New Jersey's economy has underperformed for decades, in no small part because of the financial irresponsibility of governors and legislators in both parties.
The result is a fiscal situation that is dismal. And when you add the attack on the state by Congress'sdecision to reduce the state and local tax deduction, it is clear that business as usual is just not possible.
That reality has begun to set in and the legislative leadership on both sides of the aisle set up a panel to look at how the state could deal with the growing financial and economic issues. (Full disclosure: I was a member.)
The Economic and Fiscal Policy Workgroup was tasked with coming up with the best proposals, not the most politically feasible ones. We were essentially told to "either go big or go home" and although some may debate that was the final result, the report, released in August, does provide some major ideas on how to change the way the state operates.
Here is a summary of some of the key proposals:
Pensions are the 800-pound gorilla towering over the state's finances. New Jersey's politicians have methodically and intentionally underfunded the public sector workers' pension system. Required, contractually agreed-upon payments were diverted for other budgetary uses. The result is that New Jersey's system is one of the most underfunded in the nation.
The underfunding is so great that just increasing the state's contributions would not create financial stability unless the payments were massive. Major changes are necessary and the proposals center on reducing benefits, generally to newer workers.
There were also proposals to leverage the state's assets to ease the pension system's shortfalls.
It was suggested the state transfer assets into the funds. The private sector puts its physical assets on its balance sheet, but most governments don't. If assets, such as the turnpike, were placed on the pension system's balance sheet, the value of the assets backing the plans would rise, reducing the shortfall.
Similarly, the state's health plans came under the microscope. Retirees get high-quality insurance. In comparison, Pennsylvania's retirees get little or no health-care assistance. Again, the proposals lower benefits and raise payments, forcing beneficiaries to bear most, if not all, of the burdens of the expense reductions.
As for education, New Jersey has too many small school districts that are run inefficiently. As the report noted, "School districts with fewer than 1,000 students cost taxpayers 10 percent to 15 percent more per pupil than larger districts and are unable to provide as diverse a curriculum."
To ensure a high-quality education across all districts, merging districts that were not kindergarten through 12th grade into K-12 districts was proposed.
Special education was also considered.
Funding and program differences across districts are massive. The proposal is for the state to administer and fully fund extraordinary special-education needs and examine ways to restructure the special-education process to provide equivalent-quality services to all students across the state.
When it came to local governments, the belief is that services should be shared or merged so they are provided at more efficient levels. This would control costs and improve the quality of service. Merging services would require imposing uniformity in property assessments.
The structure of tax reform created significant debate. Everyone agreed that New Jersey's taxes, especially property taxes, are too high, too complex, and too inefficient and many proposals were suggested.
But, how to provide the tax relief is not a simple issue. Should it go to reducing income taxes or cutting property taxes?
Giving tax relief through the income-tax system allows the state to target needy groups such as poor families and lower-income elderly. But property taxes, which are a major hurdle to retaining and attracting businesses and households, would not be reduced.
If the changes directly cut property taxes, businesses would share in the reductions. For better or worse, that would lessen the amount going to individuals. Also, under the state's constitution, specific groups could not be targeted. Still, the high property tax barriers to growth would be lowered.
It is unclear how many of the proposals will become reality. There are always winners and losers in all changes. The proposals skewer many sacred cows and will be fought by individuals, business groups, unions, local governments, school districts, and other special interests.
But something must be done.
Implementing these proposals can ease the state's financial and economic problems, making New Jersey more competitive and hopefully increasing growth.