The following testimony, on S3218, was delivered to the Senate Budget and Appropriations Committee on December 15, 2020.
Good morning, Chairman Sarlo and members of the Budget and Appropriations Committee. Thank you for this opportunity to provide my testimony on the proposed restructuring of Horizon. My name is Dr. Brittany Holom-Trundy, and I am a senior policy analyst at New Jersey Policy Perspective (NJPP). NJPP is a non-partisan, non-profit research institution that focuses on policies that can improve the lives of low- and middle-income people, strengthen our state’s economy, and enhance the quality of life in New Jersey.
This is one of the most complex pieces of legislation that state lawmakers have considered all year. As you know, the bill would change Horizon’s corporate structure to separate its health insurance operations from other business ventures; it would also give Horizon a tax cut. Because this proposal is crucial to the future of the state, it must be carefully considered in an open and transparent manner. There is no reason to rush the process and doing so would simply invite shortsighted decision-making and regrettable mistakes.
Due to the uncertainty of the bill’s fiscal effects, I have a couple of major concerns.
First, this bill doesn’t provide any information on the fiscal impact of this restructuring on the state. Yes, the $600 million upfront payment may seem enticing, but this is not simply about the lump sum payment. Changes to Horizon’s tax status can lead to significant losses that must be taken into account. For example, we do not yet have a fiscal note on the application of the tax cap law and how this difference, as well as other changes in tax obligations, will impact the funds that the state collects annually. The state is already receiving only a small fraction of the value of the public assets in this deal, and the calculation of the amount owed seems arbitrary at best. Further fiscal analysis of the restructuring by an independent entity is needed.
Additionally, the second part of these funds — the $650 million to be paid over a number of years — are not fully guaranteed, since they can expire under certain conditions. The state is essentially acting, then, as an unsecured general creditor. It is allowing Horizon to change its annual tax obligations for the long term without a backup plan should these funds go unpaid. If we consider this money to be a payment in lieu of taxes (PILOT), then the state should guarantee that the full value of the promised funds will be collected.
Past governors have fallen for the lure of upfront payments to fill budget holes during tough economic times; short-term fixes negatively affect the state’s finances and the state’s credit rating in the long term. We need a fiscal note and independent evaluation of Horizon’s assets and changes to its tax status to understand the full implications of this restructuring.
Lawmakers must consider slowing down this bill to ensure that the state and all New Jerseyans get the best deal possible from any restructuring.
Thank you for your time.