Late last week, the Economic and Fiscal Policy Review Committee, a task force of New Jersey lawmakers, tax specialists, and economists unveiled their recommendations to put the state’s finances on more stable footing. Considering that the Garden State is the least fiscally sound state in the nation and continues to be plagued with stunted economic growth, this report should be welcome news to the ears of overburdened taxpayers. It is refreshing to see lawmakers sobering up to the fiscal reality, but the state has deeper problems than what is illustrated in this report. While these recommendations will absolutely make a difference to the state’s finances, more challenging work remains ahead.
The bipartisan taskforce was convened by Senate Majority Leader Stephen Sweeney (D), the architect of the recent record-breaking $37 billion budget, which included irresponsible tax hikes. We strongly opposed the Leader’s proposal and we believe that with those tax increases the state is further slowing economic growth and digging itself into a deeper fiscal crisis. It’s safe to say NTU and Leader Sweeney don’t often find ourselves on the same side of an issue, but we agree with his observation that New Jersey is “in crisis” and “we are going to be billion in deficit, and you can’t raise taxes enough to cover it.” In the next legislative session we hope he promotes policies that mirror those words.
The report primarily addresses the state’s mounting pension crisis, which is roughly the size of the GDP of Hungary. The state pension system liabilities total more than $151 billion, nearly four times the state’s annual budget and ranks among the most underfunded systems in the country. Worse yet, pension payments are expected to double over the next four years. If the state is unable to meet these soaring obligations, lawmakers could end up seeking a federal bailout from the rest of America’s taxpayers.
The report specifically recommends transitioning most new employees into a defined contribution system, requiring new retirees to pay the same premium costs they paid when working, capping unused sick and vacation time payouts at $7,500 for retiring workers, and shifting health coverage from platinum to gold plans. According to the Wall Street Journal editorial piece “Saving New Jersey, If That’s Possible” just shifting employees to a gold plan would “save taxpayers $587 million annually.”
Other recommendations include encouraging localities to share public services like fire departments, EMS, and police, establishing a tax deduction for charitable giving, as well as merging some of the state’s 670 school districts to lower the property tax burden for homeowners.
While we commend the state for putting together a list of some recommendations, there is still a lot absent from the proposal, like reforming the state’s individual and corporate income tax code and developing a plan of action to get some of these recommendations enacted into law. Much more work remains to get the state’s pension system funded and put the state back on a path towards prosperity. The plan is a good starting point but it is far from the silver bullet to the state’s problems.