Sunday, February 26, 2017

John Wisniewski State Aid Plan, the Good, the Bad, and the Insufficient

Wisniewski's Aid Plan:
The Ends Don't Quite Meet

Gubernatorial candidate John Wisniewski has just come out with a plan on state aid that he claims will bring every district up to 100% funding entirely through higher spending, without redistribution.

As usual, there's some good news and bad news in this.

The good news is that Wisniewski is talking about state aid at all, which is an issue he has generally ignored on the campaign so far.  It is also laudable that Wisniewski actually has come out with a set of specifics on where the new revenue will actually come from, which is a major contrast to Phil Murphy, who frankly has a vapid "I'll fully fund the formula" line.

Although John Wisniewski is not the only Democratic candidate with a plan on state aid (Sen. Ray Lesniak supports Steve Sweeney's approach), Wisniewski at least is putting the most original thought into aid.

That being said, Wisniewski's plan comes up short.

The fastest way to immediately provide property tax relief in New Jersey is to fully fund our public schools.John Wisniewski is prepared to close the educational funding gap by taking the following actions: 
Restore the estate tax.  We must overturn the “deal” made between the Legislature and Gov. Christie last year that began the phase out and eventual elimination of the estate tax.  John Wisniewski voted against eliminating the estate tax because New Jersey is already underfunding education and we cannot afford tax breaks that benefit an estimated 3,500 super wealthy families at the expense of 1.4 million students.  Restoring the estate tax will generate an estimated $150 million within the first year and will eventually put as much as one billion in revenue back into the State budget. 
Freeze corporate welfare.  John Wisniewski will enact an immediate freeze and review of all corporate business tax incentive programs.  Gov. Christie has abused these giveaways as he has doled out $7.4 billion in corporate welfare to his wealthy friends and political cronies — without generating any measurable economic activity.  Simply freezing these giveaways will free up an estimated $800 million annually. 
Wisniewski will sign a millionaire’s tax.  Adjusting New Jersey’s highest marginal tax rate will generate $500-600 million annually.  Education is an investment in our future that pays dividends.  It is not unreasonable to ask New Jersey’s wealthiest residents to help fully fund education and provide property tax relief. 
Overturn Gov. Christie’s $300 million State House renovation.  New Jersey has to tighten its belt and this extravagance must wait or be bid out for much less money.Our next governor must think about New Jersey’s next generation, not the next election.  John Wisniewski will fully fund K-12 education.
First of all, even if we accept all of Wisniewski's assumptions on how much money would come in from these tax increases, the total is woefully insufficient to fund even the K-12 portion of SFRA.

If we accept Wisniewski's own numbers of $150 million from a restored estate tax, $800 million from eliminating tax incentives (which I'm highly doubtful on), and $600 million from a higher income tax and you assume no rich person or business leaves New Jersey and Wisniewski can put every cent into K-12 education, it doesn't add up to 100% funding.

$150+$800+$600 = $1.55 billion.

The cumulative deficit for the 379 underaided districts for 2016-17 is $1.93 billion.

That cumulative deficit will grow since the underaided districts are the ones with growing populations and/or falling tax bases.

Is repairing the Statehouse really an
Wisniewski also says we can use $300 million from cancelling the State House renovation, but even if you agree with him that the renovation is a "extravagance," the $300 million is non-existent since the state was planning to bond that money through the EDA.

Is Wisniewski seriously saying NJ should start bonding money for K-12 operating aid?  Because his proposal to use the $300 million intended for the Statehouse Renovation is tantamount to this.   No state can stay solvent by using one-time revenue shots to fund recurring costs like K-12 spending.  

I agree with Wisniewski's proposals to increase taxes on incomes above $1 million and commend him for stating that this would only bring in $500-$600 million annually.

I also agree with Wisniewski's proposal to restore the estate tax, although I think he would find it politically difficult to restore it at the previous threshold of $675,000 since that was the country's lowest. Assuming Wisniewski could/would only restore the estate tax to $1 or $2 million, New Jersey would not recover the full amount lost.

However, by putting all of the estate tax revenue into K-12 aid (it previously went into the General Fund), Wisniewski would be taking money from one pocket and putting it into another. Since items paid out of the General Fund include non-discretionary spending categories like the Executive branch, non-TPAF pensions, and Corrections, taking this money out of the General Fund would put a lot of pressure on higher ed funding, which is technically discretionary.  But this conflicts with Wisniewski's plan to make public college "free" for students from families making under $125,000 a year.

The biggest gap in Wisniewski's proposals is his plan to fund K-12 aid by eliminating tax incentives.

If Wisniewski actually followed through on this, there would be no immediate savings since NJ cannot rescind tax credits already granted.  The theoretical savings would come from not giving out any new tax incentives, but even that assumes that the business would still relocate to New Jersey or remain in New Jersey without the incentives.
  • If the XYZ Corporation is currently located in New York and says it would locate 500 jobs to New Jersey if it gets a $20 million (cumulative) tax credit, and John Wisniewski says no to a tax credit, New Jersey hasn't gained $20 million since the XYZ Corporation still won't be paying anything to the NJ Treasury!  The business will stay put where it is in New York State or go to another state that will gladly give it a tax credit.
  • If the 321 Corporation is located in New Jersey and says it will relocate to Georgia if it doesn't get a $20 million tax subsidy, Wisniewski says no, and then the 321 Corporation really does relocate to Georgia, New Jersey still loses at least that $20 million, since the 321 Corporation no pays zero New Jersey taxes, plus tens of millions of more in spending power by the corporation itself and its employees.
  • If Big Rebuild developers propose converting a vacant office building in downtown Paterson into apartments if they get a $5 million tax subsidy and Wisniewski says no, the NJ Treasury hasn't gained either since that renovation project probably wouldn't happen without a subsidy.

So Wisniewski is blowing hot air when he says that eliminating tax incentives is a budgetary salvation for New Jersey.

The Forgotten Piece:
A major missing piece of Wisniewski's proposal is any reform of how PILOTs distort state aid.

So I'm glad that John Wisniewski has come up with a plan of sorts.  I hope this encourages Phil Murphy and Jim Johnson to come up with anything too.  I hope this encourages Ray Lesniak to talk about his support for Steve Sweeney's much more mathematically-literate plan.

BUT John Wisniewski has got to go back to the drawing board.

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