Wednesday, June 7, 2017

The 2017 Election: Optimism, Pessimism, and Hopelessness on State Aid

Well, the ballots have been counted and Phil Murphy and Kim Guadagno are the winners of their respective parties nominations.

Here are the reasons I'm optimistic about what the election means for state aid, the reasons why I'm pessimistic, and the reasons why I fundamentally have no long-term hope at all.

Phil Murphy:

The Good Stuff about Murphy:

He promises to "fully fund" SFRA and employs fully funding SFRA as a key means of restraining property tax increases.  Murphy said at a town hall event in Maplewood that he would "pull" $200-$300 million in Adjustment Aid and told the NJEA that SFRA need to be "tweaked and updated."

Although Murphy is strongly allied with the NJEA, with pressure from the legislative Democrats, Murphy could be induced to make a bigger redistributive move.

The Bad Stuff about Murphy:

Murphy repeatedly has given SFRA's deficit at only $1 billion a year, when the real deficit, against Uncapped Aid, is $2.1 billion for 2017-18 ($2 billion for 377 underaided districts after the June 2017 tweaks) and that amount grows annually by at least $100 million a year.  In 2008-09, the deficit was only $1 billion.

If Murphy feels the state can only put in an additional $1 billion into SFRA I accept it, but another $1 billion in isn't even close to enough to fully fund SFRA in real terms, so saying that another $1 billion = full funding is dishonest.

If Murphy keeps the State Aid Growth Limits intact, then the most severely underaided districts will gain very little.  (see "The Skews of Capped Aid")

Murphy also called himself a "barbell guy" at a town hall in Penn's Grove, meaning his priorities in education are PreK and higher ed.

Murphy's implied vow to eliminate tax incentives as a means to fully fund SFRA is not feasible.  The amount NJ pays out in tax incentives was only $347 million for 2016 (see A20), not the $1 or $2 billion it would take to fully fund SFRA.  Also, not every business is bluffing when it says it won't operate in NJ without tax incentives and if a business is not in NJ the Treasury cannot tax its employees anyway.  Many tax incentives go to renovation projects that have wide public support (eg, Bell Labs > Bell.Works, the Hahne's conversion in Newark).

Kim Guadagno:

The Good Stuff about Guadagno:

Kim Guadagno borrowed from Jack Ciattarelli's platform and thus actually has a comprehensive state aid reform package. Guadagno now realizes state aid is important and says "We need a new school funding formula and we need it now, too."

Guadagno supports redistributing Adjustment Aid, making the Abbotts pay for a percentage of their construction costs, and means-testing PreK.

If Guadagno had a means of paying for her "circuit breaker" (in which school taxes would be capped at 5% of income up to $3,000), it would mitigate taxes for lower income New Jerseyans.

The Bad Stuff about Guadagno:

Guadagno has ruled out any tax increases.  Assuming the Democrats control the legislature, no additional pension reforms will be allowed, so the state's fiscal crisis will worsen.

Guadagno has also been the lieutenant governor for eight years and she has done nothing to address school funding inequality.  Guadagno has even appeared at many ribbon cuttings for 100% state-funded Abbott construction projects, so I think Guadagno's conversion to state aid reform is unconvincing.

In a debate Guadagno cited kids in Phillipsburg learning algebra in trailers, when Phillipsburg is an Abbott and students there now have very luxurious facilities.

The Hopelessness:

New Jersey in 2027

No matter who wins, the structural budget forces that consume hundreds of millions more per year will still exist and still push out other spending.

This chart is based on the slower pathway to the full ARC that Chris Christie wanted. 

So if Phil Murphy were to raise taxes by $1.5 billion (as he told the Star-Ledger), within a few years that additional money would be consumed by new, structural spending increases.

It's not a recipe for fiscal sustainability, let alone fair and sufficient state aid.

Phil Murphy, like every other governor, has talked about accelerating economic growth, but a governor's control over an economy is limited, particularly in the short term. Connecticut, under Dannel Malloy, has passed all of the policies that Phil Murphy wants in NJ other than marijuana legalization and a state bank, and that has not rescued Connecticut's economy.  Connecticut's economy is actually worse-off than New Jersey's.

Given the certain continuation of New Jersey's fiscal crisis, the redistribution of state aid is more necessary than ever.

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