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 overaided 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 undisputed 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.

May 2017 Update: Jack Ciattarelli has clarified/emphasized that he intends to lower other taxes, so there would be no net increase in state revenue even while there are increase in rates.

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.

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