"Steve Sweeney: Restoring pension COLAs would bankrupt N.J. system"

Senate president Stephen Sweeney says of the case against the state by former public employees to restore Cost of Living Adjustments will bankrupt New Jersey:

"I don't think they win it, to be honest with you. And I think it would cause the bankruptcy of the pension system."

John Bury of Bury Pensions says that the pension system is bankrupt anyway, but according to the NJ Treasury, the COLA suspension accounted for $74 billion of the $122 billion savings from the 2011 Pension Reform.  If COLA payments are restored the only provisions left of the 2011 Pension Reform will be increased (active) employee contributions and the increased retirement age.

Charles Ouslander, a plaintiff who is now seeking to accelerate New Jersey's bankruptcy, says "I don't think that if COLAs are reinstated it will bankrupt the system" but then seems to think that "bankrupt" and "deplete the funds" mean effectively differently things. "I do think it it will deplete the fund that much sooner, and frankly if that provides a sense of urgency as to how they're going to fix the funding problem, then so be it. This should light a fire under everyone."

Ouslander's idea of "fixing the funding problem" probably means screwing younger employees by cutting their pensions and making taxpayers pay even more.

Charles Ouslander himself gets a $67,183 annual pension based on twenty years of employment as a county prosecutor. He was born in 1962 and retired in 2010, meaning he "retired" at age 48.

Don't think that because Ouslander collects a pension that he is retired.  He is now an active public defender and has been a municipal court judge and lawyer for the ASPCA.  He gets a pension on top his other salaries.

Charles Ouslander says "“It’s simply not fair to change the rules in the middle of the game. For the people who had already retired before the law took effect, they changed the score after the game.”

Charles Ouslander forgets that the pension law was changed "in the middle of the game" in his favor in 2001 with Donald Di Francesco's pension increases.  Di Francesco's pension increases applied retroactively to retirees, so according to Ouslander, the pension can be made more generous "in the middle of the game," but not less generous.

To the next generation of New Jerseyans who will have to suffer from paying pensions like Charles Ouslander's that are exorbitant relative to age of the retiree and years served, Charles Ouslander says "nuts."

New Jersey loses 26,100 jobs in June and July

The next recession may have come early to the Garden State:

New Jersey lost 26,100 jobs in June and July, the state’s worst two-month loss since the spring of 2009 at the end of the recession, nearly wiping out all the gains for the year.
The figures, detailed Thursday in the state employment report for July, paint a far darker jobs picture than had been the case for the first five months of the year, when the state added jobs each month and appeared headed to a moderately healthy gain of 45,000 jobs for the year. 

Instead, the state has now added just 3,700 jobs this year, according to the report from the New Jersey Department of Labor and Workforce Development. At that rate, the state would gain just 6,500 jobs in 2015. 

The weak figures surprised economists, who could find few bright spots in the report, or explanations for the job losses. 

“It’s hot and it’s ugly,” said Charles Steindel, the state's former chief economist under Governor Christie and now a resident scholar at the Anisfield School of Business at Ramapo College of New Jersey. 

“I have no particular optimism here,” he said. “That was not a good report … We just have to face it. We have had two bad reports.”

The job losses were in several sectors of the economy:

The state’s worst performing sectors were leisure and hospitality (down 7,400 jobs), professional and business services (down 5,200 jobs) and financial activities (down 2,700 jobs). 

There were gains in the trade, transportation and utilities sector (up 4,300 jobs) and the education and health services sector (up 300 jobs). 

Hughes said the large loss in the leisure and hospitality sector might be due to the contracting of casinos in Atlantic City, or because seasonal shore hiring still hasn't recovered from hurricane Sandy. 

Professional and business services was the state's second biggest loser, and paints a disturbing picture for corporations in New Jersey. 

"Professional and business services was a big loser for two straight months, and that doesn’t have much of a seasonal factor, that’s a core sector of the economy that would suggest big corporations are not hiring in New Jersey," Hughes said.

Technically New Jersey's unemployment rate fell from 6.1% to 5.9% (which Christie will brag about), but that is because of people leaving the workforce.

This is terrible for the individuals affected, but if this is a harbinger of things to come in New Jersey - or even if the job picture is just stagnant and not negative - these job losses combined with the bear market on Wall Street ( = drops in capital gains taxes (NJ's capital gains tax is one of the highest in the country)) will translate into large revenue problems for state government.

The consequences for the state budget are clear: FY2017 will be another year NJ cannot fully fund its pensions or SFRA.

The Education Law Center Demands that David Hespe Ignore the Real Problems in State aid

In a few weeks David Hespe and the Department of Education will release an "Education Adequacy Report."  The Education Adequacy Report is a requirement from the State Supreme Court (as part of its approval of SFRA) that the Department of Education review the implementation of SFRA every three years.

The Education Law Center was against SFRA in the first place, but after the Education Law Center lost the Abbott XX case in 2009 (over the constitutionality of SFRA) the Education Law Center has supported the law it once scorned as a threat to the Abbott districts.

However, now the Education Law Center's support of SFRA has reached the point of treating SFRA like holy writ.  As evidence, the Education Law Center is now demanding that David Hespe and the DOE confine their Education Adequacy Report within the most narrow confines of state aid law.  "To guide the Department of Education in preparing the September 2015 EAR, Education Law Center yesterday sent a letter to Commissioner Hespe underscoring the strict limits of the EAR’s parameters and bringing to the Commissioner’s attention several key issues that must be addressed in the report."


Indeed, the Education Law Center sent David Hespe and the DOE a letter in early August reminding them not to stray from the NJ Supreme Court's narrow description of what the Education Adequacy Report should be about:

Under the SFRA, the Commissioner must, every three years, review implementation of the SFRA funding formula and, based on that review, issue the Report which shall recommend to the Legislature adjustments to the base cost; preschool education aid per-pupil amounts; grade level, at-risk and other weights; cost coefficients for security and transportation aid; special education classification rate; excess special education costs; and extraordinary special education aid thresholds. N.J.S.A. 18A:7F-46b. In addition, the adjustments recommended in the Report “shall be deemed approved for the three successive fiscal years,” unless the Legislature, within 90 days of receipt of the Report, adopts a concurrent resolution stating the Legislature’s objections to “all or any specific part” of the Report. The concurrent resolution shall also “direct” the Commissioner to submit “a revised report which responds to those
objections.” N.J.S.A. 18A:7F-46b.

The Education Law Center is fearful of what Commissioner Hespe may produce because in 2012 Hespe's predecessor, Chris Cerf, produced two parallel reports on state aid.  The first was the narrowly-tailored "Education Adequacy Report" that dealt with things like at-risk student weights in SFRA and the second was the "Education Funding Report," which was not part of any Supreme Court mandate and questioned the efficacy of the Abbott districts' high-funding and called for a reduction of Adjustment Aid.

I, for one, believe that Cerf's 2012 recommendation to reduce Adjustment Aid for districts that were above-adequacy was a sound one.  Adjustment Aid was a provision of SFRA that was contrary to the spirit of SFRA. Adjustment Aid locked in money for districts that had gentrified (such as Hoboken and Jersey City), had gotten off-formula aid in the CEIFA-era.

Now that NJ is in even serious budgetary trouble than it was in 2012 and certainly more trouble than in 2008 (when SFRA was written) I think that the recommendation to reduce Adjustment Aid was intelligent and before its time.  It is disgusting that while 220 districts in NJ get more than 100% of what is recommended there are another funding 117 that get not even 50%.

The Education Law Center simply does not care or comprehend that New Jersey has a budget crisis. If you read the Education Law Center's documents, including this one from 2014 that purports to give the "background" of education underfunding in NJ, you will find not a single reference to the recession, the loss of state revenue, or the Pension Crisis.

I hope that Commissioner Hespe decides to stay in New Jersey's real world and try to consider ways to free up more aid for New Jersey's underfunded and underaided districts.  New Jersey has broad budgetary problems and broad state aid problems.  We cannot solve these problems while wearing the blinders that the Education Law Center demands Commissioner Hespe wear.

Update November 18, 2015:

The Education Law Center appears to have changed its letter about state aid to incorporate recognition that SFRA hasn't been fully funded and therefore changes to the weights in SFRA don't mean much.

ELC notes that the SFRA has been underfunded for years, and therefore the formula has not been properly implemented. This failure limits the extent to which the formula’s cost and aid components can be reviewed and adjusted. In addition, the past few years have seen multiple unfunded mandates imposed on school districts, including new teacher evaluations and PARCC tests. ELC is urging the Commissioner to address these issues, along with concerns about preschool and special education costs, in the September EAR.

Moody's Warns of New Credit Rating Downgrades for NJ

Moody's warns that if the NJ Supreme Court orders that the state must pay Cost of Living Adjustments (COLAs) New Jersey's credit rating will fall again.


From NorthJersey.com:

New Jersey’s low-end credit rating could fall again if the state Supreme Court rules that retired public workers are entitled to yearly increases in their pensions, according to Moody’s Investors Service.
A lawsuit challenging one of Governor Christie’s pension-reform laws is pending at the high court, specifically over a section that froze pensioners’ yearly cost-of-living adjustments. The court is expected to hear oral argument at its new term, which begins next month.
Analysts at Moody’s issued a rare warning on Monday. New Jersey’s A2 credit rating, one of the lowest among the 50 states, could go down again if Christie received “an unfavorable court decision in the pension litigation regarding COLAs,” Moody’s said.

One of the plaintiffs of the case projects that if COLAs are reinstated NJ will immediately have to pay $1.1-$1.2 billion in back COLA pay dating back to 2011 and thereafter have to come up with another $30 million a month.

From the actual Moody's Report:

"The negative outlooks reflects our expectation that the state's financial and leverage position will weaken further before structural balance is restored. Without meaningful structural changes that improve the affordability or the state's liabilities, the state's structural imbalance will persist and/or the pension liabilities will grow, and the state's rating will continue to fall."

Sen. Mike Doherty on Steve Fulop: "If it’s good for Jersey City then screw everyone else"

Life is good for Mayor Steve Fulop of Jersey City.  Not only is his city doing so well that he can pull off that miraculous trick of governance of expanding services AND cutting taxes, but his own personal life is going great too, purchasing a townhouse in the Heights for $739,000 $845,000 with his girlfriend.  

The house has old-fashioned charm, three bedrooms, and a fantastic view of Jersey City and the NYC skyline.  Maybe best of all, it's total tax bill is only $7,700 a year!  Sweet!  Steve Fulop does not have children, but if he did they would get "free" Pre-K just for living in Jersey City too.  Sweet!

Sen. Michael Doherty, however, isn't among those congratulating Steve Fulop or sending a housewarming gift.  

Mean Mike Doherty even had the gall to question the fairness of how a Jersey City resident could pay a tax bill that is only a third of what people living in most other NJ towns would pay on the same property.  Doherty knows that Jersey City gets $490,000,000 in aid for its schools per year and knows that that huge subsidy enables Jersey City to have extremely low taxes.  Since there is only one Jersey City resident who is running for governor, Doherty used Steve Fulop himself as the emblem of that tax issue.

Now here is where I get serious.  Taxes are obscenely high in most of New Jersey.  It's true that someone with a $700k $800k house living most elsewhere would pay close to $25,000-$30,000.  The tax rate makes it hard for all of us to save for retirement and our children's educations, it separates families by forcing retirees out, and it deprives people of livlihoods here as businesses move out.  Steve Fulop, however, personally benefits from the fact that Jersey City has done done a reassessment since 1988 and receives so much state aid for education that it can make do with a 0.5878 school tax rate.

Steve Fulop's response to this legitimate economic and moral issue was completely callous.  Rather than acknowledging the basis of the complaint and attributing blame to Christie or the legislature or perhaps somehow defending Jersey City's state aid, Fulop just insulted Doherty:

"it is a little creepy that Sen. Doherty would pry closely into the Mayor's personal life in order to grandstand. If Sen. Doherty solved problems in Trenton instead of stalking Mayor Fulop, I am sure his constituents would actually realize a benefit."

Pry closely?  Please.  Political enemies "pried closely" into Bill Clinton's personal life.  Looking up a gubernatorial candidate's property taxes is not "prying closely."

At least Marie Antoinette offered the peasants cake, but Steve Fulop denies the validity of the peasants (ie, non-Jersey City taxpayers) even having a complaint.  All major politicians release their tax returns and property taxes are not private even for regular people, so Steve Fulop cannot hide behind the curtain of his "personal life" to shield himself from questions about the fairness of Jersey City's state aid.  The reason Sen. Doherty used Fulop as an example is that Steve Fulop is the only person from Jersey City running for governor.

Jersey City's low taxes are primarily due to it receiving massive state aid for its schools.  Just how high is Jersey City's aid?  

Jersey City receives $420 million from state taxpayers for K-12 aid and another $67.5 million for Pre-K aid.

Although Jersey City should get more aid than most suburbs, Jersey City also has the ability to pay much more in taxes than it does and if some of Jersey City's aid were redistributed the tax burden would be lighter elsewhere and services better funded.

Doherty doesn't get into this in detail, but Jersey City's local school tax levy is $110 million on $18.6 billion of (official, non-PILOTed) equalized valuation.  This is lower than West Orange's $125 million local school levy on only $5.8 billion in valuation.  Jersey City's $110 million is less than the $112 million local tax levy that Newark pays on $13.9 billion in valuation.  

Even not counting its "invisible" PILOTed property wealth, Jersey City is overaided by $111.7 million.   That unmerited aid would be almost enough to bring the districts that get less than 50% of their SFRA aid up to 50%.    

Fulop refuses to address the substance of Doherty's criticism.  He does not have any recognition of the fact that there are problems in how NJ distributes school aid and that Jersey City is part of the problem.  Every dollar that Jersey City clings to is one dollar less available for underaided districts like Egg Harbor Township, Chesterfield (which gets 11% of its uncapped aid), West Orange, Paterson (which just laid off 360 staff members).  Elected officials, especially ones who want to be governor, need to have some compassion on taxes too.

Mike Doherty insulted Fulop back for his "infantilism," but also had the maturity and knowledge to know that the fault was not entirely Fulop's:

Although irritated by Fulop’s answer to the criticism, Doherty said he doesn’t blame him so much as Republican Governor Chris Christie. “This issue should have been confronted by Governor Christie,” said the Warren-based Senator. “This is the classic opportunity for Chris Christie to step in, but unfortunately it’s not a top priority. Everyone’s supposed to play by the same set of rules and Jersey City is not. In Jersey City, the per capita income is higher than one of my towns – Hackettstown – but Jersey City gets 70% of its school budget paid for by New Jersey taxpayers while Hackettstown gets 16%.” 

Doherty pointed out that Jersey City has a per capita income of $30,490 per 2010 census. JC receives $485,970,438 (including pre-K) from state for its schools and spends a total of $680,134,496.  State contributes 71.45% of the total spending as state aid. The senator represents Hackettstown, which has a per capita income of $29,433 per 2010 census. Hackettstown receives $5,101,229 from the state for its schools and spends a total of $31,473,395.  State contributes 16.2% of the total spending as state aid.

Indeed.  Hackettstown only has $955 million in property valuation for 1,911 students, or barely $500,000 per student.  Even aside from its PILOTed property, Jersey City has more per student than that.  

Hackettstown gets barely $2,600 per student.  Not counting its Pre-K aid, Jersey City gets $12,500 per student.  Hackettstown also gets $0 for Pre-K.  

Steve Fulop is no reformer.  He appears to be completely ignorant of state aid issues and the privilege that he and Jersey City enjoy.  Since his low taxes are partially due to Jersey City not doing a reevaluation since 1988, Fulop presides over a system that is internally unfair within Jersey City.  Sen. Doherty seems to have gotten it right about Fulop's philosophy of governance:

He’s saying if it’s good for Jersey City, then screw everyone else. 

Taking a week off posting

Hi, just wanted to let any readers know that I will not be able to write an in-depth post again until Aug 24th or so.  If I see an important article about NJ's state aid distribution or the Pension Crisis I will post but I will probably not be able to post anything very long for a while.

Diane D'Amico Covers the Unfairness of Christie's "Flat Aid" Policies

Kudos to Diane D'Amico the Press of Atlantic City for good coverage of what Christie and the NJ legislature are doing with state aid.  Diane D'Amico, New Jersey's best state aid reporter, realizes that Christie's policy of not allowing any district to lose a cent of aid might initially sound benign, but it hurts districts that have growing enrollments and/or shrinking property bases and thereby exacerbates economic gaps between school districts.  

Nowhere is this more obvious than in Egg Harbor Township, once among the fastest-growing municipalities in the state.  But state education funding has never kept up with enrollment, which increased almost 35 percent, to nearly 8,000 students, between 2000 and 2007.Casino closings have led to enrollment dipping to 7,600 students, but new affordable-housing mandates could again bring in more families.The School Reform Funding Act of 2008 [SFRA] promised a more equitable distribution of funds based on student needs. It fell victim to the recession and has been replaced by a largely 'flat funding' model that seems to treat everyone equally but actually benefits shrinking districts while penalizing those with growing enrollment or need.

Many districts in New Jersey have had student population growth but Egg Harbor Township's growth is well above average.  Aside from the sheer increase in student population, Egg Harbor Township's students are becoming poorer and this create new challenges for the school district.

Almost half of all students in the district are eligible for the federal free-lunch program, up from less than 30 percent a decade ago. More than 700 properties within the school district are in some stage of foreclosure.

Indeed, Egg Harbor Township only gets 58% of its uncapped aid.  It should be getting $28.7 million more than it is, a $3941 per student deficit.

The biggest problem in state aid is the Pension Crisis and the state's inability to increase overall K-12 spending.  However, Chris Christie has some leeway to redistribute money away from districts like Hoboken and Jersey City but he has chosen not to in favor of a policy that lets him brag about how his model "ensures that no district will receive less state aid than the amount received for FY2015." The Christie DOE is oblivious to the fact that in per pupil terms and per assessed wealth terms numerous districts "receive less aid than the amount received for FY2015."

Chris Christie deserves most of the blame for this, but not all of the blame.  No one in the legislature aggressively calls to end flat funding and explains how this hurts districts like Egg Harbor Township. The New Jersey School Boards Association, supposedly the representative of all districts, and Education Law Center, supposedly the representative of low-resource districts, have supported Christie's policy of not allowing any district to lose aid.   The Corzine-era School Funding Reform Act itself strenuously tries to prevent any district from losing aid.  Christie fails as New Jersey's head of government, but the true fault belongs to the entire Establishment.

Again, kudos to Diane D'Amico for covering this.  I especially liked the Lynne Strickland quote she used to end the piece:

“The formula is hitting the fan. We have to start having the discussion of how to get out of this ever-deepening hole.”

I just hope that someone is listening.