Friday, January 20, 2017

Why the ELC's "Just Fund the Formula" is Impossible

On January 17th, David Sciarra of the Education Law Center appeared
before the Assembly Education Committee and presented his solution to the crisis of New Jersey education aid:

"Just Fund the Formula"

However, before Sciarra got to "solution," he began with a preamble that unintentionally explained the pension crisis, when he boasted that New Jersey:

"leads the nation by funding our public schools not on available dollars or raw political considerations, but on the needs of students and schools"

First, this is inaccurate.  NJ has never properly funded working class and poor non-Abbotts.  The utopian dream that Sciarra refers to only applies to the 31 districts that were lucky enough to receive the NJ Supreme Court's "Abbott Remedy."  [see below for disparities of funding between Abbotts and poor non-Abbotts]

Anyway, Sciarra is right about the overall immensity of the spending though and it is that 20+ year budgetary history of ignoring "available dollars" that pressured Florio, Whitman, and their successors to ultimately abandon New Jersey's pension system.

Anyway, Sciarra started with a message that said, literally and loudly, :  
"Just Fund the Formula"

Let’s get right to the heart of why we’re here today.   
The problem with school funding is not our formula but the fact that Governor Christie, since he took office in 2010, has steadfastly refused to fund it, even at reduced levels. He also cut $1.1 billion from the formula in his first budget, an aid cut yet to be restored in many districts across the state. NJ school districts should be – but are not – receiving an additional $1 billion in state aid in the current school year. 
Another consequence of the Governor’s failure to fund the SFRA is that more school districts are now “below adequacy,” and the gap between “adequacy” and the state and local revenue in district budgets has grown. Each district’s “adequacy budget” is at the heart of the SFRA; it represents the level of spending, based on weighted student enrollment, districts must have to provide a thorough and efficient education. ....

Sciarra then spent much of his testimony criticizing Christie's "Fairness Formula," even though no one had spoken in favor of it, before getting back to his Just Fund the Formula "solution," concluding:

So let’s keep our focus on the SFRA and what we can do to get districts on a path to adequacy through the formula. We can start with three simple steps:
• Beginning with the FY18 State Budget, implement a multi-year phase-in of new state aid through the SFRA formula, targeting the aid to districts that are most under adequacy and/or experiencing significant increases in student population.
       [to be continued on Sciarra's other steps.]

Ok, poor me.

The time it takes to refute bullshit is many times the amount of time it takes to create the bullshit in the first place, but here is my explanation of why Sciarra's "Just Fund the Formula" is impossible.

Here goes:

New Jersey is one of the country's most indebted states, with up to $200 billion (state+local) in debt and unfunded liabilities.

Every year NJ's state revenue increases by about $1 billion through economic growth, but pension and debt servicing costs consume all that new revenue:

So David, the state is broke?  Get it?

But what about "making the rich and corporations pay their fair share?"

Ok.  Sure.  But raising the top bracket from 8.97% to 10.75% (which would give us the country's second highest top bracket) would only bring in $615 million and $615 million isn't even close to being enough to fully fund SFRA.

Sciarra would probably support other tax increases, like Combined Reporting, but the amount of money NJ might get from that is $100-$200 million, and Combined Reporting was vigorously protested by businesses when Connecticut imposed it in 2015, and is evidently one factor in Connecticut's endless economic stagnation and chronic budget crisis.

Although most states do have Combined Reporting, NJ's 9% corporate tax rate is tied (with Connecticut) for the 5th highest in the US, so the other states that have Combined Reporting don't tax as aggressively as New Jersey.

Aside from "Just Fund the Formula" Sciarra did present a few other ideas on charter schools and limited reductions of Adjustment Aid that I will address now:

Gradually phase out hold harmless aid [ie, Adjustment Aid] to districts that are over their SFRA adequacy budgets and to charter schools. Charter schools should also be required to adhere to the same 2% cap on excess fund balance as districts. 

Ok, if New Jersey only eliminated "Hold Harmless Aid" to over Adequacy then the total amount of aid that could be redistributed is reduced from about $550 million to less than $100 million.

Although the over-Adequacy districts get $174,024,179 in Adjustment Aid, they mostly undertax and therefore they are nowhere near $174 million over Adequacy.

For instance, Asbury Park gets $24 million in (nominal) Adjustment Aid, but it is only $13.9 million above Adequacy.  Hoboken gets $5.4 million in Adjustment Aid, but it is only $1.1 million above Adequacy.  Pleasantville gets $14 million in Adjustment Aid, but it is only about $100,000 above Adequacy.  

All in all, if New Jersey follows David Sciarra's advice and no Adjustment Aid is allowed to sink below Adequacy, the most aid that could be redistributed is $93 million.

The nine most underaided districts alone for 2016-17 (Bound Brook, Manchester Regional, East Newark, Freehold Boro, Atlantic County Vo-Tech, Fairview, Ridgefield Park, Hi Nella, and Atlantic City) have a combined deficit of $103 million.  

David Sciarra and the Education Law Center hate charter schools, so he finds lying about charter school surpluses to distract everyone from the injustice of Adjustment Aid.

This Education Law Center argument against charter school surpluses goes back to a 2015 report where the Education Law Center claimed that NJ charters had a $100 million hoard  that they were unethically withholding from district schools

However,  the unacknowledged context is:
  1. The Education Law Center looked at charter surpluses in June, when charter school surpluses are at their peak due to the need to save money for July and August, when charter schools receive no money.
  2. Charter schools do not receive facilities money (or very much of it) and cannot bond money, so they therefore have to save operating money for several years in order to pay for their capital plans.  
In any case, charter schools' purported $100 million cumulative "surplus" is less than one-fifth the "surplus aid" that districts get annually via Adjustment Aid.

Sciarra concluded with a reform to the tax cap law I agree with:

• Raise the 2% cap on increases in local property taxes for school budgets in districts under their adequacy budgets and where there is a sizeable gap between their local revenue level (local levy) and the local fair share under the SFRA.

Indeed.  When Jersey City's tax deficit compared to its Local Fair Share is over $200 million, something is wrong.

However, Sciarra made this a peripheral demand compared to "Just Fund the Formula."


David Sciarra began his statement praising New Jersey for ignoring "dollars available" and spending whatever Education Law Center lawyers and utopian Supreme Court judges demanded, however, a state government isn't like the federal government and eventually the money runs out.  New Jersey's economic growth has been half of the national average since 2002, so the money is about to run out now.  

Sciarra is also wrong that NJ's state aid has been given out according to the "needs of students and schools," since the Abbott decisions only applied to the 31 Abbott districts, and poor non-Abbotts have been savagely neglected.

What Steve Sweeney and others are trying to do now is finally right that wrong and restore justice and common sense to a state aid landscape that aligns to need as it was in the 1980s, not today.

The Education Law Center's opposition to this reflects how it has become a reactionary organization and in contradiction to its original mission.

Thursday, January 19, 2017

NJ Superintendents Stand Up for Fair Aid

At the Joint Committee on the Public Schools' hearing on state aid on January 17th, Dr. Ken Greene of Newton and Patrick Fletcher of River Dell, speaking for the NJ Association of School Administrators (eg, superintendents), gave a presentation and address on state aid and why eliminating Adjustment Aid is a must-do for the state of New Jersey.

The School Funding presentation is highly informative and it's something everyone interested in state aid should go through.

The presentation has a very important section "Myths and Facts," which attempts to clear up some widespread misunderstandings:

  • districts all over New Jersey are underaided.  Contrary to some assertions, slightly fewer South Jersey are underaided than Central and North Jersey districts.
  • district of all sizes are underaided, not just small ones.  Contrary to some assertions that school fiscal problems could be resolved by a wave of consolidation, slightly more large districts are underaided than large districts.
  • Abbotts and non-Abbotts are underaided.  Of the 31 Abbotts, 17 are underaided.  
  • Inequity isn't new.  It has always existed and New Jersey has never consistently funded its aid formula going back to 1976.

And, most powerfully:

The presentation also breaks down underfunding into two parts, $1.4 billion in underfunding, and $600 million in "inequitable distribution."  (which I refer to as "excess aid.")

These figures are slightly different from figures I've received from the DOE, in which I had $1.5 billion in underfunding and $550 million in inequitable distribution (of which $50 million is for Interdistrict Choice), but the sum of $2 billion is the same figure I have and reflects the true cost of fully funding SFRA without redistribution.

Saturday, January 14, 2017

Dear NJ Journalists, Vincent Prieto DOESN'T Represent Jersey City (He just acts like he does)

I was bemused by a recent story on PolitickerNJ by JT Aregood about the the politics of state aid reform. The article contrasted Steve Sweeney's plan, which is prescriptive and is clearly an attempt to redistribute Adjustment Aid to underaided districts, with Speaker Vincent Prieto's vague plan for yet another legislative committee "without predetermined outcomes or politics."

In attempting to explain Prieto's frosty attitude towards redistributing state aid, the article made a very telling, very blatant error.

Prieto, whose home district encompasses Jersey City, opposes Sweeney’s plan. 
Jersey City and other districts in Hudson County would stand to lose under Sweeney’s plan to phase out state Adjustment Aid and funding caps for districts with significant enrollment changes over five years. 
Those protections for individual districts were put in place in 2008, the last time lawmakers revised the school funding formula. Sweeney holds that removing Adjustment Aid and funding caps would bring every district in the state to 88 percent funding.
John Reitmeyer made the same error in a piece on NJ Spotlight:
But so far, Prieto is not onboard with Sweeney’s proposal, which could significantly cut funding for school districts in some of the communities Prieto represents, including Jersey City.
wrong Wrong WRONG!!!

Vincent Prieto does NOT represent Jersey City!
Vincent Prieto represents District 32, which includes East Newark, Edgewater, Fairview, Guttenberg, Harrison, Kearny, North Bergen, Secaucus, and West New York.

Jersey City is in legislative Districts 31 and 33. Its Assembly members are Nicholas Chiaravalloti, Angela McKnight, Annette Chaparro, and Raj Mukherji, NOT  Vincent Prieto.

Every single district in District 32 is underaided, with East Newark, Fairview, Guttenberg, and Kearny being severely so.

East Newark, in fact, is the third most underaided district in New Jersey, with an aid deficit of $7782 per student.  East Newark's school spending is barely $10,000 per student and its students attend school built in the 1890s.

Fairview is NJ's fifth most underaided district too, with a deficit of $7,118 per student.

(See: "Will Vincent Prieto Put Hudson County First")

I wouldn't be surprised if Jersey City's four Assemblymembers are urging Prieto to preserve Legalized Aid Hoarding "Adjustment Aid."  Raj Mukherji, for one, has made public statements defending Jersey City's state aid.  But, Vincent Prieto does not have a single Jersey Cityan or Hobokener among his actual constituents.

Then again, maybe Vincent Prieto's most important constituent is just Jersey City Mayor Steve Fulop?

It was Steve Fulop himself who told PolitickerNJ:

“We’re lucky to have the speaker here,” he said, a reference to Assembly Speaker Vinny Prieto (D-32). “I have significant clout with Speaker Prieto.”
Indeed. Steve Fulop has tipped off his influence over Prieto and the Assembly in his statement it would be a "long road" before any state aid changes happened.

Based on Prieto own constituents' interests as well as the state-interests he is supposed to act in as Speaker of the Assembly, Speaker Prieto should be in the vanguard of state aid reform.  His indifference to this issue and clear attempts at stalling reform is hard to understand unless it is an attempt to benefit Jersey City, Weehawken, Hoboken, and Jersey City's mayor, Steve Fulop, at the expense of poor districts.

Why is this?

The 8th Congressional
district does include the
Gold Coast.

Agusten Torres reports that Vincent Prieto wants to represent the 8th Congressional district, after Rep. Albio Sires retires, and the 8th district does include Jersey City and Hoboken.

Prieto's residence in Secaucus is not in the 8th district, but since Prieto is originally from Union City, his personal relocation to a town in the 8th district would not be a major move.

If Prieto does have designs on Sires' seat, then Steve Fulop's support would be critical in the Democratic Party.



Not Everyone from Jersey City is Against Justice

I do not think that every Jersey City politician is opposed to state aid reform.

Sens Sandra Cunningham and Brian Stack actually abstained from voting on Steve Sweeney's aid bill. Councilman Michael Yun has said Jersey City's state aid "doesn't make sense."  Mayoral challenger Bill Matsikoudis seems resigned to, not opposed to, having Jersey City's state aid cut, a position I believe a few Jersey City BOE members also share.

There are also many ordinary Jersey Cityans who recognize that Jersey City has become wealthier and can pay for more than 17% of its school budget.  Many Jersey Cityans warn City Hall to reduce its promiscuous PILOTing due to the inevitability of state aid losses.

The people in Jersey City who are operating contrary to progressive values are Steve Fulop and a clique around him.

Note: This piece has been updated to include the NJSpotlight error.  

Friday, January 6, 2017

Jack Ciattarelli Understands State Aid, Budget Crisis

For years, Assemblyman Jack Ciattarelli (R-Somerset, Warren, Mercer) has made state aid
reform a priority and is among the prominent legislators calling to redistribute state aid away from the oversized and to the underaided.

On the Republican side, Ciattarelli, along with Sen. Mike Doherty, has been among the boldest legislators condemning as totally unjust the privileges that Hoboken and Jersey City enjoy due to their towns' status as Abbott districts.  Ciattarelli also condemns how the state allows towns like Jersey City and Asbury Park to conceal their true property wealth behind "PILOT" agreements in which developed land is "invisible" to the state's formula for Equalization Aid.

Yet unlike Mike Doherty (who demands equal aid per student, regardless of district wealth), Ciattarelli DOES favor a progressive aid distribution, in which poorer districts receive more aid than wealthy districts. Unlike Democrats such as Vincent Prieto, Ciattarelli wants that distribution to align with contemporary economic-demographic reality and be more fair to middle-class and working-class towns than is the status quo.

As the gubernatorial campaign gets more attention, Ciattarelli (who is a bona fide PUBLIC SCHOOL PARENT) is doing interviews where he discusses state aid, such as this interview with Jill Horner at Comcast Newsmakers.

It's hard to explain a topic as complex as state aid in only three minutes, but Ciattarelli clearly explains that he thinks the redistribution of state aid is necessary due to NJ's economic reality prohibiting an overall increase in state aid.

The strongest part of Ciattarelli's interview is where he condemns how  the owners of an $800,000 house in Hoboken would pay less in property taxes than the owners of a $300,000 house in Parsippany in part because Hoboken gets $7 million more from the state than SFRA says it needs:

"That's not fair. And in my opinion, it violates the Equal Benefits Clause of our State Constitution. No community is supposed to benefit at the expense of another."

When Horner clarifies that Ciattarelli means to end the "hold harmless" provisions within the state aid law, Ciattarelli says "yes" and even uses the term "Adjustment Aid," which Phil Murphy has never done.

I used the Education Law Center's definition of "low wealth"
here, which is DFG A or B status. However, many DFG A
and B districts getting Adjustment Aid are actually middle-
or high-wealth in terms of tax base per student, such as small
Jersey Shore districts and Jersey City. 
Ciattarelli was speaking extemporaneously - it is not literally true that the owner of an $800,000 townhouse in Hoboken would pay less in all-in taxes than the owner of a $300,000 house in Parsippany, but in school taxes alone, Parsippany's tax rate is literally five times Hoboken's - 1.528 versus 0.3155.   This means that the owner of a Parsippany house valued at $300,000 and a Hoboken townhouse at $1.5 million would pay equal school taxes.

Ciattarelli also does not have the time to explain how very few poor districts actually get any Adjustment Aid, and of most of those that do, it's very little.  If Adjustment Aid were eliminated and redistributed, the biggest gainers would be, in fact, would be poor non-Abbott districts like Atlantic City, Bound Brook, Freehold Boro, Bayonne, Clifton etc.

Ciattarelli's Budget Sketch

Ciattarelli does not talk about increasing education spending overall, citing forecasts for persistent slow growth, a claim that economists at Rutgers, including James Hughes, agree with.

Yet, Ciattarelli has ideas that would be highly beneficial to the state's overall budgetary condition and that could free up more money for school funding after the state reaches the full actuarial payments for pensions.

In a separate section of the same interview with Jill Horner, Ciattarelli said that he wanted to save New Jersey over $2 billion annually by reducing NJ's state post-retirement health insurance expenses.

"It's busting out budget...It's causing a crowding out effect of epic proportions."

And continues:

One of the reasons the teachers fund isn’t fully funded.  For every single retiree from the state and from school districts, we’re paying for their Medicare Gap insurance and their Medicare Part B for the rest of their lives, after they retire. It doesn’t work and it needs to be reformed.

[We're doing this] in a very reasonable and fair way… If your public pension plus your Social Security is more than $50,000. You’re going to be on your own for Medicare Gap Insurance and Medicare Part B. That’s for current retirees, not just future retirees.
The claim of massive savings is backed up by the findings of a bipartisan benefits task force.
"At that time we estimated the state could save over $2 billion in health benefits spending annually and use those savings to preserve pension benefits earned to date," the commission said in its report. "This report confirms the necessary savings can be achieved. Indeed, the new analysis shows this can be done with less impact to employees and retirees than envisioned in our 2015 report." 
Those savings would be recycled to cover pension costs.

Jill Horner asks about current retirees can’t be cut. "Can changes actually be made?"

Ciattarelli uses a moral, economic argument in favor of cutting health benefits for current retirees:

"There's a reasonable argument to be made that things have changed.. These numbers just don't work anymore. My plan is very sympathetic to those who retired years ago and whose pension plus Social Security is less than $50,000 ....  [For people making more than $50,000 per year] it's only fair to ask them to pay for their own [health insurance] so we can save their pension."

But Ciattarelli's plan would be perfectly legal because the 1997 law that made pension benefits a contractual right and made base pensions unimpairable clearly excluded health care benefits.  It is basically indisputed that in New Jersey health benefits do not have the same legal protections that base pensions have.  Even lawyer Charles Ouslander, who said that COLAs could not be cut, conceded that health insurance could be.  In fact, Ouslander argued that since health insurance was specifically excluded from protection, it meant, ipso facto, that COLAs were protected.

'[Benefits program]'  It's a very broad, encompassing phrase,.. They excluded only one thing in the universe of benefits: health care,” Ouslander said. “The very fact that they chose to exclude health care, which is their right, shows you how broad the phrase ‘benefits program’ is.”
It's rarely pointed out, but NJ's state unfunded health care liability is actually LARGER than the unfunded liability for pensions themselves.

Original Source, Pew Fiscal 50, Proximate Source:

Cutting health insurance spending for workers and retirees, or reining in its growth, is critical for New Jersey because this expense is so rapidly increasing for us.

On top of the savings from health care reform, Ciattarelli also supports tax increases on high-income New Jerseyans - starting at $750,000 per year.  He has not spelled out what the new brackets would be, but the new revenue that would come in from raising the top income tax bracket to 10.75% would bring in $600 million.

Ciattarelli also favors legalizing marijuana, although it is unclear if he wants an excise tax or not.

The major tax cut Ciattarelli is proposing is a gradual elimination of the Corporation Business Tax over ten years, a move that would cost the state $2.471 billion if it were in effect for FY2017.   He also supports some of the smaller tax cut deals that were made as part of the Christie-legislature tax cut package.

(NJ's corporate tax has been producing less and less revenue over the last few years, so the long-term annual loss might be less than $2.471 billion.).

Ciattarelli Versus Murphy: Realism Versus Fantasy; Middle-Class Towns Versus the Gold Coast

The difference on state aid between Ciattarelli and Murphy isn't only on policy specifics, in which Ciattarelli is for redistribution and Murphy is opposed, but in prioritization.

Ciattarelli speaks about state aid often, and with passion.  Murphy almost never addresses it at all, even when there is a consensus within the Democratic Party.  After Chris Christie came out with his so-called "Fairness Formula," Phil Murphy took an entire week to say anything about it; after the State Auditor came out with a report outlining the unfairness of NJ's state aid distribution Murphy SAID NOTHING.

Although some of the tax cuts Ciattarelli favors would have a negative effect on the budget, in terms of new spending, he is much more restrained than Murphy is, so the contrast between Ciattarelli and Phil Murphy on state aid and the budget in general is very clear.

Ciattarelli is clear-eyed enough to see that New Jersey's health benefits are out-of-line with even the rest of the public sector, let alone the private sector, and is an area for savings.  Murphy, has ruled out any new reforms to health care and publicly told the NJEA that he would veto a hypothetical renewal of Chapter 78 (which temporarily made health care cost-sharing for school districts and school employees non-negotiable.)

Murphy's opposition to health care reform is in line with his opposition/indifference to any spending cuts whatsoever, as he said to Tom Moran.

(Murphy has repeatedly said he will cut corporate tax incentives, but this is unilateral disarmament in an interstate tax incentive war, and I can't see Murphy following through. If he does follow through, the gains from not giving out tax subsidies might be outweighed by the losses of corporations not expanding in NJ or leaving NJ altogether.  Murphy will also be freezing redevelopment in NJ's struggling cities too, since Camden, Paterson, Newark etc are dependent on tax-incentive facilitated growth.)

On state aid, not just the budget itself, the differences are very stark. In this Larry Mendte interview when Murphy was asked about state aid redistribution he was evasive and gave a flat "I'll implement that formula" answer.

"Implementing the formula" is better than what Christie has done since 2013, but Murphy has never said how much this would cost, let alone where he would get the money from.  (which would be $2 billion per year (without redistribution)).

Murphy has never shown any anger at the injustice of how unfair NJ's state aid distribution is to working class and poor non-Abbotts, even though his gubernatorial campaign was originally headquartered in severely underaided Red Bank Boro.

More recently Murphy has said the state aid formula needs to be "tweaked," but we have no idea what he means by that.

Phil Murphy is accepting support from everywhere he can get it, but his indifference to state aid redistribution comes amidst endorsements from the mayors of mega-aid hoarders such as Dawn Zimmer of Hoboken, Steve Fulop of Jersey City, and John Moor of Asbury Park (who is not a Democrat).  Murphy's frequent condemnations of state tax breaks, but silence on local tax breaks (ie, PILOTs) could be due to the fact that Hoboken, Jersey City, and Newark award PILOTs constantly and the urban-specific nature of NJ's state corporate tax incentives are less well-known.

Zimmer and Fulop purport to be progressive (even though Zimmer endorsed Christie in 2013, Fulop accepted a $1 million donation from the CEO of a notorious hospital price gouger, and both lavishly give out unneeded tax abatements), but their progressivism and morality stop and their municipal borders.  John Moor of Asbury Park, is a fiscal conservative, but his fiscal conservativism is really forcing the rest of New Jersey to pay for services that Asbury Park should be able to pay for by itself.

Murphy also has the enthusiastic backing of the NJEA, which is also not in favor of state aid reform, except in that they want some change to charter school funding that could force the state to double-fund charter school students.

When it comes to state aid reform and fairness for NJ's tax-burdened working class and poor communities, a Republican could actually be the best choice.

Sept 28th, 2016, after a two hour meeting on topics unknown,
Steve Fulop endorsed Phil Murphy.

See Also:

Wednesday, January 4, 2017

Paul Mulshine Got it on SFRA (in 2008)

I was reading old articles and op-eds about state aid, Abbott, and SFRA written back in the late Corzine era (2007-2009) and found a piece by Paul Mulshine - "Corzine v. the Courts" - where he correctly understood how SFRA was not a reform of Abbott per se so much as an Abbottization of all working class and poor districts in New Jersey:

At issue is the governor's new plan for education funding. The Democrats seem determined to jam that bill through in the final session of the lame-duck Legislature tomorrow. Whether they will succeed is an open question. But if they do, Corzine will be on a colli sion course with the court. 
The fight will be over court decisions in school-funding cases going back to 1976, when the income tax was implemented to equalize school funding. The court wasn't satisfied by the new tax, however, and kept taking more power over the schools. By the time Corzine took office two years ago, more than half of the state's school aid had been confiscated by the court for the 31 so-called "Abbott" districts, which are largely urban and deemed by the court to be in need of special aid. That made it impossible for Corzine to get any substantial property tax relief to the remaining 580 districts, which are mostly suburban. 
Corzine has come up with a novel solution. If the court wants Abbott districts, he'll give them Abbott districts. His new school funding plan has the effect of creating more than 100 new districts that will be virtually indistinguishable from the court-created districts. These new districts would all get free state-funded preschools just as the court had ordered for the Abbott districts in its 1998 decision. They would also get lots more state aid under a new formula. 
The big disadvantage to the plan is the obvious one: It would require half a billion dollars in new revenue, and the state's broke. But no one in Trenton talks about that, so there's no point in discussing it here.
Instead, the people in Trenton fight over the imaginary money.

Yep.  That's pretty much it, but I'm pretty sure that real (ie, uncapped and with PreK) full funding of SFRA back in 2008-09 would have cost A LOT more than a half a billion.  Nowadays full funding of SFRA with Pre-K and with the preservation of Adjustment Aid (which, benightedly, is in SFRA) would cost $2.7 billion.

Mulshine doesn't get into the details of how SFRA represents a geographic expansion of Abbott more than a form of Abbott, but if you look at the details of how SFRA calculates an Adequacy Budget, the per student premium is as much as $10,000 per student in districts with concentrated poverty:

Using the weights that are in effect for 2016-17, this is how SFRA calculates an Adequacy Budget:
  • The Adequacy Budget is $11,009 per student for non-at-risk, elementary schoolers.
  • It is $12,770 for non-at-risk high schoolers.
  • It is $16,183 per student for FRL-eligible elementary schoolers.
  • It is $17,284 for FRL-eligible high schoolers at low FRL-eligible schools.
  • It is $20,222 per student for FRL-eligible high schoolers who attend schools that are 60% or more FRL eligible.
  • It is $22,750 per student for FRL-eligible, LEP high schoolers who attend schools that are 60% or more FRL eligible.
(The 2016 Education Funding Report gives these weights in terms of percentages, I have simply calculated what the actual amounts are based on the $11,009 base payment per pupil.

However, in addition to these moneys for Equalization Aid, all districts receive Special Education Aid, Security Aid, and Transportation Aid as well.  The three categorical aids are weighted toward poor districts, so high-FRL districts (like the Abbotts) would get about another $1,000 per student from them.  At the time SFRA was passed the Abbotts were over-funded compared to what SFRA recommended, so originally Adjustment Aid was more Abbott focused than it is now.

The only thing the Abbotts lost in SFRA was the right to receive off-formula "Supplemental Aid." The Supplemental Aid process was always unpredictable for the state, exacerbated inequalities, and heavily tied up in litigation, so the elimination of Supplemental Aid is the one achieved "reform" of Abbott.

Mulshine also has a fascinating history of the Assembly hearing on SFRA, in which Abbott reactionaries like (former) Justice Gary Stein and Richard Shapiro attacked SFRA.

Before the hearing the legislators received a three-page memo from Gary Stein, a former justice of the Supreme Court, warning that "a vote in favor of the bill is, in reality, an invitation to a series of lawsuits that will embroil the state and the advocates for the groups that oppose the bill in contentious litigation that will last for many years." 
Aren't judges supposed to stay out of politics? Not in Jersey. Here they rule both from the bench and from retirement. 
The Democrats had a competing memo of their own. It was from state Attorney General Anne Mil gram, and it stated that the bill is in fact constitutional. So the stage was set for a fight. 
The Democrats didn't disappoint. The fight came over the issue of "local fair share," a euphemism for property tax hikes. The state plans to limit many Abbott districts to a mere 2 percent hike in aid next year. If they want to spend more money, they'll have to raise it the same way the non-Abbotts have to raise it -- through property taxes. 
Lawyer Richard Shapiro, an advocate for several Abbotts, argued that the bill is unconstitutional be cause "the Abbott districts do not have the capacity to tax." At that point Assemblyman Joe Malone, a Republican from Bordentown, pointed out that the towns in his district have to pay both for their schools through the property tax and Abbott schools through the in come tax. 
"How much money is enough?" Malone demanded. "I don't think any amount of money is enough to satisfy certain groups." 
Committee chairman Lou Greenwald took Malone's side against Shapiro and the other Abbott advocates who followed. 
"Cherry Hill has been flat- funded for over a decade and they have had to raise their property taxes," said Greenwald, a Democrat from Camden County. He went on to cite several other towns in his district. "When those school districts were flat-funded, how did they do it? They don't have the capacity to tax either."
Joe Cryan jumped in, eager as always for a fight. 
"The court doesn't run for election," said Assemblyman Cryan, who is also the state Democratic chairman. "And let me tell you, man, all I hear about is property taxes. The idea that the court develops and manages taxation policy just is mind-boggling." 
By the time the shouting died down, it was clear that this was a historic moment. For the first time ever, the state's leading Democratic politicians were lined up against the seven justices on the question of school funding. 
So if that bill passes tomorrow we may see a historic fight. We should have had it three decades ago, but better late than never.

Source: Pew Fiscal Fifty

See Also:

Tuesday, December 27, 2016

Connecticut's Crisis Continues OR How America's Richest State Became a Failed State

When Phil Murphy is asked how he will deal with New Jersey's enormous debts, pay for his agenda, and even stabilize property taxes, his answer is a vague "you prioritize" and then a statement that New Jersey can fund its needs by growing the economy.  Murphy's argument is that his platform of increased taxes on the rich, increased investment, STEM-focused education, a $15 / hour minimum wage, and a state-owned bank is what New Jersey needs to get its economy moving again.

Here's an example:

Question: What's he going to do about our sky-high property taxes?
Answer: "There's no signing ceremony on the deck of the battleship to solve this," Murphy said. "But the biggest step we can take is to grow our economy. If we can grow the economy aggressively, we can get our revenues the right way," and property taxes start to "melt away," at least, a bit.
In the same interview, Murphy said economic growth (and cutting hedge fund investments) would fully fund the pensions:

How to fund such payments? Murphy said a combination of economic growth and reassessing whether the hefty fees New Jersey pays hedge funds to manage its retirement funds will be the solution.

Murphy always says "I'm an optimist," and points to Jerry Brown in California as a beacon of fiscal turnaround:

Jerry Brown inherited a state five years ago with a $25 billion deficit; this year? And $8 billion surplus.  It can be done. 
A Democratic governor. Progressive values. Can get a state turned around.

But I am extremely doubtful that Phil Murphy (or any of the Republican candidates either) can turn
New Jersey's economy around.  Even a president's control over the national economy is very limited and a governor's is more limited still.

Although Chris Christie's economic-budgetary management has been very bad, the fact that Connecticut has continued to flounder under a Democratic governor with progressive policies makes me skeptical that Phil Murphy can produce a genuine "Jersey Comeback" either.

Connecticut is Our Peer

Like New Jersey, Connecticut has very high average income and one of the country's most uneven distributions of wealth. Compared to a national average of "only" $389,436 per year to be in the top 1%, in Connecticut you would need $659,979 per year; in New Jersey you would need $547,737 per year. . In both New Jersey and Connecticut the top 1% captured all of the income gains in the rebound from the Great Recession from 2009-2013.

Neither Connecticut nor New Jersey has a large, dynamic city, but both have populous suburban belts where towns range from incredibly wealthy to indistinguishable from decayed industrial cities.  Both New Jersey and Connecticut are in the orbit of New York City and are affected by New York's successes and failures.  Both Connecticut and New Jersey have very high spending and very high performing public schools.  State school aid is very progressively distributed as well -- each state gives the majority of its state school aid to just 30 districts.  Each state has one ultra-prestigious Ivy League university.

Like New Jersey, Connecticut is extremely indebted.  Mercatus lists Connecticut as the country's most fiscally distressed state:

On the basis of its fiscal solvency in five separate categories, Connecticut ranks 50th among the US states and Puerto Rico for its fiscal health. Connecticut’s fiscal position is poor across all categories. With between only 0.46 and 1.19 times the cash needed to cover short-term liabilities, Connecticut’s revenues matched only 94 percent of expenses, producing a deficit of $505 per capita. The state is heavily reliant on debt to finance its spending. With a negative net asset ratio of −0.88 and liabilities exceeding assets by 34 percent, per capita debt is $9,077. Total debt is $20.88 billion. Unfunded pensions are $83.31 billion on a guaranteed-to-be-paid basis, and other postemployment benefits (OPEB) are $19.53 billion. Total liabilities are equal to 53 percent of total state personal income.

 According to Pew, Connecticut's debts equal 30.2% of personal income, whereas New Jersey's debts are 31.2% of personal income.  According to Pew, of states in the Lower 48, only Illinois is more indebted.

Like New Jersey, Connecticut has a highly-progressive income tax structure and an extremely unequal distribution of wealth. The consequence of these facts is that Connecticut and New Jersey are highly dependent on a few hundred ultra-wealthy people to finance their state governments.   In New Jersey, 0.5% of the population pays a third of state income taxes, or 400 families pay $1.4 billion. In Connecticut, in 2011, the top 357 households accounted for 11.7 percent of the state's income tax.

Due to this reliance on the ultra-wealthy for tax revenue, when the ultra-wealthy have any dip in income, each state's revenues crash.  Whereas the national average for state revenue loss during the Great Recession was only 12.9%, Connecticut's revenues fell by 19.8% and New Jersey's revenues fell by 18.9%.

I'm not saying that it is morally wrong to tax the super-rich at high rates, but the dependence on high-earners exposes a state to higher volatility than a state that is less income tax dependent or does not have a progressive income tax structure.

Yet, Connecticut and New Jersey have a major difference in that Connecticut's governor, Dannel Malloy, is a progressive whereas our Chris Christie is a conservative.  

Chris Christie refused to renew NJ's high-income tax surcharge in 2010, but Dannel Malloy has increased taxes twice.  In 2011 Malloy increased taxes by $1.5 billion on dozens of items and in 2015 Malloy increased taxes by another $1.5 billion.  The 2011 tax increase affected the middle class and made Malloy the country's most unpopular Democratic governor. The 2015 tax increases contributed to GE's decision to leave Connecticut for Boston.

Other major progressive victories in Connecticut that have no equivalent in NJ are Malloy's increase Connecticut's minimum wage to $10.10 by January 2017, his $100 billion, 30 year infrastructure plan.  Malloy has implemented mandatory paid sick leave.

Other than not creating a state-owned bank and not wanting to legalize marijuana, Malloy's agenda for Connecticut is extremely similar to what Phil Murphy says he wants to do for New Jersey.

Well Murphy-backers, so with all that money to pay down debt, that higher minimum wage, new "investment" Connecticut is doing well, right?


Whereas New Jersey has slowly (and barely) recovered the number of jobs it lost in the Great Recession, Connecticut has only recovered 72% of the jobs it lost in the Recession.

As bad as New Jersey's economic "recovery" is, Connecticut's "recovery" is significantly worse.
The job market in Connecticut is struggling, with more jobs cut than created for three consecutive months, and just 5,000 jobs created over nine months....
According to the Connecticut Department of Labor report released Thursday, government layoffs and private sector layoffs both hit hard in September. State government employment fell by 2,900 and private sector employment fell by 2,700. First-time filers for unemployment claims in September increased by nearly 4 percent compared to August, and were up more than 8 percent compared to a year ago. 
By contrast, national first-time claims for the last half of September and the first two weeks of October were the lowest in 42 years. 
Pete Gioia, vice president and economist at the Connecticut Business and Industry Association, said, "You can't look at a report like this and not feel some sadness." 
In comparison, he said, Massachusetts has not only gained back all the jobs it lost during the recession, but it's added twice again that many in recent years. It recovered all the lost jobs by September 2012. Connecticut has 28,300 fewer jobs now than it did in February 2008. 
"Probably the biggest anecdote I've got from this was when we went around to our board of directors in September," Gioia said. The board of directors is heavy on mid-sized local manufacturers, but also includes international giants like United Technologies, Travelers, Boehringer Ingelheim and PricewaterhouseCoopers. 
"Company after company company was doing OK," Gioia said. "But they're all saying, 'We're growing in Massachusetts, we're growing globally, but we're pretty flat in Connecticut.' They were doing better elsewhere than they were in Connecticut. 
"They just don't see the activity and they don't see the imperative to invest when they see better opportunities to invest elsewhere." 

Even Stamford is "suffering," with a 30% office vacancy rate!

Malloy's two tax increases have pushed Connecticut's revenue (barely) above its pre-Recession peak, but Connecticut's revenues peaked in the winter of 2014, despite the 2015 tax increase.

States that have cut taxes dramatically, like Wisconsin and even Kansas, have had better revenue performances than Connecticut.

Source: Pew Fiscal 50

Due to revenue coming in lower than expected, Connecticut finished FY2017 in deficit and had to use its emergency funds to cover that deficit.

Now, for FY2018 things are looking worse, as Connecticut faces yet another $1.5 billion deficit.

Aside from its stagnant economy, Connecticut's deficit is due to declining incomes of Connecticut's superrich.
[Legislative budget chief Neil Ayers] noted that the state's top 50 individual taxpayers had $2.9 billion less in combined income in 2015 – meaning that they earned an average of $60 million less per tax filer. As a result, they paid $217 million less in state taxes – helping to cause the deficit. 
"Fifty people represented almost a quarter of the problem," Ayers said, referring to the size of the previous deficit.
It also appears that Connecticut is losing its ultra-rich to other states, just as New Jersey has lost David Tepper and Leon Cooperman. Former Connecticut billionaires Edward Lampert, Thalius Hechsher, Thomas Peterffy, and C. Dean Metropoulos all moved to Florida, the latter two were worth over $10 billion each.

"I know for a fact that it's about taxes and it's about the state of the fiscal house in Connecticut," [State Senator Scott] Frantz said, referring to the unfunded pension liability. 
Peterffy, who made headlines in 2012 by personally funding political ads for Republicans, told Greenwich First Selectman Peter Tesei in late 2014 that he "had pretty much given up on the state of Connecticut," Tesei said Wednesday. 
"He was holding out that there would perhaps be a change in direction, and when that didn't materialize, he took the position that he was out of here," Tesei said. 
Six months after that conversation, Connecticut's tax on the highest earners rose from 6.7 percent to 6.99 percent, up from 4.5 percent just a few years ago. Florida has no income tax, and more importantly, Connecticut taxes estates when wealth transfers between generations; Florida does not.

"Mother Aetna" Almost Out the Door

GE left Connecticut in 2015 and now Aetna has one foot out the door.

Aetna's CEO refuses to promise to stay in Hartford and Aetna has continued its long-term trend of reducing Connecticut employment.  Since 2012, Aetna has reduced Connecticut staffing from 6,700 to 6,000, during a time it expanded its staffing nationally.  During the period when Aetna's merger with Humana looked likely, Aetna's CEO spoke very favorably of Louisville, Kentucky (where Humana was headquartered) and said that all its government-related work would be done in Louisville.

It's Not All Dan Malloy's Fault, But Connecticut is Getting Worse

I'm not trying to say that Connecticut's intractable problems are all Dan Malloy's fault.  He didn't create Connecticut's pension system and then put virtually nothing into it from the 1930s-1980s.

Connecticut's job growth has been very poor for decades too.

It isn't Malloy's fault that Connecticut is so dependent on hedge fund millionaires for tax revenue either.

Malloy is also doing more to face up to Connecticut's debt crisis than Chris Christie is.  If Christie were willing to actually balance New Jersey's books, we would need to be taxing more/spending less to a tune of $4 billion a year.

But Malloy's progressive policies haven't ignited growth either and Malloy has resisted pension reform.

But this brings me back to Phil Murphy.

Phil Murphy cannot even fund NJ's pensions with a "Millionaire's Tax" (which would bring in $600 million per year) and a marijuana excise tax ($300 million per year), let alone the rest of his agenda.  Given the intractable budgetary-economic crisis in Connecticut, I fail to see any reason why anyone in New Jersey would be optimistic about New Jersey under very similar policies.  Murphy's beacon is California, but New Jersey and California are nothing alike.  New Jersey and Connecticut are quite alike.

There are, of course, parts of New Jersey that are doing very well, eg, Hudson County and train-line suburbs such as South Orange-Maplewood, Millburn, Summit, Montclair, and Madison.  Ironically, Phil Murphy's vision of public-transit centered-growth, seems like it would (unintentionally), if anything, further benefit the "haves" of the NJ economy.

And the likelihood that New Jersey will be in for another four years of budgetary pain underscores the need to think pragmatically about state aid (which Murphy does not do), and how we need to have achievable funding targets for high-FRL (i.e., Abbott) districts, and the need to redistribute state aid.


See Also:
And:  "Connecticut and New Jersey: Rich States, Poor Economies"

Tuesday, December 13, 2016

Education Spending and NJ Taxes

Even if not everyone knows just how high above the national median NJ's property taxes are, everyone knows New Jersey's property taxes are obscene.

If you are a glutton for pain, the follow is just how insane NJ property taxes actually are.

It's even more extreme if you look at absolute dollars paid per household and not tax rate.

(These data are out of date.)  

Why are our taxes so high!

It's the (School) Spending!

NJ's municipal and county spending are high too, but education taxes are greater than municipal and county government combined, so when it comes to NJ's tax levels, school spending cannot be ignored.

These data are more recent than the state-by-state comparisons used above, hence
the higher median property tax bill.

What's rarely definitively discussed in the same context of NJ's excessive taxes is that our education spending is among the country's highest, with only New York State and Alaska outspending us.

Highest Spending States, 2013-14

  1. New York, $20,610
  2. Alaska, $18,416
  3. New Jersey, $17,907
  4. Connecticut, $17,745
  5. Vermont, $16,988
  6. Wyoming, $15,797
  7. Massachusetts, $15,087
  8. Rhode Island, $14,767
  9. New Hampshire, $14,335
  10. Maryland, $14,003
  11. Pennsylvania, $13,961
NJ's exceptionally high spending is even more of a factor in our tax burden when you consider that other states have a higher percentage of school money deriving from non-residential taxpayers.

Alaska has oil revenue and New York State gets billions per year in income taxes paid by commuters who work in New York State but live elsewhere, usually New Jersey.  New Jersey has no equivalent outside source of revenue. Due to a unique bistate tax treaty that is disadvantageous to New Jersey, Pennsylvania residents who work in New Jersey actually pay income taxes to Pennsylvania.

Alaska, Vermont, Wyoming, Rhode Island, and New Hampshire are all small states that receive much larger amounts of federal education aid per student than New Jersey due to the Small-State Minimum in federal aid formulas.  (Indeed, NJ is in DEAD-LAST for the percentage of education spending coming from the federal government, getting only 4.1% of its education spending from the feds, compared to a national average of 9.1%.)

If New Jersey spent as much on K-12 education per pupil as
other high-wealth states, our taxes would be substantially lower.

(Since NJ had 1,369,379 public school students in 2013, I just multiplied the difference in per pupil spending by 1,369,379.)
  • If New Jersey spent as much as Connecticut per student we would $221,839,398 less.
  • If New Jersey spent as much as Massachusetts per student we would spend $3,861,648,780 less.
  • If New Jersey spent as much as Maryland per student we would spend $5,346,055,616 less.
  • If New Jersey spent as much as Pennsylvania per student we would spend $5,403,569,534 less.

It's simple but it's ignored:

New Jersey's Taxes are High Because We Spend A Lot. 

Mostly on Schools.  

Some accounts that recognize that NJ's taxes are high because our spending is high finger the seemingly large number of school districts and municipalities in New Jersey, implying that if it weren't for so many districts, Boards of Ed, superintendents our spending and taxes would be normal.

For instance, this NJSpotlight piece titled "Why Property Taxes are So High" by Collean O'Dea blamed the multiplicity of school districts and said that the balance of local funding/state funding for schools was the problem:

Why are taxes so high?
New Jersey relies heavily on the property tax to fund local governments and schools. The tax pays for municipal services -- police, roads and the like. It pays for local and, sometimes, regional public schools. And it pays for county government -- roads, parks, elections and more. Depending on the municipality, there may also be open space, library or fire service taxes. 
Last year, local governments levied more than $27 billion in local property taxes. The bill is so high, in part, because New Jersey is a high-cost state. 
The state has 565 separate municipalities and even more school districts, nearly all of them led by their own administrators and support staff – who are often doing similar jobs in very close proximity. Officials say state mandates add to municipal costs, as well. 
At the same time, exclusive of federal aid, the amount of assistance the state gave to municipalities to defray their expenses represented just 15 percent of total spending,. What’s more, only about one-third of school spending is covered by state aid.

The New Jersey Policy Perspective recently said that NJ's municipal abundance caused NJ's high taxes.
There are many explanations for New Jersey’s historically high property taxes such as its population density, the excessive number of municipalities and school districts and its traditions of local control. 

Although I agree that there is some explanatory power in NJ's municipal fragmentation, this frequently-made argument that New Jersey's multiplicity of governmental units causes us to have high taxes is criticized in this Rutgers University Report "Size May Not be the Issue."

First, on a per capita basis, New Jersey is just average for governmental units.

Asking the question about having too many governments from a different perspective may yield an entirely different conclusion. How many “general governments” does New Jersey have on a per capita basis? The answer is: surprisingly few. In fact, New Jersey ranks 34th in the number of general governments per capita. When all “special districts” (fire, water, sewer, and so on) are also considered,New Jersey ranks 36th of the 50 states.
Second, on the NJ municipal level at least, there is no correlation between the size of a locality and its per resident spending.  On the municipal level, the lowest spending towns are actually ones with 3,601- 5,150 residents.

Source:, page 25
Note: Jersey Shore resort communities are excluded.

If having fewer and larger localities led to economies of scale, then New Jersey's largest municipalities would have low taxes, but New Jersey's largest suburban towns do not have low taxes (as a general rule).

New Jersey's average equalized all-in tax rate for 2016 is 2.333, but
  • Woodbridge's tax rate is 2.685.  
  • Edison's is 2.193.  
  • Clifton's is 2.984.  
  • Lakewood's is 2.109.  
  • Hamilton's is 2.643.  
  • Cherry Hill's tax rate is 3.384.  
  • Brick, whose schools are overaided and where school spending is below-average, is 2.022.  
Of NJ's largest non-urban towns, only Toms River has significantly below-average taxes, but Toms River's rate is still 1.846, which still very high by US standards.

Yet Toms River is the exception the proves the rule of school spending being central to our high taxes, since Toms River only spends $15,587 per student  (counting pensions + FICA), which is about $3,500 per student below NJ's average.  Toms River's school taxes are only 76% of Local Fair Share.

General Administrative Spending in NJ is 2% of Spending

The theory is that NJ's (seemingly) large number of school districts leading to high taxes is that having a small number of districts leads to inefficient central office administration.

Insofar as New Jersey might have more administrators than states with fewer and larger districts, this theory fails to account for very much of NJ's exceptional tax burden since "General Administration" is such a tiny portion (2% in NJ) of district spending.

The US government actually keeps track of administrative spending and the additional spending in New Jersey is not that high.

NJ's administrative spending per student was $367 for general administration in 2013-14.  The national average for general administration was $210.

So NJ is only $157 per student above the national average.  Yet our taxes are more than $5,000 per household above the national average and literally double the national average in terms of tax rate.

If you compare New Jersey's average district spending to national numbers, it's obvious that New Jersey school districts spend more on every category, including the categories that are independent of district size, like "Instructional Salaries" and "Instructional Benefits," ie, "teachers."


Given how low Maryland's administrative spending is ($125 per student), I think there is some truth to the "too many districts, too many administrators" theory, but it is a minor cause of NJ's tax burden.

Not every explanatory article about NJ's obscene property taxes is as bad as that NJSpotlight piece or the New Jersey Policy Perspective's claim.

This piece from the Asbury Park Press, titled "Why are our taxes so high?," has a lot of invaluable information and gets the cause of the property tax crisis partly right, but even it misses the centrality of education spending in NJ's outsize tax burden:

It's no secret that New Jersey is a high-tax state. But few stop to think about the precise reasons why, other than the vague and altogether accurate notion that public employee salaries and benefits are too generous, and that there are too many government workers collecting them. Or that there are two many towns and school districts. Or that the high cost of living here explains why government is so costly....
On the revenue side, the problem lies less with layers of government and excessive numbers of government workers providing services than with the generous salaries and benefits of those who are on the public payroll. Average state worker salaries: highest in the nation. Average teacher salaries: third highest. Public employee health benefit costs: second highest in the nation. 
Yes, the cost of living in New Jersey is high. That is necessarily reflected in public employee salaries and benefits. But New Jersey, which ranks first or second in so many tax and spending categories, has the fourth-highest cost of living in the U.S., behind New York, Hawaii and Alaska. Other states with far lower tax burdens have similarly high costs of living.
Although it's worth pointing out to anyone where there is inefficiency and superfluousness in municipal and county spending (like police officers making $200,000), the fact is that over half of New Jersey's property tax levy - $14.5 billion out of $27.7 billion - is for schools, so inefficiency and superflousness in schools is really what drives New Jersey's extraordinary property taxes.

The Income Tax Reallocation Distraction

Another theory I often see that elides discussion of spending is that NJ's property taxes are so high because income taxes are too low.  This notion then becomes the premise for an argument for reallocating taxation, where income taxes would rise and property taxes would fall.

Indeed, there are some seemingly cogent arguments for this.

The property tax in New Jersey brings in twice as much revenue as the income tax, so mathematically, reallocation would lower property taxes in the short term. While New Jersey's top bracket, 8.97% on income above $1 million, is the sixth highest in the US for 2017, on low-income earners, NJ rates are low and on middle-income earners NJ rates are only average.

(CA, OR, MN, and IA now have higher top brackets than NJ. Maine's top bracket will be higher than NJ in 2017.)

The problem with this approach is that it isn't a net help for New Jerseyans if they exchange the country's highest property taxes for the country's highest income taxes.  If just half of the $27.7 billion in property taxes were shifted to income taxes, New Jersey's income tax levy would literally double (in FY2016 NJ's income tax brought in $13.8 billion).

If all-in taxes were to drop for middle-income and lower-income New Jerseyans, more money would have to come from the wealthy.

This is an idea I support, but raising the $1,000,000 bracket from 8.97% to 10.75% would only bring in $615 million.  Raising taxes on incomes above $500,000 per year to 10.25% would bring in $155 million.

Combining the two upper-income tax increases would bring in $770 million, which is only 2.7% of NJ's $27.7 billion property tax bill.

Could New Jersey increase taxes even above 10.75% for $1 million+ incomes in order to produce real property tax relief?  In theory yes, but if the top rate were increased by only 50%, NJ's top bracket would exceed California's 13.3%.  If NJ's top rate were increased by only 10%, we would have the country's third highest top rate.

More importantly, our top rate would easily exceed New York State's 8.82%, Connecticut's 6.99%, and Pennsylvania's 3.07%.  The combined New York State+New York City top bracket is 12.4%, also within reach if NJ attempted a massive property tax/income tax reallocation.

I don't feel sorry for the rich, but the departure of only a small percentage of ultra-high-income individuals is a permanent fiscal risk for New Jersey since the ultra-rich pay so much in NJ income taxes:

One half of one percent of New Jersey taxpayers account for almost a third of income tax revenues, and only 600 filers - many of whom may already have second homes outside of New Jersey - account for about $1.4 billion in income tax payments.
The New Jersey Policy Perspective often points out that despite NJ's income taxes already being very high, the number of high-income filers in New Jersey constantly increases, so NJ should not base policy on fears of outmigration, but the New Jersey Policy Perspective does not attempt to evaluate the counterfactual; ie, what New Jersey's population of millionaires would be if our taxes were more moderate.

Also, although NJ's number of high-income filers may constantly increase, New Jersey's top-bracket is barely higher than New York State's.  If the NJ top-bracket were to become substantially higher than New York State's, the constant growth of the millionaire population may slow down or reverse.

Finally, there are two practical problems with relying on income taxes:
  • income tax collections are volatile.
  • income taxes can be evaded and avoided more easily than property taxes.
Tax Reform in New Jersey Can't Ignore the Spending Side

School district/municipal consolidation and shifting more taxation to income taxes are good things on their own merits, but these approaches neglect the real cause of NJ's tax crisis, which is our extraordinarily high spending, particularly on education.

Over the years, NJ has repeatedly tried to supplant property taxes with income tax-derived state aid , but most state aid has always gone to poor towns & districts - leaving the non-poor without much state support. Indeed, the state's attempt to give income tax money to middle-class and affluent districts was ruled unconstitutional by the NJ Supreme Court in 1990 in Abbott II as "counterequalizing."

Not all explanations for why NJ has such high taxes are as bad as the ones that kick off my blog post.

Andrew Sidamon-Eristoff eruditely pins the causation where it belongs here:

At the risk of gross oversimplification, the sum and substance is this: Given New Jersey’s relatively high state and local spending (the latest census figures) suggest that New Jersey’s state and local unit direct spending is approximately 11 percent higher than the national average), the limited revenue-generating capacity of our income tax base, the relative lack of federal revenue supporting local spending, and the fact that fiscal redistribution will always be a higher legal if not political priority, it is highly unlikely that New Jersey’s state government will ever have the discretionary fiscal capacity to meet the rising cost of education and local government, let alone offset the related heavy reliance on property taxes, on anything other than a temporary and unsustainable basis. 
Why does this matter? The systemic overselling of “property tax relief” distorts the public policy debate. We dissipate too much of our political energy arguing over funding levels for local aid and popular direct-benefit programs that have no real impact on property taxes as such, leaving our long-suffering taxpaying public disillusioned and cynical. After decades of hackneyed bipartisan dogma, perhaps it’s time to focus on the only thing that will actually make a real difference to property taxes over time: controlling the cost of education and local government in New Jersey.

This post of mine has clearly targeted spending itself - chiefly for education - as the cause of NJ's extraordinary tax burden, but, IT'S OUR OWN FAULT.

If New Jerseyans really wanted lower taxes, they would vote in anti-tax politicians, but New Jerseyans almost never do this, hence Democratic domination of the legislature, many town councils, and their ability to periodically elect governors.

If the majority of New Jerseyans wanted lower taxes, they would vote for politicians who want that too.

New Jersey is a democracy and at a certain point the voters themselves are accountable.