POLITICAL INTERESTS AND ECONOMIC REALITY CLASH AT SPECIAL SESSION

byDavid P. Rebovich For those who happened to be home at noon last Friday and were channel surfing, you may have caught the first meeting of the Joint Legislative Committee on Constitutional Reform and Citizens Property Tax Constitutional Convention on your cable system’s local access station. This committee is one of four that will study various matters relating to property tax reform during the legislature’s special session this summer and fall. On Tuesday, Wednesday and Thursday the committees dealing with government consolidation and shared services, public employee benefits reform, and public school funding reform respectively will be aired starting at 10:00 a.m. If the first hearing is any indication, the three meetings this week will be worth watching for several reasons. First, viewers will see their legislators work together and civilly on extremely important matters. After the recent budget debacle that caused the legislature’s approval rating to drop to a paltry 20 percent, lawmakers from both parties want to show New Jerseyans that they are capable of governing. And, on Friday the committee members did that. In addition, this hearing showed the enormous value of an organization highly respected by government officials and political activists but unknown to most members of the general public. That’s the Office of Legislative Services (OLS), the non-partisan agency of policy, budget, and legal experts who help lawmakers analyze issues, draft legislation, and make spending and revenue projections. On Friday, Dr. David Rosen, OLS’s chief budget and finance officer gave a clear, concise overview of New Jersey’s state and local revenue structure, how some revenues are constitutionally dedicated to certain purposes, and the impact of the tax structure on residents with different incomes. Rosen’s presentation, soon to be on the state’s web site, is must reading for anyone with an interest in property tax reform. For their part, legislators on the committee, which was chaired by veteran Senator Bernard Kenny, asked Rosen several questions about the data he presented and some that the state has not been able to compile and crunch just yet. These questions were quite revealing, and one suspects that so too will the ones posed by members of each of the committees this summer. The questions indicate, of course, what the legislators are thinking and may provide clues as to the specific measures they prefer to use to achieve property tax reform. Not surprisingly, some Democratic members of the committee – Senator Fred Madden and Assemblymen Louis Manzo and John Burzichelli – were most interested in the regressive quality of property taxes and their effect on low-income residents and seniors on fixed incomes. They also wanted Rosen to repeat the differences in percentages of income that high and low earners pay in property and all state and local taxes. Republican Assemblyman Rick Merkt asked Rosen if there is data on whether increases in income tax rates result in well-off residents, who provide the bulk of the revenue garnered by the levy, and businesses leaving New Jersey. Prominent Rutgers economists James Hughes and Joseph Seneca suggest that the state’s tax climate and business environment generally have discouraged high paying firms from expanding or locating here. In its August 17th meeting, this committee will discuss the so-called “uniformity clause” in the state constitution that stipulates that residential and business properties be taxed at the same rate. The business community is understandably concerned that the legislature may be tempted to recommend a constitutional amendment to enable municipalities, counties and school districts to tax businesses at a higher rate to take the pressure off individual citizens. However, it’s likely that independent analysts like Hughes and Seneca will warn about the negative consequences of significantly increasing the tax burden on businesses. Which brings us to the matter of the political dynamics of this special session and whether legislators and the Governor can agree on a property tax reform plan. Not just any plan, but one that provides enough relief, is responsible in broad policy terms, and is acceptable to not just a majority of New Jerseyans but most of them! After all, this group of Democrats in the State House could not agree on a budget without shutting down state government for eight days. And, their biggest disagreement was over the Governor’s sales tax hike proposal and how much of the revenue from that levy should go to property tax relief. Corzine’s original position was , none. Most Democrats in the legislature, most notably Assembly Speaker Joe Roberts, objected to the sales tax hike as regressive and felt that it could be justified only if it provided property tax relief. Senate President Richard Codey suggested that half of the revenue be used for property tax relief. Roberts and the Governor finally agreed on Codey’s plan. In fact most of the new funds provided by the sales tax hike will go to offset property taxes, if one assumes that the $300 to $400 million in district-oriented projects that were added to the budget reduce local spending. But even Democrats complained that it made little sense to increase one regressive tax in order to gain more revenue to provide relief for another regressive tax. Instead, if the state really was committed to providing property tax relief, it is preferable to raise marginal income tax rates on higher earners, like former Governor Jim McGreevey and the legislature did a few years ago by enacting the so-called “millionaire’s tax.” That income tax rate hike applied to individuals and families making $500,000 or more a year. Now Democrats who today would publicly support an increase in income tax rates recognize that they have to be sensitive to which and how many people will be affected and the political consequences of hiking their taxes, no matter what the purpose. But Governor Corzine has a different take on the income tax. He has been adamant that an income tax increase, especially one on upper and upper-middle income residents will hurt the state’s business climate and perhaps chase some of our biggest taxpayers out of New Jersey. Does this mean that from the Governor’s perspective, any income tax hike is off the table? If so, it’s hard to imagine that with the legislature controlled by the Democratic Party, any significant property tax reform can be accomplished. That’s because it is uncertain that the Democrats in the State House will in the end be willing to take on key members of their party’s coalition who can be hurt by cost savings measures that the other committees will consider during the special session. School teachers and administrators are wary of consolidation and regionalization efforts because of likely job losses. So too are municipal government employees, including police and fire fighters, service deliverers of all kinds, and clerical and administrative personnel. And, don’t forget elected and appointed officials in local governments. Then there are state government workers who, along with their local government and school district counterparts, are being told that their compensation packages, including health and pension benefits, may be reduced to save taxpayer dollars. Toss in spouses, parents, and siblings, and these government employees represent a million voters or more. The NJEA alone has 185,000 members. Let’s hope that OLS can provide the other legislative committees with accurate information on by how much government spending can be reduced by various cost-cutting measures. Maybe some reforms, like those involving consolidation and regionalization, are not worth the effort. Maybe others, like the dropping family health coverage for current workers or health benefits for retirees, are too harsh to implement at this time or all at once. But it’s important that lawmakers and citizens have as much information as possible so they can make informed decisions. As this process moves forward, it would not be a surprise if the legislature comes up with a property tax reform plan that entails some extension of the sale tax, some increase in income tax rates, and some savings from benefits’ reductions and regionalization and consolidation. Pay attention to the questions that legislators ask in their committee meetings to get a sense of what they are thinking and where they are headed. And let’s hope that some relatively small changes in taxes, government structure, and personnel practices add to up to a relatively large amount of property tax relief. Spreading the pain around is an easier sell and a more sound policy than protecting your political allies and targeting those folks who don’t necessarily support your politics. David P. Rebovich, Ph.D., is Managing Director of the Rider University Institute for New Jersey Politics (www.rider.edu/institute). He writes a regular column, “On Politics,” for NEW JERSEY LAWYER and monthly reports on New Jersey for CAMPAIGNS AND ELECTIONS Magazine. He is also a member of CQPolitics.com’s Board of Advisors that provides weekly analysis of national political developments.

POLITICAL INTERESTS AND ECONOMIC REALITY CLASH AT SPECIAL SESSION