Wednesday, November 23, 2016

Phil Murphy Speaks About State Aid and Says Nothing

Phil Murphy just gave a speech at the New Jersey Education Association's annual conference at which he came down on several major issues in state education, such as his plans to eliminate the PARCC, implement a moratorium on new charters, veto any renewal of Chapter 78, and to fully fund the pension system without any changes to employee and retiree health care. 

The key moment of Murphy's paean to the NJEA was
As my mother would say, you are known by the company you keep, and I’m keeping really good company right now … It means a lot to me to be on the same team as NJEA.
Phil Murphy with his "team," the NJEA Leadership
Same team as the NJEA?  Did Murphy seriously say that with a straight face? does he realize his own kids go to the Rumson Country Day School and Phillips Andover, which have no union representation whatsoever?

Anyway, Murphy expressed his allegiance to the NJEA very clearly, but when it came to state aid, Murphy spoke without saying anything.

On school funding 
There is one (school-funding) formula that has been blessed by the state Supreme Court, and that’s where I’d go back to start. I know it needs to be tweaked and updated, but I’d go back to that. This governor has underfunded that formula to the tune of about $8 billion in his seven years in power, and whether by coincidence or by design, that is about the same amount of money he has put out in tax incentives to come or to keep them … He has clearly put corporations and their tax rates ahead of kids and their education. We need to turn that back on its head.
"TWEAKS"?  How can a system that allows 52 districts to get over 200% of their recommended aid while 141 get 50% or less just be in need of a "tweak"?

It needs a total upheaval.  

What "tweaks" and updates does Murphy think need to be made?
  • Does he want to make the NJEA's preferred "tweak," which is having the state pay for charter students and cutting district transfers to charter schools? 
  • Does Murphy agree with Abbott extremists like the Education Law Center and Bruce Baker, who believed that SFRA's weights for high-FRL districts were too low?
  • Does Murphy agree with Vincent Prieto and some special education activists, who want the state to fund special education based on the number of special education students a district claims? 
  • Does Murphy agree with Steve Sweeney, Jack Ciattarelli, the NJ Senate, the superintendents and support redistributing Adjustment Aid?
  • Does he agree with Jack Ciattarelli and Steve Sweeney on the need to end how tax abatements distort state aid?  
We have no idea.  Murphy is speaking without saying anything. As usual, he doesn't even use the term "SFRA."

Murphy's statement echoes Vincent Prieto's equally vacuous statements on state aid, where he emphasizes that the current school funding law has the Supreme Court's "blessing."

Why New Jersey Has No Choice on Tax Incentives

So we have no clue about how Murphy wants to "tweak" state aid, but Murphy, echoing the NJEA itself, does suggest something of a funding source - the elimination of tax incentives.
Goldman Sachs Put Itself Before NJ
Schoolchildren and Took $160
Million in Tax Credits from NJ
Alone. It has taken hundreds of
millions more from other

Murphy's rhetoric that Christie has "put corporations and their tax rates ahead of kids and their education" is powerful, but it is a highly mendacious promise since, as governor, Murphy will not be able to eliminate tax incentives.

First, as I've written before, New Jersey's tax subsidies are often urban- and transit-specific, so ceasing tax incentives means redevelopment in Paterson, Trenton, Camden, and Newark would cease.  Eliminating tax incentives is


Second, the reason it is necessary for New Jersey to offer tax incentives is because states are at war with each other for jobs right now and their weapon is tax incentives.

New Jersey in particular has to offer tax subsidies because our tax rates, overall, are the country's highest.

New Jersey has poached businesses from other states (mostly New York) and other states have poached businesses from us. Hertz' departure from New Jersey to Florida was facilitated by $84 million in incentives. Sealed-Air's move to North Carolina was facilitated by $36 million in tax incentives.  Georgia got Mercedes for cheap -- only $23 million.

In all of these cases the savings aren't just taxes, but overall costs of employment. Mercedes will save 10% - 20% a year in Georgia on non-tax costs.

Businesses (especially in services) are mobile and, either through the necessity to compete against businesses in low-tax states or else their CEO's ideological preference for low taxes, they can and do migrate to or expand in low-tax environments.  The tendency to move or expand in low-tax environments exists in businesses that purport to be enlightened and not just about their profitability. Tesla opened its "Gigafactory" in Nevada because it got $1.3 billion in subsidies.   Apple took $1 billion to build a data server farm in North Carolina. The New York Times is quite a liberal paper, but it took $29 million in tax breaks for its Midtown headquarters.

Elon Musk, interestingly, said that the $1.3 billion Tesla got for its "Gigaplex" didn't really matter so much as it fulfilled an emotional need, ie "Nevada cared."

First of all, it is important to point out Nevada is not paying for [the Tesla Gigaplex]. The $1.3 billion or so which is the maximum tax incentive that Tesla could get over 20 years, so an average of, like, maybe, $50 or $60 million a year, is a tiny fraction of what this factory’s output will be. So at the 50 gigawatt level this is like a $5 billion a year factory output. We think it will probably be at least two, probably three times that number. So that’s like $15 billion a year. You compare that to the tax incentive of $50 million, it is point-three, point-four percent. It doesn’t move the, I mean, it was important that Nevada offer that package just to show that they cared. It doesn’t move the needle on economics. I hope people understand that. I try to belabor this point ad nauseum because some of the articles that have been written give the impression that Tesla got this $1.3 billion check from Nevada. No, what we got was a concession that sales and use tax on equipment in the building, we are not going to be charged that for some period of time. So, it is really a very tiny affect on the economics of the factory. But if the state didn’t do what it could then does the state really care? So that package was more about Nevada showing that they cared about Tesla being here than anything else.

IF New Jersey didn't have a system of corporate tax breaks more businesses would leave New Jersey or not locate here in the first place and the Treasury wouldn't have any net gain.

So when a business threatens to leave, the Treasury is screwed either way:
  1. Either the state offers the tax incentive OR
  2. It watches the business leave and take all its taxes and employee spending power with it.
Yes, there are some NJ businesses that are bluffing about relocation/expansion elsewhere and would stay in New Jersey or expand in New Jersey even if they didn't get tax credits, but not all businesses that threaten to leave/expand elsewhere are bluffing.  The expansion of tax incentives in New Jersey since 2013 (when the law was rewritten) was a result of a free-for-all of tax incentives in other states.  (compare how low NJ subsidies were to NY & PA in 2012.)

Even America's Most Profitable Businesses Want Low Taxes

GS has kept expenses low by putting
employees in low cost, low tax locations.
The need to be in a low-tax environment is most obvious if a business has a low profit-margin, but even America's most profitable businesses - such as finance giants like JP Morgan and Goldman Sachs - make decisions on taxes.

I bring Goldman Sachs up not to say that Murphy is a hypocrite, but to show that even if Goldman Sachs, whose annual profits are now $7 BILLION, goes where it is offered tax incentives, just imagine the pressure on low-profit and medium-profit businesses are under.

Goldman Sachs is one of the country's most notorious exploiters of tax subsidies and loopholes, taking $593 million from New York and New Jersey alone.

Maybe Phil Murphy, as a Goldman Sachs insider, thinks that even if Goldman Sachs hadn't received at least $164 million in state and local tax subsidies it would have put employees in Jersey City anyway, but I wouldn't be so confident, since Goldman Sachs also has thousands of employees in Salt Lake City, Dallas, Warsaw, and Bangalore, India.  Despite its enormous profitability and need for highly educated workers, even Goldman Sachs makes decisions based partly on taxes and costs.  (even Goldman CEO Lloyd Blankfein brags about it.)

Goldman Sachs Loves Salt Lake City for the Mountains,
Workforce, and Tax Incentives

If Goldman doesn't care about state taxes, why did Goldman Sachs start expanding in Salt Lake City around 2007-2009, at a time when its Jersey City skyscraper was underused?

Certainly the high-quality, multilingual Utah workforce played a part and taxes that are already fairly low, but Goldman didn't move to Utah until it got Tax Incentives.

Goldman Sachs ranks as the second-biggest beneficiary behind Procter & Gamble Co of Utah's tax-break program, having inked a deal in 2009 to receive an estimated $47.3 million worth of rebates over 20 years. In exchange, the bank committed to investing $51 million in Utah, maintaining at least 1,065 employees and paying them at least 50 percent above the average Salt Lake County wage. [ed. GS now has 2,000 employees in SLC] 
The deal built upon a previous $20 million tax break deal Goldman received two years earlier under Herbert's predecessor, Jon Huntsman. 
Goldman agreed to the sweetened package after an entourage of Utah public officials -- including Gov. Herbert, Salt Lake City Mayor Ralph Becker and local business leaders -- came to the bank's headquarters in lower Manhattan to make a personal sales pitch to senior executives.
Goldman Sachs even is expanding in Salt Lake City while it cuts jobs elsewhere.

Goldman Sachs Group Inc has been quietly moving thousands of jobs from pricey places
like New York and London to cheaper cities like Salt Lake City in recent years, and executives said on Thursday those efforts are finally starting to show up in the bank's results.......
The bank added a net of 500 employees to its payroll of 32,900 in 2013, but it added many more than that to lower-cost cities and cut staffing in higher-cost cities, they said. Besides Salt Lake City, Goldman has also built staffing in cities like Dallas and Bangalore, India. 
"I've been covering this company for 10 years, and I can't remember the last time they were cutting compensation at this level," said Tom Jalics, a senior investment analyst at Key Private Bank, whose clients own Goldman shares. "They're really ratcheting them down."..
Ten years ago, Goldman had only a handful of employees in Salt Lake City. Now it has about 1,800 employees, with nine of the bank's 11 divisions represented there, in functions ranging from research and credit analysis to trade settlement and compliance.

The migration of jobs to lower-cost centers has created some tension between employees in New York and Salt Lake City, who get paid different amounts for similar jobs and are often culturally at odds. 
New hires in Salt Lake City cost 30 percent less, on average, than employees in the same roles in New York, according to a consultant who has helped grow Goldman's Utah operation but was not authorized to talk to the press. A Goldman employee fresh out of college in Salt Lake City, for example, might earn about $45,754 a year, on average, while those in New York earn about $67,334, according to jobs website

Sure, Utah has the "Mormon Factor," ie, a high-quality, sober, multilingual workforce, but Utah had to offer the tax breaks because Goldman Sachs still threatened to move somewhere else.

The inconvenient truth for progressives is that businesses do respond to tax rates and tax incentives.  If super-profitable Goldman Sachs moves to Utah because of tax subsidies, then lower-profit businesses face an even bigger pressure to relocate to low-tax states.  Democratic governors in the US, like Andrew Cuomo and Dannel Malloy, deploy tax incentives all the time because they know it's necessary to compete with other states.  New York State actually gives out $23.9 billion in tax incentives in 2015 alone.

Philosophically, corporate tax incentives are impossible to defend, but when every state has its own incentive program New Jersey cannot unilaterally stop giving tax incentives out.

So it's a lie of Murphy's that he is going to be able to fund schools with money saved by abandoning tax incentives.  Murphy will not be able to cut tax incentives unless he is willing to accelerate business departure and further inhibit business growth.

I doubt Murphy will make that tradeoff.  Even aside from how dependent Camden, Paterson, Newark etc are on tax incentives, I doubt even the Democrats would let him due to business-exodus and non-expansion fears.

In conclusion, Murphy continues to not show any understanding of how off-formula New Jersey is with state aid, with hundreds of districts overaided or underaided "with no rhyme or reason."  He shows no compassion for towns like Bayonne, Bound Brook, Freehold Boro, and Belleville who face the awful choice between taxing themselves into decline or letting their schools become badly underfunded.

Unlike Jack Ciattarelli and Mike Doherty, he shows no outrage at the fact that the children of investment bankers and lawyers in Jersey City and Hoboken get "free" PreK while the children of cashiers and landscapers in Dover and Bayonne get nothing.

This is a huge contrast to Assemblyman Jack Ciattarelli, who is extremely concerned with NJ's most underaided communities and kicked off his gubernatorial campaign at Manville High School.

Murphy talks about "fully funding" SFRA but presents a funding source that cannot be tapped.  It's like "scientist" claiming to power something with zero-point energy.

Yet again, Phil Murphy spoke on state aid, missed the real victims of the status quo, and said nothing.


See Also:

Wednesday, November 16, 2016

How would a $15 an Hour Minimum Wage Affect NJ Public Schools?

In the battle over New Jersey increasing its minimum wage from the current $8.38 an hour to $15 an hour, much has been said about the impact on businesses and whether or not a $15 an hour minimum would put New Jersey jobs at risk.

Yet, something I've yet to read anything about is how a $15 an hour minimum would affect government agencies in New Jersey, particularly public schools.

Schools have numerous employees making under $15 an hour, including cafeteria workers, crossing guards, bus aides, security personnel, substitute teachers, people in stipended positions, and even paraprofessionals.

Districts also make purchases from businesses that employ many people making less than $15 an hour, such as gasoline, school supplies, and food.   The health insurance that school districts pay for will become somewhat more expensive as well.

Districts have many additional workers who are making just over $15 an hour, but whose wages would have to be boosted if the wage floor were lifted to $15 through "wage compression."

I bemoan the absence of New Jersey-specific journalism on this, but the issue has been well-covered in New York State when New York considered a statewide $15 an hour law (the minimum wage was already $9.75 an hour).  New York State research shows that there are significant costs to school districts, with the consensus projection being that taxes would increase by 2.6%.

Since Gov. Cuomo first proposed raising the state's minimum wage to $15 per hour, a number of unintended consequences have been identified. 
Most of the discussion about the proposed minimum wage increase has focused on likely job loss. A 2015 study by the former head of the independent Congressional Budget Office found that a $15 minimum wage could cost the state at least 200,000 jobs -- with a disproportionate number of job losses Upstate. New York's farmers would be hit with $500 million in additional costs, meaning they will not be able to compete with products grown outside of the state. Struggling small businesses that drive the Upstate economy will have to contend with yet another state-imposed mandate. 
But there is one unintended consequence that has not received its due attention in this important discussion -- the resulting state and local tax increases necessary to pay for this massive wage mandate.
This article "Schools: Wage Hike Would Affect Thousands," from March 2016, about the difficulties districts in Upstate New York would face is relevant to New Jersey, since average spending in Upstate New York is $19,000-$25,000 per student, a range that is equal to or higher than what New Jersey districts spend.

School taxes would go up significantly and force many districts to present budgets exceeding the so-called property tax cap if state lawmakers approve a minimum wage increase to $15 an hour, according to leaders of various Monroe County school districts. 
Such a measure — pushed heavily by Gov. Andrew Cuomo as part of the state budget negotiations — would increase the minimum wage through several incremental steps upstate by July 2021, and much more quickly downstate. 
"What (Cuomo) doesn't understand is the domino effect of this type of decision," said Kimberle Ward, superintendent at Gates Chili Central School District. "Quite frankly, we can't go there. We would not be able to afford that and it would be a terrible burden on our taxpayers." 
The measure has been widely criticized because of fears of job cuts and price increases in the private sector. It has drawn opposition from farmers, business groups, nonprofits and Republicans in the state Senate vowing to block the increase in the state Legislature. 
School districts are concerned about how increased labor costs might force them to cut programs, jobs or both. School leaders started studying the issue after the $15 an hour wage was approved last year for fast food workers of large chain restaurants. 
Nearly 20 Monroe County school districts, in addition to Monroe No. 1 and Monroe No. 2 BOCES, said going to $15 an hour would affect roughly 6,050 workers at a cost of nearly $24.8 million. Clerical, custodial/maintenance personnel, food service workers, teacher aides/paraprofessionals, bus drivers and attendants and per diem substitutes would all be affected by the minimum wage increase. 
The Rochester School District's finance team conducted an analysis last fall, based on the staff counts and earnings during the 2014-15 school year, district spokesman Chip Partner said in an email. According to the study, the district had 1,114 employees, including part-time, substitute and student workers, that earned less than $15 per hour. 
The incremental cost of bringing those workers to $15 per hour in wages only would be $3.46 million. The cost jumps to $4.27 million when social security and retirement benefits are included. The total does not include employees whose current salary is at or near $15 per hour.
A survey of New York State School Business Administrators echoed the deep concerns over a $15 an hour minimum wage, saying it would increase taxes by 2.6%:

According to a recent report by the New York State Association of School Business Officials, the impact of a unilateral increase for workers within the state would have a large financial impact on school districts.

The association surveyed 307 school districts and 22 BOCES, finding the impact of a minimum wage increase to $15 per hour for the districts would be approximately $276 million. In turn, 33,422 employees would be affected. The average expense for school districts would be $283,463 and would cause an average tax levy increase of 2.6 percent. 
Many area school district leaders said a $15 minimum hourly wage across the board would be detrimental to the schools' budgets. Tim Mains, Jamestown Public Schools District superintendent, said the proposal could place the district in a difficult situation, depending on how it is implemented.

New York Didn't Go to $15

Andrew Cuomo gave up on a $15 an hour
statewide minimum wage after he realized what 

the costs would be.
The protests of upstate businesses, farm groups, and school districts carried weight. NYS's minimum wage law has built-in "off ramps" that allow the cancellation of minimum wage increases if employment drops and even if employment doesn't drop, New York State did NOT adopt a statewide $15 an hour minimum wage anyway.

By 2021, the only places in New York that are slated to have a $15 an hour minimum wage will be Long Island, New York City, and Westchester.  The rest of New York State is projected to be at $12.50 an hour.

Despite the fact that New York State did not adopt a statewide $15 an hour minimum wage, the NJ Democrats show no hesitation about a statewide $15 minimum and plan to ask voters to constitutionalize $15 an hour on the 2017 ballot, without any "off ramps" like New York State has.

Phil Murphy, shows no hesitation about $15 an hour.

Phil Murphy supports raising the minimum wage to $15 per hour. Raising the minimum wage would benefit nearly one million workers, equal to one-quarter of all workers in our state. New Jersey’s current minimum wage is grossly inadequate. The current minimum wage of $8.38 per hour is roughly 50 percent below a “living wage” — the amount an individual in NJ needs to meet basic needs.
The Murphy campaign confidently concludes:
The argument that raising the minimum wage kills jobs is a myth that is simply not supported by evidence.
Murphy's claim that is contradicted by the highly-respected Congressional Budget Office, which estimated that even a $10.10 (national) minimum wage would reduce employment by 0.3%.

Politifact found many economists who would support $10.10 an hour, but very few who would support $15, calling it, at best, "terra incognita."

Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin, said he’s willing to take the job-loss trade-off that might follow an increase to $10.10. "But $15 is too high," he said. "Job losses would be much higher and employment would fall for the lowest-skill workers." 
Harvard University economist David Cutler concurred, saying he "would be uneasy about $15 everywhere. I am much more comfortable with $12 everywhere." 
Brookings Institution economist Barry Bosworth said since he’s "unsure of the effect" of a $15 minimum wage, he’s "reluctant to sign on to a number so far out of line with the historical experience."
The CBO and economists quoted above were considering a national increase in the minimum wage and how even that would reduce employment, but the reduction in employment in New Jersey would be greater because our neighbor Pennsylvania will be keeping its minimum wage at $7.25 due to Republican control of the legislature there.  If New Jersey's minimum wage is more than double Pennsylvania's, New Jersey businesses that compete directly with Pennsylvania businesses will be challenged.

Whatever the effect of a $15 an hour on private sector employment is, the assumption that it won't reduce employment is predicated on businesses cutting profits and/or passing on the additional costs to consumers (the assumption is that demand is inelastic.).

School districts cannot cut hours or cut profits, but, in theory, they can raise taxes or get more state aid.

I cannot say what tax and state aid increases would be necessary to sustain services in New Jersey, but given that New York State school districts spend more than New Jersey school districts and New York State's minimum wage was already higher than New Jersey's, the tax increase for NJ districts of $15 an hour would be greater than the 2.6% increase projected for New York State.

The legislative Democrats and Phil Murphy would have a multiyear rollout period for $15 an hour, but still, even if this 78% increase is paced out over five years, it is still adding another 0.5% annually to the tax levy increase, a significant difficulty for many districts.

If Phil Murphy and the Democrats want to increase the minimum wage they will have to change the tax cap law and increase state aid.  Phil Murphy is against a tax cap, but I don't know if the rest of the Democratic Party is with him.  Phil Murphy says he is for "implementing that formula" (SFRA), but he has given no budgetary pathway for doing so and even if he is able to fund SFRA, a third of NJ districts would not gain any aid because they are already overaided.

Increasing the minimum wage would also add costs for the State of New Jersey too, since many state employees and employees of state-funded agencies get less than $15 an hour now.  One important group of state-funded workers earning less than $15 is home healthcare aides.  California's own state and local increases for $15 per hour for home health aides were estimated at $3 billion, which, if New Jersey's state costs increased proportionally, would be about $700 million.

It's also worth noting that increasing wages also increases employer-side payroll taxes.  This would add about 10% to the total wage increase.

A $15 an hour minimum wage is a beautiful impulse morally.  People who keep their jobs and start to make $15 an hour would benefit.

HOWEVER, there are tradeoffs that must be acknowledged and the state, school districts, and other public agencies must prepare for the tax increases that $15 will require to pay for their own employees and higher purchase prices for some products they buy.  NJ has to have a realistic plan to increase state aid and increase the tax cap if $15 an hour is to be workable without layoffs.


See Also:
Phil Murphy Overpromises

Thursday, November 10, 2016

The Democratic Senators Represent More People than the Republican Senators Do

This blog is about the malapportionment of state school aid in New Jersey, but this post is about the malapportionment of the US Senate.

A little-discussed but overridingly important fact that is that in the 215th Congress, the 52 Republican Senators actually represent 35 million fewer Americans than the 48 Democratic Senators.  (see below)

Over time, Senate malapportionment has become more extreme and more consequential.

In the First Congress, half of the Senate represented a third of the country.  In the 215th Congress half of the Senate will represent only 15% of the country.  In 1790, Virginia, the largest state, had a population that was 12 times the smallest state's, Delaware.  In 2017, the largest state, California, will have a population that is over 60 times larger than the smallest state, Wyoming.

As the power and spending of the Federal government have increased the consequences of Senate malapportionment have grown more severe.  Small states get more appropriations per capita and due to the formula used for block grants, get more federal aid.  It's little discussed, but most federal block grants give 0.5% of the total grant to every state equally and only thereafter distribute based on need or population.  The small-state minimum has a particularly large affect on education funding.

What alarms me the most is how the undemocratic presidency combines with the even more undemocratic Senate to control the most egregiously undemocratic Supreme Court.

Donald Trump was elected with fewer votes than Hillary Clinton, which is unjust enough, but now he is going to get his Supreme Court nominee confirmed by an even more undemocratically elected Senate?  It's just Constitutional flaw multiplied by Constitutional flaw multiplied by Constitutional flaw. 

Judicial review is a big gun. It can't be aimed very easily,
but once it has a law in its sights, there's nothing anyone
can do to prevent the law from being destroyed.

The Supreme Court - inherently the most undemocratic branch of government - now it is going to spend the next few years gutting duly-passed legislation.

I am no fan of  judicial activism in general.   I have criticized New Jersey's Supreme Court for stretching the Education Clause beyond recognition and for gutting our State Constitution's Debt Limitation Clause. 

BUT, as irresponsible as the NJ Supreme Court has been, at least New Jersey's liberal Supreme Court majority was installed by democratically elected governors and State Senators, a fact that doesn't apply to the United States Supreme Court.

Because liberals won huge Supreme Court victories in Brown v Board of Education and Roe v Wade they venerate the Supreme Court and judicial activism.  The ACLU doesn't even purport to give a sh*t what a majority thinks and works entirely through the courts.  New Jersey liberals in particular like judicial activism because they won on Abbott and Mt. Laurel.  

However, the artillery of judicial activism can be fired at liberal laws just as easily as it can be fired at conservative laws.  At some point I hope to see more liberals realize that their veneration of judicial activism is misplaced as it rests on an institution that is undemocratic in multiple ways and which they are not guaranteed to control.

Number of Republican SenatorsNumber of Democrat SenatorsPopulationPeople Represented By RepublicansPeople Represented by Democrats