sources: Center on Budget and Policy Priorities[17]; Ibid[18]; LIFT the Middle Class Act[19]
Cost-of-Living Refund Act
Introduced in both the House and Senate in February 2019, the Cost of Living Refund Act of 2019 (H.R. 1431, S. 527) would decrease the age eligibility for workers without qualifying children from 25 to 21, extend eligibility to qualified students, and expand qualified dependents to include seniors and other relatives.[20] The proposal would also increase the amount of the EITC by raising the credit percentage and phaseout amount, which would nearly double the maximum credit for households with children as well as increase the maximum credit for workers without children nearly six-fold from $529 to approximately $3,054.[21] This Act would also increase the maximum income cap for workers without qualifying children from $15,570 to $38,498, and for households with one child from $40,320 to $61,393. According to a microsimulation produced by Institute on Taxation and Economic Policy (ITEP), this proposal would lead to an $1,950 average decrease in tax liability for the poorest 20 percent of New Jersey residents (with incomes of less than $24,300) and a $1,330 average decrease for the second poorest 20 percent (those earning $24,300 to $43,500).
Working Families Tax Relief Act
Introduced by Senators Sherrod Brown, Michael Bennet, Richard Durbin, and Ron Wyden in April 2019, the Working Families Tax Relief Act would expand the EITC by changing both the eligibility rules and the amounts of the credits. In addition, it would make the Child Tax Credit (CTC) fully refundable and create a Young Child Tax Credit (YCTC) for children under age 6. The bill would expand the age limits for eligibility for the EITC for childless workers from 25 to 64 to 19 to 67. Further, this proposal would increase the maximum EITC for families with children by up to 25 percent (the exact amount depends on family size) and quadruple the benefit for workers without children.[22] The bill would also increase the phase-in and phase-out rates and raise the maximum income limits for eligibility for the credit. According to a microsimulation produced by ITEP, this proposal would lead to an $1,510 average decrease in tax liability for the poorest 20 percent of New Jersey residents (with incomes of less than $24,300) and a $560 average decrease for the second poorest 20 percent (those earning $24,300 to $43,500).[23]
LIFT the Middle Class Act
Introduced by Senator Kamala Harris, the LIFT the Middle Class Act would create a new credit that would operate alongside the EITC. The new credit is designed to match a taxpayer’s earnings, providing up to $3,000 per worker ($6,000 for a married couple). In addition, this credit would consider income from Pell grants, a need-based form of financial aid for college students. Because the credit does not take family size into account and drops the minimum age requirement for all workers to 18, all childless workers would see considerable increases in tax credits under this proposal.
States Leading the Way on EITC Expansion: Addressing Gaps in Federal EITC
Since 1986, New Jersey and 28 other states as well as the District of Columbia, Puerto Rico, and some municipalities have created an EITC to supplement the federal credit. State EITCs largely mirror federal criteria and are calculated as a percentage of the federal credit. For example, in a state where the EITC is calculated at 40 percent of the federal credit, an EITC beneficiary who is eligible for a $100 federal credit would also be eligible for a $40 state EITC, for a combined total of $140. Additionally, all but 6 state EITCs are refundable, meaning that a tax filer can receive a refund for the amount by which the credit exceeds their federal income tax liability. The percentage of the federal EITC varies considerably among states.[24] Further, several state EITCs deviate from other aspects of the federal EITC, including maximum credit amounts and eligibility criteria.
Many jurisdictions have recently taken steps to address the limitations of the EITC by making targeted changes to eligibility rules. In 2014, the District of Columbia, for example, was the first jurisdiction to extend the EITC to workers without qualifying children. Further, Washington D.C. increased the match for workers without children from 40 percent to 100 percent. In addition, D.C. increased the income limit of its EITC beyond the federal cap.[25] As a result, the D.C. EITC provided a boost for 26.8 percent more workers, most of which has been attributed to 12,940 new applicants without children—9,507 of which were ineligible for the federal EITC.[26]
In 2017, Minnesota expanded eligibility for its state EITC by reducing the minimum age for childless workers without qualifying children from 25 to 21. Other states have also extended the credit to specific groups that would not otherwise benefit from this program, including New York, which provides the EITC to non-custodial parents, and Massachusetts, where survivors of domestic violence who are separated from a spouse are eligible to receive the credit.[27]
Most recently, Maryland and California expanded eligibility beyond the federal EITC’s rules, as well. In 2018, Maryland eliminated the minimum age requirement for its state EITC, which was previously set at 25.[28] This eligibility change is expected to extend the credit to an estimated 40,000 more workers.[29] Also in 2018, California expanded the program to childless workers between the ages of 18 and 24 and over the age of 64. The legislation that led to these changes also included measures to expand the state’s EITC to immigrant workers with ITINs; however, this proposal was rejected during budget negotiations.[30] In addition, in 2017, California increased its income cap, allowing people working full-time at the minimum wage to be eligible for the credit.
New Jersey’s EITC Has Improved, But Prior Expansions Continue to Leave Young and Childless Workers Behind
In 2000, New Jersey enacted a state EITC. In order to be eligible for the state EITC, applicants must meet the eligibility requirements of the federal EITC and file both a federal tax form and state income tax return. The amount of the state EITC that a taxpayer can claim, which is currently calculated as a percentage of the federal EITC, has undergone several changes during the last two decades. After remaining at 20 percent for several years, the state EITC percentage of the federal EITC increased to 22.5 percent in tax year 2008, and to 25 percent in 2009.
In 2011, the New Jersey EITC was reduced from 25 percent to 20 percent of the federal credit. Despite attempts to increase the EITC, the credit was not restored until Fiscal Year (FY) 2015,[31] when it was increased to 30 percent of the federal amount. In 2016, alongside a gas tax increase for New Jersey’s Transportation Trust Fund, the state EITC was increased to 35 percent of the federal credit. Most recently, legislation was enacted in 2018 that increased the state’s EITC from 35 percent to 40 percent over the course of three years (37 percent in tax year 2018, 39 percent in tax year 2019, and 40 percent in tax year 2020 and thereafter) and that added a new Child and Dependent Care Credit.[32]
Current Impact
Each year, New Jersey’s EITC infuses hundreds of thousands of dollars into local economies by putting cash in the hands of workers struggling to meet basic needs. This helps lift thousands of families out of poverty and eases the challenges faced by families still in poverty. Under the state EITC’s current structure, the program has helped over 510,000 workers and their families and added $415.7 million to the state’s economy in 2018 alone. Passaic, Hudson, and Essex counties had the highest number and amount of approved EITC claims in 2018.
Many New Jersey Workers Are Left Still Behind
As noted above, the EITC has been one of the most successful anti-poverty programs in the U.S., helping lift millions of people and their families out of poverty while injecting billions of dollars into local economies.[33] Due to the fact that people of color often face barriers to reliable employment with sufficient wages, they also make up a significant share of residents who qualify for the EITC. As such, the EITC is a critical tool to combating income inequality and racial inequities, which benefits all New Jerseyans. Considering the positive impacts, it is important to expand the benefits of this credit to all of New Jersey’s low-wage workers – especially childless workers.
While the EITC has benefited Garden State residents, and the incremental increases in the amount of the credit have strengthened its impact, several groups continue to be excluded from this program. Due to the current eligibility requirements, low- and moderate-income childless workers are left behind. Like the federal EITC, workers under 25, who do not claim a child as a dependent, only benefit if they have exceedingly low-income, and those that do claim a child receive a disproportionately smaller benefit. Further, workers under 25 and over 64, who do not claim children as dependents, are ineligible for any EITC credit. By removing arbitrary age restrictions for childless workers, New Jersey could expand access to the EITC to provide a more stable foundation for young people entering the workforce.
New Jersey Can Expand and Strengthen Its EITC to Provide an Important Boost for Workers and Economies
There are several mechanisms for increasing the impact of New Jersey’s EITC. The following recommendations can be used in combination with one another to improve the impact and scope of the state EITC. Unless otherwise noted, the estimates included in this section were produced by ITEP using their Microsimulation Tax Model, which is based on tax year 2015 tax returns and other data.[34]
Recommendation #1: Lower the minimum age for the childless New Jersey EITC from 25 to 18
Under the current state rules that provide workers with 40 percent of the federal EITC amount, reducing the minimum age threshold for workers, who are not raising children at home, from 25 to 18 would benefit approximately 137,199 additional young New Jersey workers and add an estimated $17 million to state and local economies. For this newly eligible population, the average credit, which could be used for basic necessities, like clothing or transportation for work, would be $121.
While expanding eligibility for the state EITC would provide an important boost for young workers beginning their careers, the amount of the credit would remain modest under current EITC rules. By both lowering the minimum age and increasing the state EITC amount for young childless workers from 40 percent to 100 percent of the amount they would receive if they were eligible for the federal credit (see Recommendation #2), the credit could have a more meaningful impact on young people. At 100 percent of the federal rate, funds added to state and local economies would increase to an estimated $42 million, and the average credit for young childless workers would be $304.
Similar amounts of young men and women would benefit from this eligibility expansion, with men (51.6 percent), representing a slightly larger proportion of the new beneficiaries than women (48.5 percent). Additionally, compared to the New Jersey population, newly eligible Non-Hispanic White, Non-Hispanic Black and African American, and multiracial workers would make up a slightly larger amount of the newly eligible population, while Asians and Hispanics would make up a smaller amount of the potential beneficiaries.
Lowering the minimum age for the childless EITC would infuse money into under-resourced areas with high poverty rates and high populations of young people. Over one-third of the newly eligible population of beneficiaries reside in four counties – Camden (9.7 percent of the potential beneficiaries), Essex (9.5 percent), Middlesex (9.0 percent), and Ocean (8.4 percent). Relative to each county’s total population, Warren (1.66 percent), Gloucester (1.63 percent), and Mercer (1.59 percent) counties had the highest percentage of potential beneficiaries.
Recommendation #2: Increase the New Jersey EITC for childless workers from 40% of 100%
Even those childless workers struggling to meet basic needs who are currently eligible for the EITC under existing rules are only entitled to a small credit. Increasing the percentage of the federal credit for childless workers who are currently eligible for the state EITC from 40 percent to 100 percent (under existing rules) would benefit an estimated 142,310 workers between the ages of 25 and 64 and add $24 million to state and local economies. At 100 percent of the federal credit, childless workers, who are currently eligible for the EITC, would see an average increase of $166 in their EITC.
Recommendation #3: Increase the income threshold for workers without qualifying children from $15,570 to $25,000
Under current EITC eligibility rules, workers without qualifying children lose the benefit after earning more than $15,570. Raising the income threshold to $25,000 for childless workers would allow more hardworking New Jersey residents with low-wages to benefit from this program. Extending the maximum income cap to $25,000 by increasing the phase-out starting point, for example, while expanding eligibility rules to include young workers ages 18 to 24 (as in Recommendation #1) and increasing EITC amount to 100 percent for all childless workers of the federal credit (as in Recommendation #2) would benefit an estimated 408,207 childless workers and add $156 million to New Jersey’s economies.)
New Jersey Residents Need a Stronger EITC
Expanding the EITC can help increase the program’s parity and support many workers struggling to meet basic needs; however, the credit excludes many New Jerseyans. The EITC’s attachment to earned income, for example, leaves out taxpayers who are unable to participate in the formal economy, including some people with disabilities and those who serve as unpaid caregivers. A more robust set of mechanisms to promote equity that extends beyond the paradigm of paid labor is needed. Moreover, the EITC’s restrictions on immigration status excludes noncitizens and mixed-status families from benefiting from the credit.
While targeted expansions of the EITC to reach these groups would certainly provide an important boost for other low-income workers and families, New Jersey will need more than a stronger EITC to address the systemic causes of poverty. The Garden State can and should do more to ensure that all residents are equipped with the resources needed to live with financial security and dignity.
Appendix
Appendix A: Demographic Breakdown – Methodology
The demographic estimates included in this report were produced by using the 2017 American Community Survey (ACS) to evaluate the impact of lowering the minimum EITC eligibility age for workers without qualifying children from 25 to 18. In order to estimate the size and sociodemographic characteristics of the population that would benefit from this targeted expansion, ACS microdata were used as a proxy for eligibility criteria for the New Jersey EITC.
The methodology for the demographic estimates updated and built upon the target group analysis approach employed in the Closing the Gap: Expanding the Earned Income Tax Credit to Younger, Childless Workers in New Jersey,[35]which employed ACS 2016 data. In addition, distinct choices around variables used to estimate dependency status to more closely reflect EITC eligibility parameters. While household type was used to exclude all family households in Closing the Gap, for example, the present report used more narrow exclusion parameters to isolate only individuals who are likely to be claimed as a dependent by another taxpayer. Further details on the variable selection process are provided below.
Data Source
The American Community Survey is an ongoing, monthly survey that is used to produce population and housing estimates each year. This analysis employed ACS 2017 microdata, which were extracted and downloaded from Integrated Public Use Microdata Series (IPUMS USA) online data extraction tool.[36] The IPUMS sample included both household- and person- level records. IPUMS USA samples are unweighted, and the sample size for the ACS 2017 dataset for New Jersey residents is 88,114. In order to obtain representative statistics, person-level sample weights (variable “perwt”) were applied. The ACS response rate for housing units in New Jersey in 2017 was 88.4%.[37]
While the ACS provides rich information about New Jersey’s population, there are also several limitations to this dataset. As the ACS is a survey that consists of self-reported data rather than tax filing information, it is subject to error. In addition, because this study employed the ACS 2017 dataset, the results suggest the impact of extending the credit if it had been in effect in 2017 and therefore do not account for economic and demographic changes that have since taken place. Finally, while the ACS contains information on several personal and household characteristics, not all EITC eligibility criteria have corresponding variables in this dataset. A detailed explanation of the selection and limitations of each variable used in this analysis is provided in the following section.
Eligibility Parameters and Target Group Creation
In order to be eligible to receive the EITC, tax filers without qualifying children must meet several criteria related to residency, age, income, marital status, immigration status, and family relations. Variables related to each of these criteria were combined to create a target group representing an estimate of the population that would become eligible if the New Jersey EITC were expanded to include workers without qualifying children between the ages of 18 and 24. An overview of the measures of these characteristics employed in this study and any recoding of these variables is provided below.
Residence. The ACS2017 household variable “statefip” was used to limit the IPUMS data extraction to households in New Jersey (FIPS code 24).
Age. The ACS 2017 dataset included a continuous variable for age ranging from 1 to 95. As workers without qualifying children between the ages of 25 to 64 are currently eligible, and this study sought to estimate the impact on two potential expansion groups (childless workers 18 to 20 and 18 to 24), age was recoded into categorical variable (age5cat).
Original Variable
New Variable
N (Weighted)
% (Weighted)
age
Age5cat
0 to 17
1 Under 18”
1,976,538
21.95
18 to 20
2 “18 – 20”
337,134
3.74
21 to 24
3 “21 – 24”
449,174
4.99
24 to 64
4 “25 – 64”
4,827,300
53.60
65 to 95
5 “65 and Older”
1,415,498
15.72
Immigration Status. While the EITC eligibility criteria allow filers who are either U.S. Citizens or resident aliens all year, the ACS 2017 only captures citizenship status and does indicate whether or not a respondent is a resident alien. For this analysis, all non-citizens are treated as ineligible, likely resulting in an underestimate of eligible immigrants.
Original Variable
New Variable
N (Weighted)
% (Weighted)
Citizen
cit2cat
0 “N/A (Born in the US)”
1 “Citizen”
6,879,510
76.39
1 “Born abroad of American parents”
1 “Citizen”
77,181
0.86
2 “Naturalized Citizen”
1 “Citizen”
1,135,086
12.60
3 “Not a citizen”
0 “Not a citizen”
913,867
10.15
Marital Status. The ACS 2017 person-level data includes the marital status of respondents; however, it does not include tax filing status information. For this target group analysis, respondents that are never married/single, widowed, or divorced are assumed to be single for tax filing purposes. Respondents that are married with a spouse present are assumed to be married and filing jointly. Respondents that are either separated or are married with a spouse absent are treated as married and filing separately, and therefore ineligible for the EITC.
Original Variable
New Variable
N (Weighted)
% (Weighted)
Marst
Marst3cat
1 “Married, spouse present”
1 “Married, likely filing jointly”
3,463,260
38.46
2 “Married, spouse absent” 3 “Separated”
2 “Married, likely filing separately”
309,945
3.44
4 “Divorced” 5 “Widowed” 6 “Never married/single”
0 “Not married”
5,232,439
58.10
Investment Income. The EITC eligibility criteria require that the investment income of filers be less than $3500. The ACS 2017 person variable incinvst (range: -2100 to 24700), which measures income from an estate or trust, interest, dividends, royalties, and rents received, was recoded to reflect this cap. Households with $3500 or less in investment income was marked as eligible, while households with $3501 or more in investment income were marked as ineligible. Respondents under 15 are coded as missing.
Original Variable
New Variable
N (Weighted)
% (Weighted)
incinvst
Incinvst_3500
-2100 (min) to 3500
1 “Eligible – $3500 or less”
448,296
4.98
$3501 to 247000 (max)
0 “Ineligible -$3501 or more”
6,929,598
76.95
999999
.i “N/A – under 15”
1,627,750
18.07
Earned Income. As EITC filers are required to have earned income, respondents without earned income were excluded from this analysis using the 7-digit numeric variable “incearn”, which records respondents’ self-reported income earned from wages or a person’s own business or farm for the previous year.
Original Variable
New Variable
N (Weighted)
% (Weighted)
incearn
incearn2cat
-6300 (min) to 1 (max)
0 “Ineligible – no personal earned income”
4,103,220
45.56
1 to 1025000 (max)
1 “Eligible – has personal earned income”
4,902,424
54.44
Personal Income. For unmarried individuals, the variable inctot, which captures respondents’ pre-tax personal income or losses from all sources for the previous year was used to create a dichotomous variable for income eligibility. As the maximum adjusted gross income for single tax filers is $15,270, individuals earning more than this amount were considered ineligible in the target group analysis.
Original Variable
New Variable
N (Weighted)
% (Weighted)
inctot
inc0child
-6300 (min) to $15,270
1 “Eligible – $15,270 or less”
2,609,153
28.97
15271/1272000 (max)
0 – “Ineligible – $1571 or more”
4,768,741
52.95
999999
.i. “N/A – under 15 years”
1,627,750
18.07
Total Family Income. For married individuals assumed to be filing jointly, the variable ftotinc, which captures the total pre-tax money income earned by one’s family (as defined by family unit) from all sources for the previous year, was used to create a dichotomous variable for income eligibility. As the maximum adjusted gross income for single tax filers is $15,270, individuals earning more than this amount were treated as ineligible in the target group analysis.
Original Variable
New Variable
N (Weighted)
% (Weighted)
ftotinc
faminc0child
-6300 (min) to 20950
1 “Eligible – $20,950 or less”
1,003,393
11.14
20951 to 1684500 (max)
0 – “Ineligible – $20,951 or more”
7,811,460
86.74
999999
.i. “N/A”
190,791
2.12
Qualifying Child Status. In order to be eligible for the New Jersey EITC, tax filers must not be claimed as a dependent or qualifying child of another person. Tax filers may be claimed as another person’s qualifying child until the age of 19 if they are not a student, and until the age of 24 if they are a student. Accordingly, three variables were combined to create a composite measure of whether or not a respondent was likely to be a qualifying child or dependent of another person. Respondents were coded as possible qualifying children of other tax filers if they indicated that were either 1) under 19; and the child, sibling, or grandchild of the head of household, or under 2) under 25; a student, and the child, sibling, or grandchild of the head of household. Respondents that were identified and possible qualifying children were treated as ineligible for the EITC in this analysis.
Original Variable
New Variable
N (Weighted)
% (Weighted)
Relate
Qualchild
3 “Child” 7 “Sibling“ 9 “Grandchild” AND age <=19, OR age <=25 AND in school
1 “Ineligible – Could be a Qualifying Child/Sibling/Grandchild”
2,286,485
25.39
1 “Head/Householder”; 2 “Spouse”; 4 “Child-in-law”; 5 “Parent”; 6 “Parent-in-Law”; 8 “Sibling-in-Law”; 10 “Other relatives”; 11 “Partner, friend, visitor”; 12 “Other non-relatives” OR if age >= 20 AND not in school
0 “Eligible – Likely Not a Qualifying Child”
6,624,630
73.56
13 “Institutional inmates”
2 “Ineligible – Institutional Inmates”
94,529
1.05
Number of Qualifying Children. The ACS 2017 household variable “number of related children in household under 18” The number of related children in the household was used as a proxy for qualifying children. Any respondents living with related children under 18 were excluded from the target group analysis. As the ACS does not capture which household member claims qualifying children, it is likely that the number of people without qualifying children is underestimated.
Original Variable
New Variable
N (Weighted)
% (Weighted)
us2017a_nrc
numrelchild
0
0
4,389,570
48.74
1
1 “1 Child”
1,607,720
17.85
2
2 “2 children”
1,721,873
19.12
3 to 18
3 “3 or more children”
1,103,408
12.25
BB
.i “N/A (Group Quarters or Vacant)”
183,073
2.03
Sociodemographic Measures and Descriptive Statistics
After establishing the parameters for the target group, the following variables were employed to examine the characteristics of the newly eligible population.
Original Variable
New Variable
N (Weighted)
% (Weighted)
Sex
N/A
1. Male
–
4,398,062
48.84
2. Female
–
4,607,582
51.16
County
0. Not Identifiable
–
579,997
6.44
3. Bergen
–
948,558
10.53
5. Burlington
–
448,537
4.98
7. Camden
–
511,228
5.68
13. Essex
–
808,506
8.98
15. Gloucester
–
292,408
3.25
17. Hudson
–
691,893
7.68
19. Hunterdon
–
124,745
1.39
21. Mercer
–
374,077
4.15
23. Middlesex
–
841,893
9.35
27. Morris
–
499,306
5.54
29. Ocean
–
597,268
6.63
31. Passaic
–
511,844
5.68
35. Somerset
–
335,557
3.73
37. Sussex
–
141,896
1.58
39. Union
–
564,008
6.26
41. Warren
–
107,349
1.19
Race/Ethnicity (composite of two variables, race and Hispanic origin (hispan)
Race = 8 “Two or more races” or 9 “Three or more major races” hispan = 0 “Not Hispanic”
7. NH Two or More Races
152,839
1.70
Appendix B: Demographic Breakdown – Tables
Due to data availability limitations, the demographic estimates were generated using ACS 2017 data and the total impact and cost estimates were produced using ITEP’s Microsimulation tax model. Because the two analyses are based on different data sets with unique sampling frames and assumptions related to eligibility criteria, the total number of potential beneficiaries in demographic breakdown differs from the estimates generated by ITEP’s Microsimulation Tax Model. Further information on the methodology used to produce demographic estimates is available in Appendix A. Further information on ITEP’s methodology is available here: https://itep.org/itep-tax-model-simple/.
Potential Beneficiaries of Lowering Age Limit for Childless EITC to 18 in New Jersey
County
Total Pop (Weighted)
Total Pop % (Weighted)
Total Number of Potential Beneficiaries (18 to 24, Childless) (Weighted)
Potential beneficiaries in county among total beneficiaries
Potential beneficiaries in county among total county population
Not Identifiable
579,997
6.44
5,011
6.1%
0.86%
Bergen
948,558
10.53
4,578
5.6%
0.48%
Burlington
448,537
4.98
3,673
4.5%
0.82%
Camden
511,228
5.68
8,013
9.7%
1.57%
Essex
808,506
8.98
7,839
9.5%
0.97%
Gloucester
292,408
3.25
4,757
5.8%
1.63%
Hudson
691,893
7.68
5,550
6.7%
0.80%
Hunterdon
124,745
1.39
588
0.7%
0.47%
Mercer
374,077
4.15
5,930
7.2%
1.59%
Middlesex
841,893
9.35
7,384
9.0%
0.88%
Monmouth
626,574
6.96
5,041
6.1%
0.80%
Morris
499,306
5.54
3,002
3.7%
0.60%
Ocean
597,268
6.63
6,916
8.4%
1.16%
Passaic
511,844
5.68
4,004
4.9%
0.78%
Somerset
335,557
3.73
2,234
2.7%
0.67%
Sussex
141,896
1.58
849
1.0%
0.60%
Union
564,008
6.26
5,080
6.2%
0.90%
Warren
107,349
1.19
1,785
2.2%
1.66%
Source: NJPP Analysis of ACS 2017 Data
Note: Atlantic, Cape May, Cumberland and Salem counties are not included because they are not identified in the IPUMS USA sample. Because these counties are not identified in public use microdata, they are grouped together in the “Not Identifiable” category at the top of the table.
Potential Beneficiaries of Lowering Childless New Jersey EITC Age Limit to 18 by Race/Ethnicity
[5] Crandall-Hollick, Margot L. (2018). The Earned Income Tax Credit (EITC): A Brief Legislative History. Congressional Research Service. https://fas.org/sgp/crs/misc/R44825.pdf
[36] Steven Ruggles, Sarah Flood, Ronald Goeken, Josiah Grover, Erin Meyer, Jose Pacas, and Matthew Sobek. IPUMS USA: Version 9.0 [dataset]. Minneapolis, MN: IPUMS, 2019. https://doi.org/10.18128/D010.V9.0
To read a PDF version of the full report, click here.
As the Great Recession gripped the country over a decade ago, states like New Jersey had to make tough choices to balance their budgets. They relied on a mix of tax increases, budget cuts, and tapping into savings to close budget gaps and ride out significant reductions in tax revenue collections. Nationally, state tax revenue has recovered overall, but each state’s recovery varies widely and many states still lag behind.
Nearly one-fifth of states still collect less revenue than before the economic downturn, more than one-third have smaller rainy day funds, and almost half spend less from their general fund budgets than a decade earlier. Unfortunately, New Jersey checks all of these boxes, putting the state’s precarious financial health at greater risk should another recession hit. To put it another way, the Garden State has yet to fully recover, making New Jersey one of the least prepared states to weather a future economic downturn.
To better understand why New Jersey continues to struggle while states with similar economic profiles have fully recovered and then some, New Jersey Policy Perspective (NJPP) commissioned graduate students at the Edward J. Bloustein School of Planning and Public Policy to examine the matter. This report assesses the policy choices made before and in response to the Great Recession by New Jersey and five comparable states: Connecticut, Illinois, Maryland, Massachusetts, and North Carolina.
Using a set of performance indicators, the practicum group tracked how each state prepared for, and recovered from, the Great Recession using information collected through document and database analysis and interviews with state and national budget and policy experts. Because each state had its own unique experience in the past decade, no one policy decision could be identified as making or breaking a state’s recovery. Nonetheless, the report finds a number of important trends, such as:
States with policies in place to rationalize debt usage before and during the recession were less likely to borrow for operational expenses and pension funding
Reliance on non-recurring revenues and borrowing during and before the recession often exacerbated budgeting challenges in future years
States with a well-funded Rainy Day Fund were able to get through the recession with less borrowing, fund transfers, and spending cuts
States with already low bond ratings were more likely to use debt financing during the Great Recession
Pension/OPEB liabilities and structural deficits greatly limited states’ flexibility and posed challenges to maintaining services and investments
States that raised taxes during the recession and sunsetted them before their economies fully recovered generally had to deal with budgetary shortfalls in future years.
This report was prepared for New Jersey Policy Perspective (NJPP) by a practicum of graduate students from the Rutgers University Edward J. Bloustein School of Planning and Public Policy under the advisement of Dr. Cliff Zukin: Alex Barree, Vineeta Kapahi, Rafay Kazmi, Benjamin Levy, Jeehye Min, and Emilia Piziak.
To read a PDF version of the full report, click here.
The well-being of New Jersey families relies on their access to high-quality, affordable health coverage, which should be easy to obtain without fear. This is a challenge, however, for legal immigrants and citizens who live in mixed-status households (where at least one family member is undocumented) due to federal policies that penalize immigrants who enroll in NJ FamilyCare (NJFC). Last year, the Trump administration proposed an expansion to the “public charge” rule that would deny green cards and various visas to certain immigrants if they are enrolled or were deemed likely to enroll in a safety net program, including Medicaid. Despite the overwhelming public comments opposing the change, it was scheduled to take effect on October 15, 2019 until it was enjoined by multiple federal courts.
While
the rule change has yet to be implemented, it has already had a chilling effect
on legal immigrants and citizens in mixed-status households who are now
dropping out of or not applying for public health coverage for fear of
retribution. Last year, one in seven adults in immigrant families nationally
reported that they or a family member did not enroll in a public benefit
program because of the proposed public charge rule.[i]
The new 2018 census data shows a steep increase in the number of uninsured
Hispanic and Asian children in New Jersey, further demonstrating the enormous
harm of anti-immigrant policies here in the Garden State.
More Uninsured
Asian and Hispanic Children
Immigrant
and citizen children in mixed-status households may have been harmed the most
by the Trump administration’s anti-immigrant policies, especially as it
concerns health coverage. Over the last year, there is a stark difference in
the change in coverage for kids who are White or Black and kids who are Asian
or Hispanic (Asian and Hispanic residents in New Jersey represent 85 percent of
all immigrants).
While
the total number of uninsured children remained about the same in New Jersey,
it decreased by 3,591 for White and
Black kids and increased by 2,621 for
Asian and Hispanic kids. This is consistent with national trends as well. For
example, the national uninsurance rate for Hispanic children increased
significantly to 8.7 percent in 2018 from 7.7 percent in 2017.[ii]
Many children are harmed
by the public charge rule even if it does not apply to them, as their parents
do not always know this. The rule is complicated and strikes fear,[iii]
which understandably has a chilling effect on many immigrant and mixed-status
families. The chilling effect extends to children who are citizens as they can
be living in households where another family member is an immigrant. The loss
in health coverage for Hispanic and Asian kids is alarming because they already
represent 54 percent of all uninsured children.
Historic
Drop in Enrollment for Children in NJ FamilyCare
The
increase in the number of uninsured Hispanic and Asian kids mirrors national
trends and helps explain the major decrease in child enrollment in NJFC in
2018.[iv]
Enrollment for children decreased by a startling 30,000 in 2018 from the peak
of May to December. While the low unemployment rate during that time is a factor,
researchers have concluded that the drop is too large to be explained by
falling unemployment alone.[v] The new
census data show that another cause is likely that parents are not enrolling
their kids in or are dropping out of NJFC because of federal anti-immigrant
policies that incite fear and mistrust among Hispanic and Asian families.[vi]
Drops
in Enrollment Result in Lost Federal Funds and Higher Charity Care Costs
As
result of this decrease in enrollment for kids, New Jersey is losing about $5
million in federal matching funds every month compared to the peak in May 2018.[vii] This
will also have an economic impact because lost federal funds will result in
lost jobs. Furthermore, hospitals are incurring $8.5 million in charity care
costs to treat uninsured kids.[viii] This
causes higher costs for taxpayers because part of charity care costs are
reimbursed with federal and state funds. It also harms hospitals because the
reimbursement they receive only defrays about half their full costs.[ix]
If Trends Continue, the
Uninsurance Rate for Children Will Increase in 2019
Even
more alarming, the decrease in enrollment for children is likely to be even
greater in 2019 based on current NJFC enrollment trends. As of August 2019,
enrollment decreased to 780,000, the lowest level in approximately five years.
Thus, this problem will likely only get worse and could result in the total
uninsurance rate for kids rising significantly in 2019 for the first time since
the Affordable Care Act was implemented, just as it already did at the national
level in 2018.
Public Health Coverage
for Immigrants Decreased Sharply in 2018
The
census also provides data on enrollment in all public health coverage programs
based on citizenship for all New Jerseyans regardless of age.
Most likely this
decrease is in NJFC because the only other large public health program is
Medicare which has very stable enrollment. The percent of New Jerseyans with
public health coverage remained about the same for native born and naturalized
citizens but decreased by a startling 14 percent for immigrants. That meant
there were 23,000 fewer immigrants enrolled in public health coverage in 2018
compared to 2017.
This
decrease is particularly disturbing because immigrants already have the highest
uninsurance rate compared to citizens in 2018 (31 percent vs 4 percent).
New
Jersey has the third highest share of immigrants in the nation, and immigrants
represent 41 percent of the state’s uninsured. This is the main reason why New
Jersey scores near the national average in the uninsurance rate, in sharp
contrast to other positive measures that New Jersey ranks very high in like
median income and a low poverty rate. New Jersey can’t hope to become a top
state in health coverage, much less achieve universal health coverage, without
covering more immigrants.
Urgent
Action Needed
Immigration
policy may be set at the national level, but there are proactive steps the
state can take to mitigate the harm caused by the Trump administration. Some of
these actions have already been taken, such as the state opposing and suing the
federal government on the proposed public charge rule. In addition, the state
is expanding outreach for the marketplace starting November 1, 2019, which
should help in enrolling more immigrants. Starting in 2021, the state will also
take over all the operations of the marketplace, which has been run by the
federal government.
It
will be critical that the state develop targeted strategies to reach Asian and
Hispanic immigrants. The state needs to improve outreach to make sure
immigrants are fully aware of the proposed public charge rule, which is
currently stuck in the courts. The rule will only directly affect a relatively
small number of immigrants, but each immigrant will need to weigh the risks and
benefits to
themselves and their family in deciding whether they want
to apply for NJFC and other safety-net programs.
To
address this problem, the state should enact legislation that makes all
children eligible for NJFC regardless of immigrant status and allocates
outreach funding to organizations that have the trust of immigrants to reach
and enroll more children in NJFC. Administrative barriers to enrollment in the
Child Health Insurance Program (CHIP) portion of NJFC should be eliminated,
like premiums which are the second highest in the country. In addition, the state requires that children
must be uninsured for 90 days before they can be eligible for CHIP, a needless
restriction that should also be dropped.
Taking proactive steps to insure all kids—regardless of where they were born—will make New Jersey’s children healthier and save the state money on charity care costs. New Jersey cannot afford not to enact these reforms.
To read a PDF version of the full report, click here.
A prosperous New Jersey depends on the livelihood of all our workers. In fact, the state economy benefits most when workers are able to earn fair pay for all the hours they work while balancing employment responsibilities with family obligations. However, millions of people across the nation, including hundreds of thousands in New Jersey, are not covered by overtime protections and risk being exploited for their time.[i] This is a direct result of federal overtime laws that have eroded over time—and the lack of a strong state overtime law—where far too many workers are exempt from the right to earn time-and-a-half when they work over 40 hours a week.
Currently, some salaried white-collar workers who
earn more than $23,660 a year can be legally denied overtime pay. These
exempted workers (1) are considered “highly compensated,” earning at least $455
per week ($23,660 per year), (2) have primary office or non-manual duties, and
(3) pass the “duties test,” a complicated test of employees’ tasks and
responsibilities that establish them as a bona fide executive, manager, or
highly trained professional.[ii]
The federal overtime salary threshold for these exempted workers will increase
to $35,568 in 2020, but this still falls significantly short of historical standards.
When overtime protections were created in 1938,
Congress authorized coverage for most workers. Still, specific groups of
white-collar workers were exempted (as outlined above) under the presumption
that “bona fide” executives, administrators, and skilled professionals
possessed high enough salaries and enough individual bargaining power that they
were not at significant risk of exploitation.[iii]
However, the federal salary threshold has severely
eroded over the years from not being updated or indexed to inflation or wage
growth. Over the past four decades, the percentage of full-time salaried
white-collar workers who are guaranteed overtime pay has fallen significantly
from 63 in 1975 to less than 7 in 2016.[iv]
The last time the federal salary threshold was
meaningfully updated was in 1975, when it was 3 times the federal minimum wage.[v]
From the 1940s through the late 1970s, the threshold remained above 2.5 times
the minimum wage in all but two years (for those two years, the threshold only
fell to 2.3 times the minimum wage).[vi]
If this minimum threshold of 2.5 times the minimum wage held constant for New
Jersey, it would be $52,000 per year for salaried white-collar workers at the
current $10 minimum wage in 2019 and $78,600 in 2024 when the upcoming $15 minimum
wage rate takes effect in New Jersey.
In 2016, the U.S. Department of Labor (DOL), under
the Obama Administration, attempted to increase the overtime threshold to
$47,476 per year for full-time, white-collar salaried workers and tie future
automatic increases to the cost of living.[vii]
However, a federal judge in Texas blocked the Labor Department from enforcing
the higher threshold after it was challenged in court by a coalition of
Republican-controlled states and business groups. In response, the U.S. DOL,
under the Trump Administration, watered down the 2016 proposal to a $35,568
threshold starting in January 2020. The Trump Administration’s rule only covers
one third of the workers that Obama Administration’s DOL rule would have
covered, leaving behind 8.2 million workers across the country, including
280,000 in New Jersey.[viii]
It also does not include automatic indexing which means the threshold will soon
erode and cover far fewer workers.
If New Jersey adopts its own overtime threshold at
2.5 times the minimum wage—$78,000 by 2024—it would restore the standard from
the 1940s through the late 1970s. By 2024, when the state minimum wage reaches
$15 an hour, 842,000 salaried white-collar workers would gain coverage,
representing 38 percent of total salaried workers. Specifically, 315,000 would
gain overtime protections for the first time and 528,000 would have
strengthened protections, as they would be less likely misclassified as exempt,
white-collar workers. Under this threshold, 287,000 more workers would gain new
overtime protections than under the Trump administration’s new overtime
threshold.
Of these covered 842,000 salaried workers, more than
half are women and nearly one third are parents. In addition, nearly half of
the workers are Black, Latinx, and Asian and 69 percent are prime working age
adults (25–54 years old).
Under the 2.5 times the minimum wage salary
threshold, New Jersey workers, their families, and the broader state economy
would benefit. For workers, this means that those who were previously required
to work extra hours without extra pay would receive the wages they earned,
boosting their take home pay. If they choose not to work overtime, workers
would have more invaluable time to spend with their families.
For the economy, raising the overtime threshold can stimulate job growth. An employer may find it advantageous to hire more workers instead of paying overtime premiums for extra hours by existing staff.[ix] Also, expanding overtime protections will benefit the state economy as it will increase worker productivity and improve profitability for businesses. Research indicates that being overworked is associated with lower rates of output, and reductions in working hours within some industries has increased productivity.[x] Further, raising the overtime threshold will likely increase pay and therefore strengthen consumer power, which is a proven way to grow an economy from the bottom up. When people have more money in their pockets, they are likely to spend a portion of those increases locally, thereby supporting local businesses and boosting their local economy.
New Jerseyans who work extra hours deserve the right to overtime pay. Regrettably, federal policymakers have not prioritized these workers as overtime protections have drastically eroded. It’s up to state lawmakers to step in to protect New Jersey’s working families from unfair and exploitive labor practices.
To read a PDF version of the full report, click here.
When the Economic Opportunity Act was signed into law in 2013, New Jersey signaled to corporations that it was “open for business.” The idea was, by offering overly generous corporate tax subsidies, more companies would choose to expand in or relocate to the Garden State. This, in turn, would create more jobs for New Jersey residents, providing a much-needed boost to the economy.
Instead, by removing oversight safeguards and caps on awards, the economic development legislation enabled an unprecedented spike in corporate tax breaks with questionable benefits, depressing future tax revenue for years to come. Today, New Jersey is a national outlier in both the size of its corporate subsidy awards and how little the state receives as a return on its investments.
For years, New Jersey lawmakers fixated on big-ticket corporate tax incentives as a key driver of economic development without credible evidence that more is better — and little attention to the collateral consequences or opportunity costs.
But times have changed. High-profile debacles like FoxConn in Wisconsin and Amazon’s infamous HQ2 search have undermined the public’s perception of this costly strategy, both across the nation and here in the Garden State. Now is the opportune time for reform.
The next iteration of New Jersey’s economic development strategy must embrace two strategies. First, pivot away from overly generous tax breaks — with little oversight — to large corporations, and instead tailor the programs toward new companies within promising sectors in locations that have a greater need for job opportunities. Second, and more importantly, redirect the bulk of economic development dollars back into the public assets that benefit all employers and have a proven track record of making New Jersey an attractive place to grow a business: customized job training, safe roads and bridges, affordable homes, child care, and high-quality public schools from pre-Kindergarten through college.
To rein in New Jersey’s corporate subsidies, lawmakers should implement the following reforms:
Goals driven by national best practices
Hard caps on annual and per-job awards
Shorter award timeframes
Local hiring agreements
Strict reporting and evaluation criteria
Stronger net benefits test
Restrict sale of tax credits
Mandatory labor protections
Community benefit agreements
Prohibit awards to documented “bad actors”
By reining in New Jersey’s corporate subsidies and implementing best practices from across the nation, lawmakers can spend less and get more. They can grow an economy that truly generates prosperity for workers, their families, and their communities.
New Jersey’s Corporate Subsidies: Big Cost, Small Return on Investment
On the heels of the Great Recession and under a new administration, New Jersey lawmakers put all their eggs in one basket — corporate tax subsidies — to help jump-start the state economy. In 2010, Governor Chris Christie’s first year in office, New Jersey approved $353 million in corporate tax subsidies, a whopping 163 percent increase from the year prior. The price tag of corporate tax breaks surpassed $1 billion for the first time in state history in 2013. At the end of that year, the Economic Opportunity Act of 2013 (EOA) removed all meaningful caps and safeguards from the state’s corporate subsidy programs, opening the door for enormous tax breaks for the next several years. Meanwhile, as the state committed billions in lost tax revenue to already profitable corporations, the state simultaneously cut funding for public schools, NJ Transit, property tax relief, colleges and universities, and affordable housing — all proven drivers of widespread economic growth.
Awards and subsidies of this size are woefully out of sync with economic development strategies in other states. Whereas the average per job cost of corporate tax incentives hovers around $33,000 nationwide, New Jersey’s unrestricted spending spree on subsidies led to a record breaking $105,192 per job price tag in 2015.[i] Today, the cost still exceeds $80,000 per job.[ii] In Camden, where special provisions in the EOA allowed for bonus awards, the average spending on tax subsidies totals a whopping $215,000 per job.[iii] In some deals, New Jersey agreed to tax breaks worth more than half a million dollars per job.
This overreliance on corporate tax subsidies flies in the face of economic development best practices and ignores New Jersey’s precarious fiscal condition. In testimony delivered to a senate committee on economic growth strategies, national experts agreed that corporate subsidies like New Jersey’s have questionable benefits for the public good.
According to Dr. Timothy Bartik, Senior Economist at the W.E. Upjohn Institute for Employment Research, at least 75 percent of incentives have no effect on job creation.[iv] Worse, corporate subsidies rarely, if ever, pay for themselves because nearly all revenue gained from job creation is offset by necessary public costs used to mitigate its impact. Jackson Brainerd, a policy specialist from the National Conference of State Legislatures, reiterated this position, stating “there is no evidence that the number of tax incentives offered bears any relation to the broader performance of the state’s economy, and there’s quite a bit of evidence that tax incentives often fail to achieve their stated goals and have a negative impact on state fiscal health.”[v]
Of the $11 billion in tax subsidies approved since New Jersey began offering them, an outstanding majority have yet to be redeemed. The state’s biggest subsidy programs — Grow New Jersey Assistance (Grow NJ), Economic Redevelopment & Growth (ERG), and Urban Transit Hub Tax Credit (HUB) — awarded approximately $8 billion in subsidies. Yet fewer than 9 percent of those tax credits have been distributed to corporations that met their qualifying goals, according to the state Comptroller.[vi]
That means the drag on New Jersey’s finances has yet to be fully realized. Starting in fiscal year 2020, already-approved tax breaks are estimated to cost New Jersey over $1 billion annually in foregone tax revenue.[vii] That figure is likely to grow in future years as more subsidies granted under the EOA are redeemed.
A New Approach to Economic Development: 10 Key Reforms
To improve the quality of New Jersey’s corporate incentive programs, it is vital for lawmakers to pursue a more fiscally responsible approach to economic development that reins in the volume and scope of subsidies. This is especially important considering the state’s ongoing struggles meeting its past and current budgetary obligations.
New Jersey should also consider implementing a regional corporate subsidy ceasefire agreement with neighboring states that share a labor market. Modeled after the Kansas City pact, this innovative interstate agreement sets a powerful precedent for the tri-state area, where corporations often threaten to cross state lines in exchange for millions in tax credits.[viii] When tax credits are given to companies that ultimately move within the same metro region, no new jobs are actually created, as they’ve merely shifted to a different address. A ceasefire agreement would end this costly race to the bottom and demonetarize the blackmail tactics made by corporations in exchange for tax subsidies. A resolution introduced by Senator Joe Cryan could be the vehicle for a more regional approach to economic development.[ix]
1. Goals Driven by National Best Practices
Before addressing the design, implementation, and oversight of its tax subsidy programs, policymakers should first take a step back and take a long view of the state’s role in large-scale economic growth. Is the goal of the state’s economic development strategy to encourage new job creation? How important is it to play the defensive strategy of keeping jobs from leaving the state? Should the main focus be on boosting economic activity in distressed areas, increasing the state’s supply of affordable housing, or investing in young, fast-growing companies? Should subsidies be earmarked for sectors that show the greatest potential for growth in the Garden State?
Once the goals are clarified, policymakers would better serve the public good by abiding by the so-called “rule of 98 and 2.”[x] Businesses typically spend less than 2 percent of their total costs on state and local taxes. The other 98 percent consists of variables such as labor, occupancy, raw materials (or other inputs), IT, marketing, administration fees, and logistics. New Jersey should treat their economic development dollars in the same manner: de-emphasize large awards for a tiny percentage of corporations and, instead, invest heavily in the basics that benefit businesses across the state like development of an educated workforce with quality K-12 and higher education, reliable infrastructure, affordable homes, and specialized job training programs.
2. Hard Caps on Annual and Per Job Subsidy Awards
New Jersey has offered corporate tax subsidies as an economic strategy since the 1990s, and though each iteration was slightly different, they always included annual limitations on cost — until the Economic Opportunity Act of 2013. Under the EOA, the job creation program had a spending cap, though it was repeatedly lifted by the legislature. Bypassing such an important cost-control mechanism opened up a Pandora’s Box of already wealthy corporations taking advantage of generous tax breaks with lax oversight. If the Grow NJ program included a hard $200 million spending cap per year, New Jersey would have awarded $4 billion less in tax breaks over a seven-year period — a whopping 74 percent savings.
Research by the Pew Charitable Trusts highlights that well-designed tax subsidy programs utilize annual cost limits to address long-term affordability upfront and keep annual costs more predictable.[xi] Governor Murphy’s proposed subsidy programs feature annual spending caps, though the larger programs allow for some flexibility that could prove costly.[xii] The Murphy administration’s jobs-based program, NJ Forward, has an annual soft cap of $200 million with the option to lift the cap by as much as $100 million. The real estate subsidy program, NJ Aspire, has a spending cap of $100 million allocated through biannual applications, with some large-scale projects excluded from the cap. Three other proposed programs have annual caps of $60 million or less.
To both increase the legislature’s role in oversight and restore the public’s trust in how government invests tax dollars, spending caps should be on the smaller side without exception. Allowing flexibility as proposed in NJ Forward is excessively subjective and vulnerable to the political pressures of a proposed megadeal. Similarly, a proposal introduced by Senator Singleton would give the legislature the authority to enact spending caps on a year-to-year basis for tax credits that foster job creation or retention based on EDA projections.[xiii]
If these programs were instead funded by appropriations, like most government programs, it would give the governor and lawmakers more control of their costs. It would also create another opportunity for lawmakers to understand the size and scope of the state’s corporate tax subsidy programs and hopefully encourage a healthy debate about the right level of funding and how to improve their effectiveness. Although an appropriations process is far more common for cash incentives than it is for tax incentives, it can work for tax incentives, too, according to the Pew Charitable Trusts. For example, in Florida’s budget each year, lawmakers set how much money will be available for several of the state’s programs, including cash and tax incentives. This isn’t a new strategy for New Jersey; the former Business Employment Incentive Program (BEIP) was subject to annual appropriations in the state’s budget.
The removal of spending caps in the EOA also led to skyrocketing per-job costs. New Jersey’s average award per job since the end of 2013 is $81,300. In Camden, the average is $200,570 per job. Taxpayers subsidized 250 new jobs linked to the Philadelphia 76ers new practice facility for an astonishing $328,000 per job, while 395 new and retained jobs at Holtec cost $658,228 each. At such a price, taxpayers can never break even. That is, workers at such firms are never going to pay $300,000 or $600,000 more in state and local taxes than public services they and their families consume. Considering these egregious costs, New Jersey’s outsized subsidy levels should be cut in half, at least, as measured by dollars-per-job. The Murphy administration’s proposal includes a sensible dollars-per-job cap ranging from $2,400 to $6,400 per year, which is more in line with at least 16 other subsidy programs across the country that impose caps of less than $10,000 per job.[xiv] This best practice helps to avoid giving mega-tax breaks to just a few companies without adequate evidence that the economic benefit will eventually pay for them.
3. Shorter Award Timeframes
New Jersey currently allows projects to qualify for corporate tax subsidies that are paid out over the course of 10 to 20 years, which is much longer than necessary and out of sync with best practices. Research shows that corporations are far less persuaded by money that they are promised a decade from now.[xv] Offering shorter timeframes means a state can spend less on subsides and more easily predict when business will earn or use the awarded credits while receiving the same benefits. The NJ Forward program, the Murphy administration’s job creation proposal, includes this best practice by imposing a timeframe of three years with a built-in two-year extension, if necessary.[xvi] The proposal also requires businesses to document performance indicators while committing to maintain their operations in the state for twice as long as their award timeframe. Further, the Murphy administration’s proposed historical preservation and environmental cleanup programs have one-year timeframes. With shorter timeframes, New Jersey can be better assured it is “moving the needle” on corporate decisions while avoiding long-term budget problems.
4. Local Hiring Agreements
Under the EOA, the EDA awarded large-scale tax subsidies to “distressed municipalities” to encourage investment, business development, and employment in those areas. New Jersey’s designated Growth Zones include Atlantic City, Camden, Passaic, Paterson, and Trenton. However, the overwhelming majority of these awards — over 85 percent — went to Camden without specifically tailored requirements to ensure local hiring.
Thirty-six projects were approved since 2013 without any meaningful guarantee to Camden residents that local hiring would be a priority. Instead, the subsidized jobs were typically filled by workers who commute across city limits, while the vast majority of construction jobs associated with 25 subsidized projects were taken by workers from outside the city.[xvii]
This further debunks the trickle-down philosophy underpinning the state’s economic development strategy. Simply targeting subsidies in a “distressed municipality” does not guarantee jobs, let alone good paying ones, for local residents.
Tax subsidies for distressed local labor markets must be tied to first source hiring agreements and customized job training to encourage prioritized hiring of unemployed and underemployed local residents.
Research demonstrates that this targeted strategy has social benefits that endure even if the initial job is short-lived.[xviii] In other words, efficiently run job training programs may give New Jersey a better return on investment than reducing the tax burden of corporations. The Murphy administration’s proposal offers bonuses in its job creation program to encourage local hiring.[xix] But local hiring should instead be a requirement.
5. Strict Reporting and Evaluation Criteria
Based on the selected findings of the state Comptroller’s audit and the EDA Task Force, major flaws persist in the state’s monitoring of tax subsidy recipients and evaluation of the EDA’s overall effectiveness. In 2007, the state mandated a report — the Unified Economic Development Budget (UEDB) — to provide important and detailed information about larger tax subsidies and the types of jobs they created. That report has never been produced. While there have been annual reports on tax breaks produced since 2010, the UEDB would provide a more comprehensive look at the state’s subsidy programs. The EDA has taken steps to produce a similar annual report, but it is not enough given the mounting evidence of mismanagement, or worse, corruption.[xx] The Treasury Department must release the annual UEDB report going forward.
Policymakers must first assess why New Jersey has a track record of failing to monitor and enforce its performance standards before crafting effective and enforceable reform measures. The assessment criteria in the Murphy administration’s proposal includes annual reporting by award recipients on the number of new and retained jobs, along with their salaries.[xxi] Self-reporting like this should be paired with real-time data from the Departments of Labor and Treasury to ensure accuracy and oversight.
Lawmakers must also fully commit to establishing a regular, independent evaluation process in order to effectively analyze the design, administration, and effectiveness of the state’s subsidy programs. The recent studies from the Bloustein School at Rutgers University and the Comptroller are not enough. Pew’s research shows that states benefit significantly from recurring evaluations. This is evidenced by thirty states utilizing this sort of evaluation process, with many states acting on the findings to reform their tax subsidy programs.
The Murphy administration’s proposal includes a biennial, independently produced report with a detailed analysis of the tax subsidies’ effect on a business’ relocation decision, the return on investment for the award, the impact on the state’s economy, and other metrics based on national best practices.[xxii] However, rather than relying on a sub-contracted college or university for such a report, a biennial performance audit produced by the Comptroller would be much more effective as it is less likely to invoke any concerns over conflicts of interest.
Finally, lawmakers must get a better handle on the budgetary impact of already-approved subsidies, i.e., of cumulative tax credit liabilities. Without this data, policymakers are left in the dark when the costs of tax subsidies begin to rise, leaving them unprepared for increases or ill-equipped to change the design of the programs. Right now, at the request of the Office of Legislative Services (OLS), the EDA voluntarily provides 5-year fiscal impact estimates of already approved awards on the state’s budget.[xxiii] Should OLS cease to ask for this information, there is no guarantee that the EDA will continue to supply such data. This is especially concerning for New Jersey given the enormous long-term obligations the state has incurred since the EOA was enacted. Policymakers would benefit from an annual forecast of the cost of each program in addition to data on maximum liabilities. Not only should this forecast be required by law to ensure transparency, but it should more closely match the lifespan of the approved tax subsidies to generate a better estimate of long-term future revenue losses. A multi-year forecast requirement is not included in the Murphy administration’s proposal.
6. Stronger Net Benefits Test
Lawmakers need to build upon the EDA’s changes to the “net benefits test,” which is the statutory formula used to estimate the economic benefits of tax subsidies. As a basic taxpayer protection, a strong net benefits test restores a sense of fiscal responsibility and realism that has been sorely lacking since the passage of EOA. The EDA’s “net positive benefit” test has since been improved to cover the time period a business commits to maintaining the awarded project. However, there are loopholes that allow projects within a specific place, particularly Camden, to water down this provision.[xxiv]
The clawback formula in the net benefits test has also been improved administratively, but it does not apply to every project administered by the EDA. It is imperative that carve-outs for this provision be eliminated.
The legislation guiding the EDA can be significantly improved to deliver better outcomes for workers and communities with the following recommendations: codify stringent tax subsidy standards for retained jobs, close all job retention loopholes in EOA, and place a cap on the percentage of tax subsidy dollars awarded for job retention (e.g.,10 percent of gross tax credits).
7. Restrict Sale of Tax Credits
It sounds counterintuitive, but most New Jersey tax credits are not claimed by the companies to which they were awarded. Why? Because the “tax credits” are so large, they greatly exceed the companies’ tax liabilities. When this happens, a recipient firm is legally allowed to sell its award to other businesses for cash on a secondary marketIn fact, most recipients of tax subsidies in New Jersey do just that. The buyers are usually large corporations that have substantial tax liabilities and can use the credits, dollar for dollar, to reduce their tax bills. So these “tax credits” are not tax breaks for the recipient companies; they are actually cash gifts to them. Since 2011, over three-quarters of the corporations that received tax credit awards sold their tax credits, and at a significant discount.[xxv] This practice then leaves the state Treasury to contend with front-loaded corporate tax revenue shortfalls; it does not learn of tax credit sales until the new owner files to cash them in.
The sale of tax credits would still be allowed under the Murphy administration’s proposal, but with a nod toward better transparency by making these transactions publicly available on the EDA website.[xxvi] If the ultimate beneficiary of a tax credit award is not disclosed, then the state’s largest tax expenditures for economic development are hidden. In some cases, a 10 percent sales tax would be applied, helping close revenue gaps caused by the companies cashing the credits in. These are important first steps, but more should be done to restrict a practice that benefits corporations more than New Jersey taxpayers. For starters, the 10 percent sales tax should be applied to the sale of all tax credit awards, and documented “bad actors” should be barred from purchasing tax credits on the secondary market (see below).
8. Mandatory Labor Protections
Under the EOA, applicants of Grow NJ were offered a bonus of up to $1,500 per job if the average salary was either more than the existing county average or more than the average salary in one of the Growth Zone cities (Atlantic City, Camden, Trenton, Passaic, and Paterson). Offering bonuses as a way to further an important policy objective, such as creating jobs that pay a living wage, is an insufficient approach. In fact, the EOA had originally mandated that building services workers (such as custodial and security staff) on any project or development that received tax credits could be paid no less than the prevailing wage for that industry or sector. It was the only part of the Economic Opportunity Act of 2013 conditionally vetoed by then-Governor Christie.
A bill introduced by Senator Singleton would reinstate this provision, while the Murphy administration’s proposal goes further, including not just building workers but also construction workers.[xxvii] Still, policymakers should be more proactive to ensure that all new subsidized jobs have salaries that are above existing market averages for the geographic area, industry, or occupation.
Policymakers should also mandate other labor protections that play a key role in fostering a strong and healthy state economy in New Jersey. For example, companies that receive tax subsidies should be required to implement fair work schedules and production quotas, provide affordable healthcare, and guarantee workplace safety standards. These priorities are critical because when workers have rights, wages go up, poverty rates go down, the use of government benefits programs decreases, workers’ safety improves, and economic stability and prosperity prevails.
9. Community Benefit Agreements
The Murphy administration’s reform proposal features bonus structures to encourage community benefit agreements to generate local employment, good paying jobs, innovative technology, incubator development, and more.[xxviii] However, offering bonuses does not go far enough in advancing critical policy priorities.
Lawmakers should eliminate bonus options as a tactic and instead require community benefit agreements for all projects to encourage strong environmental standards, job training, targeted labor protections, affordable housing set-asides, and market-based wage standards. This model allows community groups to have a voice in shaping a redevelopment or job creation project by pressing for community benefits that are tailored to their particular needs. The fulfillment of commitments made to the community by the award recipient would need to be submitted to the EDA in order to certify their compliance with the community benefits agreement.
10. Prohibit Awards to Documented “Bad Actors”
Currently, the EDA has rules in place which prohibit corporations from receiving tax subsidies if they have violated certain state and federal laws. However, the process of vetting applicants properly has proven to be faulty based on recent reports of awards going to corporations that should have been disqualified from the very beginning.[xxix] Again, staff at the EDA need better training to ensure tax dollars are not benefitting bad actors. Additionally, the scope of what constitutes disqualification should be expanded. Senators Cruz-Perez and Singleton have introduced a bill that would deny tax subsidies to businesses that are two years or more delinquent on a previously awarded loan.[xxx] Other types of bad corporate practices that should lead to disqualification include parking profits offshore to avoid federal and state taxes and any violation of federal law in the last five years.
Endnotes
[i] Prepared testimony of Dr. Timothy J. Bartik, Senior Economist, W.E. Upjohn Institute for Employment Research before New Jersey State Senate Select Committee on Economic Growth Strategies, September 2019. https://research.upjohn.org/presentations/60/; NJPP analysis of New Jersey Economic Development Authority public data, accessed via the EDA website. The data is up-to-date through the August 2019 EDA meeting.
[ii] NJPP analysis of New Jersey Economic Development Authority public data, accessed via the EDA website. The data is up-to-date through the August 2019 EDA meeting.
[iv] Prepared testimony of Dr. Timothy J. Bartik, Senior Economist, W.E. Upjohn Institute for Employment Research before New Jersey State Senate Select Committee on Economic Growth Strategies, September 2019. https://research.upjohn.org/presentations/60/
[ix] New Jersey Senate Resolution Number 158, Urges governors of New Jersey, Delaware, New York and Pennsylvania to collaborate on tax incentive agreement similar to Kansas and Missouri’s agreement.
[x] Greg LeRoy, Executive Director, Good Jobs First, Testimony before Governor Murphy’s Task Force on New Jersey’s Economic Development Authority Tax Incentives, July 9, 2019.
[xvii] Philadelphia Inquirer, NJ Tax-break Projects Hired Just 27 Camden City Residents for Construction Jobs, A State Analysis Found, September 2019. https://www.inquirer.com/business/nj-tax-breaks-camden-jobs-construction-economic-development-authority-20190912.html?__vfz=medium%3Dsharebar
[xxx] New Jersey Senate Bill Number 1576, Prohibits awarding of economic development subsidy to business if payment of principal and interest on previously awarded loan or loan guarantee is greater than 24 months overdue, https://www.njleg.state.nj.us/2018/Bills/S2000/1576_I1.PDF
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The Garden State has, on average, one of the best statewide systems of education in the nation, providing an important foundation for New Jersey’s communities to thrive. At the heart of this system is a workforce tasked with ensuring every student has access to a thorough education that can only be delivered by well-trained, highly qualified teachers.
Maintaining an educator workforce of the highest quality must be a top policy priority for New Jersey’s schools to excel. In addition, the state’s student body deserves a teacher corps that is as diverse as they are, especially given recent research that shows the positive impact of teacher diversity on student achievement. By this metric, New Jersey’s teacher workforce falls short of reflecting the diversity found in classrooms across the state, due in part to a legacy of racism and the challenges created by economic and racial inequities.
Given the crucial role teachers play in educating New Jersey’s children and leaders of tomorrow, it’s surprising that so little attention has been paid, until now, to the characteristics of New Jersey’s workforce. In this report, I take an in-depth look at New Jersey’s teachers: who they are, how they are paid, and how they vary across different types of school districts. My findings are:
Teachers in New Jersey make substantially less than similarly educated workers. Further, teacher benefits – pensions and health care – do not appear to make up for the gap in wages.
Much of the gap in teacher wages can be explained by the gender wage gap; however, college-educated women still see a decline in pay when they choose to teach.
Teacher salaries tend to be lower in less-affluent school districts.
New Jersey’s teachers don’t look much like the state’s student population: teachers are overwhelmingly white and female, and there is little indication the state’s teaching workforce is becoming more diverse.
Based on these findings, I recommend:
New Jersey must offer competitive wages and other compensation to attract qualified workers into teaching.
Given the wage gap for teachers, New Jersey should not degrade the value of teacher pensions and benefits, which help to close that gap.
The state needs to make teacher compensation competitive in all of its districts, not just the affluent ones.
New Jersey needs to take steps to make its teacher workforce more diverse.
Teachers Matter – Yet They Are Paid Less Than Similarly Educated Workers
While research shows that neither teachers nor schools can completely close the “opportunity gap” for disadvantaged students, the quality of teachers can and does affect student outcomes. Attracting well-qualified candidates into the teaching profession is critically important if New Jersey is to develop an educated workforce and overall thriving economy in the coming decades.
This report finds that teachers in New Jersey are paid significantly less than similarly educated workers. When controlling for hours and weeks worked, age, and geographic differences in the cost of labor costs, college graduates find they will earn much less if they choose to teach.
Previous research finds little reason to believe that teacher pensions and health care benefits make up for this gap. Any further of erosion of those benefits, however, is likely to make the total compensation gap for teachers even worse.
Part of the wage gap is explained by the gender pay gap; however, women who teach still suffer a significant wage penalty. The returns to earning a master’s degree are also much smaller for teachers than for other workers.
A Demographic Bubble in the Teaching Workforce
Teachers in New Jersey are younger than they were two decades ago: a demographic bubble has moved through the teaching workforce. But another bubble is coming; in two to three decades, many teachers will reach retirement age. This may be the best possible time for the state to strengthen and support its teacher pension system before another wave of teachers moves into retirement.
Teacher Pay Lags in Less-Affluent School Districts
All school districts should be able to compete for the best teacher candidates. Yet teacher pay varies significantly across different school districts. Experienced teachers will make more, on average, in the most affluent school districts. Charter school teachers make significantly less than public district teachers, even adjusting for experience.
Challenges Promoting Teacher Diversity
Recent evidence finds that students of color respond positively when more teachers of color are in front of their classrooms. Yet developing a diverse teaching workforce remains a challenge in New Jersey.
New Jersey’s teachers don’t look much like the state’s students: while 22 percent of students in 2016 were white females, white women made up 66 percent of the teacher workforce. The state should develop strategies – including offering competitive pay to highly-qualified teacher candidates – to bring more workers of color into teaching.
* * *
All of New Jersey’s students deserve a highly qualified and diverse teacher workforce. Yet teacher compensation lags behind other professions, making the recruitment of the best possible teacher candidates an ongoing challenge. The state should implement policies to strengthen teacher pay, protect benefits that help close the teacher wage gap, allow districts to compete fairly for prospective teachers, and promote a diverse teaching workforce.
The best investment a state can make is in its children, yet New Jersey is falling short in one of its most effective childhood health programs, the Child Health Insurance Program (CHIP). With the help of the Affordable Care Act, New Jersey has reduced the uninsurance rate by about a third since 2013.[1] Currently, about 800,000 children receive comprehensive quality health coverage in NJFC (which consists of both Medicaid and CHIP), which represents one in three children in the state.[2] The uninsurance rate is now so low that New Jersey is in a position where it can realistically achieve a goal that would have been unheard of only a few years ago: universal health coverage for kids.
That means more healthy children and a lower cost for taxpayers by preventing costly health problems later in life. The research is clear that coverage causes a reduction in adverse health outcomes for children, such as poorer health; avoidable hospitalizations; delayed prescriptions; less access to care from a specialist; newborn complications; no regular physician; unmet prescription needs; fewer visits to the emergency room; and death.[3] The research also shows major social benefits, such as fewer school absences[4] and higher graduation rates;[5] better jobs when these kids become adults;[6] as well as less medical debt and bankruptcies for the family.[7]
Assuring affordable health coverage for all kids is a historic opportunity that must not be wasted, but to meet this laudable goal, the state needs to overcome the following challenges:
New Jersey Is Still Behind Many Other States in Insuring Children
The state’s uninsurance rate dropped quickly from 2013 to 2015 (5.6 percent to 3.7 percent), but has remained flat for three years. In total, 78,000 children remain uninsured in New Jerseyand as many as 40 percent are not eligible for current programs.[8] Nineteen other states are doing better at insuring children than in New Jersey, many of which are much less wealthy, like Louisiana, Alabama, and West Virginia.[9] New Jersey’s uninsurance rate is higher than all Northeast states except Pennsylvania and Maine. Clearly NJFC has not lived up to its potential. Massachusetts and Washington, DC have essentially achieved universal health coverage for their children, so it can be done.
Federal Anti-Immigrant Policies Discourage Enrollment in NJFC
One of the main reasons that the uninsurance rate for children in New Jersey is higher than in many other states is that it has the sixth highest number of children in immigrant families in the nation and many immigrant parents are reluctant to enroll their children in any public program because of federal anti-immigrant policies. Like in many other states, for example, from May 2018 to January 2019, the enrollment of kids in NJFC declined by 33,000, resulting in the lowest enrollment in approximately four years.[10] While much of this decline may be due to the improved economy, it also probably means that fewer children are applying for assistance because of existing and proposed punitive immigration policies from the Trump administration.
Unfortunately, if enrollment trends in NJFC continue to be less than expected, the number of uninsured children will likely continue to remain flat — or actually go up. Of particular concern is the proposed “public charge” rule that could result in the denial of citizenship to legal immigrant parents if their child received Medicaid.[11] There are an estimated 150,000 citizen children in NJFC who have non-citizen parents who could be affected by the proposed public charge rule, which could result in between 22,500 to 52,500 children losing coverage.[12]
NJFC’s systemic outreach to schools is broad-based and not based on immigration status. New Jersey relies mainly on working with public schools to reach all uninsured kids, but other states have made extensive use of contracts with community-based organizations that have the trust of the Latino community to reach these families or have used evidence-based strategies, such as parent mentoring programs that employ the parent enrolled in Medicaid or CHIP to do the outreach.[13]
New Jersey Is Losing Up To $60 Million In Federal Funds for Uninsured Children Already Eligible for NJFC and the Marketplace
Over half (58 percent) of all uninsured children in New Jersey are eligible for, but not enrolled in NJFC — which has an income limit of 355 percent of the federal poverty level — and in the Marketplace, which has an income limit of 400 percent of the federal poverty level. That means most of them are eligible for coverage that is matched by the federal government at 50 percent in Medicaid and at least 65 percent in Child Health Insurance Program (CHIP). If New Jersey enrolled all these children, it would receive $60 million in federal matching funds.[14] Any new federal funds would increase economic activity in New Jersey because they have a multiplier effect since they come from outside the state and create new jobs.
Major Racial and Ethnic Health Disparities in Covering Children
Health equity means that every child should have an equal opportunity for good health regardless of the color of their skin. Unfortunately, that is not the case in New Jersey, as indicated by the uninsurance rates of children. The uninsurance rate for White kids is 2.2 percent. The rate for Hispanic children is three times higher, at 6.3 percent, while the rate for Black children is two and a half times higher, at 5.1 percent.
This data illustrates a disturbing reality in New Jersey — one of the most affluent states in the nation — as nearly three quarters (71 percent) of all children who are uninsured are children of color. In raw numbers, that means that 35,000 Hispanic children are uninsured, as are 15,000 Black children, and 5,000 Asian children, while only 21,000 white children are uninsured. We know that these inequities not only harm people of color when they are children, but when they grow up as well. For example, Black New Jerseyans die nearly five years earlier than white New Jerseyans.
Children from Lower-Income Families Are Much More Likely to Be Uninsured Than Wealthier Kids
Wealthier children in New Jersey are more than five times more likely to be insured than poor kids. Whereas the uninsurance rate for kids above four times the poverty level is only 1.5 percent, the uninsurance rate for kids below the federal poverty level is a staggering 8.7 percent. These children meet the income level for Medicaid (138 percent of the federal poverty level) which provides comprehensive benefits and no cost sharing, although some of them may not be eligible.
Health Coverage for Kids Often Depends on Where They Live
A child’s health should not depend on where they live, but that is often the case in New Jersey. Cumberland County has the highest uninsurance rate at 6.3 percent, which is four times greater than wealthy Morris County, which has the lowest rate at only 1.5 percent. Unlike some other states, counties in New Jersey do not provide health coverage for uninsured kids, so the only way they can obtain public coverage is through the state’s program, NJFC. The uninsurance rate for kids in Morris County is already near universal health coverage, but that is not nearly the case in other parts of the state, especially in other much less affluent counties with higher unemployment rates.
CHIP Premiums are Among the Highest in the Nation
New Jersey’s maximum premium ($152 a month) in CHIP is the second highest premium in the nation for families above 300 percent of the federal poverty level, the second highest (tied with New York at $90) above 250 percent of the poverty level, and the fourth highest ($45 a month) above 200 percent of the poverty level.[19] These high costs are especially problematic in New Jersey because the state has one of the highest costs of living in the nation, especially for housing, so these families have little left in disposable income for premiums. This policy is completely inconsistent with Medicaid in New Jersey, which does not charge any premiums. Twenty-one states do not charge any premiums.
Further, these exceptionally high costs are even worse than they appear, as New Jersey does not vary premiums by family size. For example, the maximum premium in New York for families above 300 percent of the federal poverty level is $135 a month, but for one child it is only $45. Missouri, Vermont and Washington all vary their premiums by family size.
Waiting Periods in CHIP Cause 90-Day Gaps in Coverage
Unlike 36 other states, New Jersey also requires that children must be uninsured for 90 days before they can enroll in CHIP if they leave employer-based coverage, which is the maximum allowed under federal law. The state does allow exceptions to the 90 days if they leave employer coverage through no fault of their own. Other than New Jersey, Maine is the only state in the Northeast that requires a waiting period. There is a growing recognition among states that this requirement simply creates another gap in health coverage. Within the last five years alone, at least 24 states have eliminated their waiting periods and two states moved all their children in CHIP into Medicaid, which does not require a waiting period.[20] States surrounding New Jersey that ended their waiting periods entirely are New York, Pennsylvania, Delaware, Connecticut, and Maryland.
Many Middle-Income Children Are Denied Coverage in CHIP
Citizen children who exceed the income eligibility level for NJFC at 355 percent of the federal poverty level and for the Marketplace at 400 percent of the federal poverty level are also denied any subsidized health coverage. There are 14,600 such children in New Jersey, which represents 19 percent of all the uninsured children. Technically they should still be eligible for CHIP because state law requires the establishment of a buy-in program that allows consumers to purchase the full cost of insurance at reduced rates. Such a program was in operation until 2010, when the Christie administration decided that they would not make the changes that were needed to make the plans compliant with the essential benefits that were required in the Affordable Care Act.
However, Congress has granted states new flexibility that will make it easier to administer a new program at lower rates. The savings to the consumer could be major with no cost to the state. The cost to insure a child in the private market is about twice the cost for coverage in CHIP.[21]
Unauthorized Immigrant Children are Ineligible for NJFC
There are about 17,000 undocumented, uninsured immigrant children in New Jersey who are also ineligible for NJFC under state law. These children represent 23 percent of all uninsured kids in the state. All six states and DC that have covered undocumented kids have lower uninsurance rates than in New Jersey. These states recognize that these children did not choose to live in this country — and they get sick just like any other kid. Ironically the state requires that they attend school and will pay for that education along with the local governments, but the state will not fund their health coverage. This investment in their education would be much more effective if these kids had health coverage as they would spend less time home sick or in school getting their classmates sick, too.
Recommendations
While these challenges are significant, there are common sense solutions that will cost little to implement yet could be a game changer in making affordable health coverage available to every child in New Jersey. Given that so many children in New Jersey are currently still without any health coverage, the steps below should be taken as soon as possible. All costs are annualized; State FY 2020 costs would be about half these estimates assuming an implementation date of January 2020 (half the fiscal year).
Develop Better Strategies to Reach More Uninsured Children
Earmark funding for outreach on a permanent basis. This will allow the state to conduct the targeted and intensive outreach necessary to enroll the remaining uninsured. This funding would also be used to research where underserved children live.
Focus outreach efforts on creating a permanent infrastructure of local organizations (including faith-based) that the community trusts which can effectively reach children with barriers to enrollment.
Authorize a parent mentoring program which has been shown to be more effective than traditional methods to insure Latino kids, improve health outcomes and increase employment for parents.
Authorize funding for community-based demonstration projects, in cooperation with public health agencies, schools and other local entities, to test various ways to provide health care for children of color and immigrant children who are unlikely to enroll in NJFC.
State Cost: $1 million for outreach, which could obtain up to another $1 million in federal matching funds and $1 million for demonstration projects, which may be eligible for federal funding depending on how they are structured.
Remove Major Administrative Barriers to Health Coverage
Consistent with Medicaid and all other families below 200 percent of the federal poverty level in CHIP, eliminate all premiums to other families in CHIP.
Like 36 other states, do not require that a child wholeaves employer-based healthcoveragemust be uninsured for 90 days before enrolling in CHIP.
State Cost: Eliminating premiums would result in lost collections of up to $28 million annually in CHIP which would be offset set by $22 million in federal matching funds resulting in a state cost of $6 million (this would rise to $10 million in the future as the federal CHIP matching rate gradually decreases to 65 percent). This does not take into account substantial administrative savings that would be achieved and that some of those collections would continue for co-payments which would not be eliminated. Ending the 90-day waiting period would increase enrollment by about 1,500 and cost about $900,000 in state funds which would be matched with $2.9 million in federal funds based on the experience of many states that have abandoned the waiting period.[22] This change would likely create administrative savings.
Cover Those Children Who Are Currently Ineligible For NJFC
Reinstate and improve the buy-in program for families above 400% of the federal poverty level as long as they do not have coverage availabletothem for less than 9.5 percent of the family income similar to ACA policy,with the goal of making it as seamless and cost-effective as possible and open to more than one insurer.
Authorize the state to require any or all the carriers to participate in the buy-in program as a condition for continuing to participate in NJFC.
Repeal any eligibility restrictions in NJFC based on immigration status.
Strengthen the rules for confidentiality to apply to all information relating to the administration of CHIP and Medicaid and allowing the state to withhold information from the federal government on children who receive health coverage at all state cost and where such sharing of information may not be in the best interest of the child.
State Cost: There is no cost for the buy-in because the parents would pay the full cost in their premiums and any administrative costs or costs associated with any possible adverse selection. It would cost about $10 million to make uninsured unauthorized children eligible assuming a 25 percent participation rate which does not consider reduced costs from a decrease in the spread of infectious diseases in schools in addition to other health and social savings outline earlier. Further, the federal government would still be responsible for paying the full cost for hospitalization which could reduce the above estimate significantly.
Improve Transparency and Accountability
Require that the work group, authorized under state law that advises the Department of Human Services on ways to improve outreach, meet at least annually.
Require the Department to submit an annual report to the legislature on actions it has taken and their results to provide affordable quality health coverage for all children in New Jersey and the extent to which coverage disparities have improved based on income, race/ethnicity, and geography.
State Cost: Insignificant administrative costs.
Possible Revenues
The $19 million total annual cost for all these recommendations ($9.5 million in SFY 2020 assuming a January 2020 start date) is statistically insignificant compared to a $15 billion budget for NJFC (the state cannot even project total NJFC cost from one year to the next within this level of accuracy). Thus, they should be funded with general revenues.
However, if additional revenues need to be identified for this expansion, it is likely that the savings which will occur as a result of the sharp drop in the child enrollment in NJFC due to existing and proposed federal anti-immigrant policies and a better economy could be more than sufficient to fund this proposal as would part of the revenues that would be generated by the Corporate Responsibility Fee proposed by Governor Murphy, which is based on the number of employees (and their dependents) who are enrolled in Medicaid at all public cost, or other similar fee.[23]
[3] Flores G. Lesley B, Children and US Federal Policy on Health and Health Care: Seen But Not Heard. JAMA 2005;168(12):1155-63. Pediatric.
[4] Howell Trenholm, et al, The Impact of New Health Insurance Coverage on Undocumented And Other Low-Income Children: Lesson From Three California Counties. Journal of Health Care for The Poor and Underserved, 2010.
[5] Cohodes, S, et al, The Effect of Child Health Insurance Access on Schooling: Evidence from Public Insurance Expansion. The National Bureau of Economic Research, 2014.
[6] D. Brown, et al, Medicaid As an Investment In Children: What Is The Long-Term Impact On Health Receipts? National Bureau of Economic Research, January 2015.
[7] M. H. Boudreaux, et al, The Long-Term Impact of Medicaid Exposure in Early Childhood: Evidence From The Program Origin, Journal of Health Economics, January 2016.
[13] Glen Flores, et al, Parent Mentoring Program Increases Coverage Rates for Uninsured Latino Children, Health Equity, March 2018.
[14] The average total cost in CHIP and Medicaid for a child is $2,400 which was multiplied times the number of kids who are eligible for NJFC (minus unauthorized immigrant kids). Federal matching is based on 50 percent federal funds in Medicaid and 65 percent in CHIP which was prorated base on eligible kids for each of these programs.
