Tag Archives: Governor Christie

More money for FEMA does not guarantee improved results

Before Congress passed $9.7 billion in Hurricane Sandy relief spending today, Governor Christie made headlines for his angry response to the House GOP’s delay in approving relief funds. The new spending will provide FEMA with money to pay out claims to those holding federal flood insurance. While the Hurricane Sandy relief effort gives political immediacy to FEMA funding, the Center for American Progress proposes a longer term strategy for dealing with natural disasters:

There must  be a dedicated source of revenue to fund predisaster mitigation programs that is not susceptible to budget cuts or political manipulation. Since the frequency and/or severity of extreme weather events will be exacerbated by climate change, it makes sense to raise revenue for resiliency from the fossil fuels whose combustion emits carbon pollution responsible for climate change.

The perspective that disaster recovery is a core responsibility of the federal government is widely shared, and voices as diverse as Governor Christie to the Center for American Progress express this opinion. However, the Mercatus Center’s Gulf Coast Recovery Project conducted in the wake of Hurricane Katrina demonstrates that funneling federal dollars toward disaster relief does not guarantee positive results for disaster victims. While the FEMA response to Hurricane Sandy went more smoothly than the Hurricane Katrina response, the federal government simply doesn’t have the capability to respond quickly and efficiently to individuals’ needs following a disaster, and channeling more resources to FEMA from any revenue source will not change the this fact.

As Pete Leeson and Russ Sobel write in a 2007 paper (pdf):

Following a natural disaster, on the one side there are “relief demanders”—individuals who desperately need disaster-relief supplies, including evacuation, food, shelter, medical attention, and so forth. On the other side, there are “relief suppliers”—individuals ready and willing to bring their supplies and expertise to bear in meeting the relief demanders’ needs. On both sides of this “market,” information is decentralized, local, and often inarticulate. Relief demanders know when relief is needed, what they need, and in what quantities, but they do not necessarily know who has the relief supplies they require or how to obtain them. Similarly, relief suppliers know what relief supplies they have and how they can help, but they may be largely unaware of whether relief is required and, if it is, what is needed, by whom, and in what locations and quantities.

[. . .]

Government’s informational deficit in the disaster-relief context is an unavoidable outcome of the centralization of disaster relief management when relief is provided by the state. Disaster-relief reforms that leave government as the primary manager of natural disasters are thus bound to fail. Correcting government’s information failure in the context of disaster relief requires eliminating its root cause: government involvement itself.

Researchers on the Gulf Coast Recovery Project found that non-profits, civic organizationsprivate firms, and individuals were more successful at providing the goods and services needed for recovery than the federal government.

Aside from the inherent challenges facing federal disaster response, funneling federal tax dollars to coastal areas prone to flooding leads to moral hazard. Because residents of flood-prone areas purchase federal insurance, taxpayers subsidize those who choose to live in these high-risk areas. Eli Lehrer of the R Street Institute explains this aspect of the Hurricane Sandy Relief Bill to Climate Wire:

“The mitigation piece of it is problematic,” said Eli Lehrer, president of the R Street Institute, a conservative organization that works with environmentalists and insurers to reduce subsidies in public insurance programs. “I think the bill should be drastically scaled back overall.”

He suggests that the disaster supplemental package could be cut in half. That would save taxpayer money, he says, now and in the future — by reducing incentives to develop coastlines. Lehrer also proposes cutting the federal share of post-disaster rebuilding costs to 50 percent. Currently, the government pays for 75 percent of recovery efforts, and Obama is asking Congress to increase that to 90 percent for Sandy survivors.

Politicians and activists who support a large role for the federal government in responding to disasters may have the best of intentions, but these intentions cannot circumvent the knowledge problems that government faces in disaster relief. By reducing the cost of developing in flood plains, greater reliance on the federal government for disaster mitigation and relief will be a costly effort unlikely to provide an adequate response when the next disaster strikes.

Governor Christie’s pared down budget

The Star Ledger reports that Governor Christie, “took an axe” to the state’s budget and “slashed $900 million in a budget he blasted as ‘unconstitutional.'” Cuts were made to state aid to municipalities, college tuition aid, Medicaid and aid to suburban schools leaving $640 million in surplus. He also vetoed bills to tax millionaires for more school funding aid.

In an analysis of New Jersey‘s fiscal problems we found that these areas are some of the primary weaknesses in New Jersey’s budget. The school aid formula, guarded by the court since 1976, effectively prevents the legislature and Governor from making appropriations decisions. This result of the court’s involvement in school funding has been a fiscal and educational disaster for the state. Since the 1970s many changes in tax rates have been to the income tax in order to fund schools and provide aid to municipalities. Over thirty years later and there are few to no improvements in urban school districts. The price for New Jerseyans is one of the most progressive income taxes in the nation and a property tax crisis.

As for Aid to Distressed Cities this program highlights another long-running problem in New Jersey’s fiscal landscape. Several of its cities rely on state aid in lieu of property tax revenues because they have not recovered from long-running economic problems. The problem with state aid is that it masks the cost of spending to local residents,  subsidizing local inefficiencies and the continuance of failed approaches to local economic development.

Inefficiencies and poor performance are rampant in areas that have relied heavily on aid, notably the education system. What is needed is the kind of reform being discussed by some leaders in the state – both Republican and Democrat. Cities like Camden need to be able to try new approaches to schools. A new pragmatism among Democratic city leaders in other parts of the country shows a willingness to confront fiscal reality and ask: how much of our budget is being consumed by unsustainable benefits packages and how much is left over to  run the city? Atlanta, Georgia, Montgomery County, Maryland are two such recent examples.

Collective bargaining and health care benefits in New Jersey

Is collective bargaining for public employees an “historic right”? That is the position of Bob Master, political director of  the Communication Workers of America (CWA), one of New Jersey’s public sector unions. He objects to a plan put forward by Governor Christie and Senate President Stephen Sweeney that would allow the legislature to set health care benefits, removing the item from the negotiating table. As for the historic nature of collective bargaining. Such powers arrived relatively recently in the public sector. With most states extending these provisions in the 1960s and 1970s, and up through the late 1980s. For a review, see my recent paper. (Economist Leo Troy, and political scientist Joseph Slater each provide a history of public sector unionism and reach the opposite conclusion on the implications of collective bargaining in the public sector.)

In New Jersey pension policy has always been a matter for legislation, a fact that Mr. Master does not challenge. Even if health benefits are removed from the table this does not eliminate the political leverage  public unions have over influencing legislators and thus legislation. Nor will it fix the core problem. Health benefits in New Jersey are completely unfunded and face a $66.7 billion liability.

Part of the reason that the bill has suddenly materialized is that until 2007 governments were not required to recognize the cost of Other Post Employment Benefits (OPEB) on their books. A bomb was dropped when this rule went into effect revealing $1.5 trillion in hidden liabilities in U.S. state and local governments.

Unlike pensions health benefits don’t come with the same guarantees. Of far greater relevance for public sector workers is how are state and local governments going to provide health benefits in the face of  such daunting costs? The Christie-Sweeney proposal asks workers to contribute on a sliding scale from 3 percent to 35 percent of their health insurance premiums depending on their salary.

Assembly Leader Sheila Oliver backs the unions’ position and proposes that health benefits remain off the table for three years. In 2014, collective bargaining for health benefits would be re-established and unions could seek lower contribution rates during the negotiation process. It would also make collective bargaining a gubernatorial campaign issue. It is a strategy that points to the uniquely political nature of public sector unionism. And it underscores the institutional incentives for politicians to promise short-term benefit enhancements at the expense of long-term solvency.


New Jersey Network (NJN) to be operated by NYC public broadcaster

New Jersey Network, known to New Jerseyans as NJN is now NJTV and is to operated by WNET the New York public broadcasting station. Governor Christie made the announcement today saying, “no one elected me to be programmer in chief.”

The sale saves the state about $11 million a year. The state of New Jersey will retain the TV license and will sell nine public radio licenses to Philadelphia (WHYY) and New York City (WNYC and WQXR).

New Jerseyans essentially have two out-of-state markets for their news: New York City and Philadelphia, a void NJN was to fill when it began in 1968.  According to reports the new non-profit will be required to dedicate 20 hours per week to New Jersey programming and will be made up of a board of New Jersey residents.

The legislature has 15 days to veto, otherwise the deal goes into effect on July 1.


A rush to retire in the public sector in New Jersey

Today’s Star Ledger reports that New Jersey public workers are retiring in record numbers, “rather than risk having their benefits cut by legislators.” Approximately 15,000 workers are estimated to have taken retirement between January and June. Couple this with last year’s record retirement of 20,000 and the state can expect to have to pay out more money from its underfunded pension system.

Unions blame Governor Christie’s public remarks. But the truth is the state’s pension system is in serious shape due to decades of bad decisions: careless benefit enhancements, erroneous accounting practices and skipped contributions. Health benefits are entirely unfunded as they are in most states. Denial of these structural flaws won’t improve the outcome for workers. Further, it points to how poorly funded states have created inter-generational inequity among public workers. Younger workers have fewer options. They can quit now, receive very little in benefits, and enter into a weak job market. Older workers can head for the exit with their full benefits locked into place and retirement assured. Another problem to consider is will the crisis in pension plans prompt an out-of-state exit and tax base erosion? While only an anecdote, one New Jersey worker says she will wait out the next 18 months until she reaches 25 years of retirement service to see what policy changes are implemented thus delaying her plans to retire in Virginia.




New Jersey Supreme Court asserts authority over Appropriations

The New Jersey Supreme Court has ruled that the state must spend an additional $500 million in Abbott school districts next year.The state’s 31 Abbott districts are low-income districts designated by the New Jersey Supreme Court in 1976 to receive extra state-provided funding.

In their decision they find that, “The Appropriations Clause creates no bar to judicial enforcement under circumstances presented here.” That is, the Governor must fund the schools according to the court-approved formula.

Governor Christie’s cuts to education provoked the Education Law Center – the plaintiff in the 30-year long Abbott court cases – to sue. And the court has ruled in their favor re-instating the funding cuts.  This decision should provoke a state-wide discussion over the role of the court in shaping education policy in the state over the past four decades. It essentially implies that the legislature and Governor have little control over more than one-third of the budget and the approach the state takes to education policy. Can Governor Christie “ignore the court?” That is hotly debated. With one Rutgers law professor saying such a move would lead to “a constitutional crisis.”

This debate over school funding in New Jersey certainly points to something troubling – the subjective interpretation of the 19th century constitutional phrase, a “thorough and efficient” education by the court. New Jersey’s education policy turns on this phrase and the funding formula sanctioned by the court to fulfill it. Has the policy worked? Much money has been spent in Abbott districts and improvements are scarce.

New Jersey’s debt downgraded – some thoughts

Steven Malanga at Public Sector Inc. makes several good points on the downgrading of New Jersey’s debt.With credit ratings agencies now looking at pension obligations (based on what the states are reporting), New Jersey, Illinois and California’s outlook are far more serious than when that information was excluded. The result is the market has sent a message that these states can’t temporize on reform.

There is no disagreement in NJ as to whether there’s a problem. The disagreements are over size and approach. It will be interesting to see how Governor Christie’s proposed reforms are treated in the Legislature. Senate Leader Sweeney proposes more modest reforms.

I think the least exciting explanation for why pension plans reached this point is actually the most accurate one – clouded economic thinking convinced everyone involved that it is possible to earn high returns without risk  simply because the government is somehow different when it invests.

Rating Governors

How are the Governors of New Jersey, Maryland, Washington, Michigan, New York, Virginia and Massachusetts doing?

We rate and offer an analysis of the state of the state addresses and budget proposals of these states at Public Sector Inc. So far, Governor Christie gets the highest marks. I offer my opinion on Governor O’Malley’s proposed budget in Maryland. Comments and discussion are welcome.

Governors set a new tone for FY 2012

Governors in many states are beginning the calendar year with sobering rhetoric. The New York Times reports there is a consensus emerging among governors of both parties that the only way out of persistent budget deficits is to, “Slash spending. Avoid tax increases. Tear up regulations that might drive away businesses and jobs. Shrink government, even if that means tackling the thorny issues of public employment and their pensions.”

There are a few exceptions. Governor Pat Quinn of Illinois spoke vaguely about “stabilizing the budget” and then increased the state’s income tax. Minnesota Governor Mark Dayton proposes to close his state’s $6.2 billion deficit with tax increases.

Forty states anticipate budget gaps totaling $140 billion in FY 2012. New Jersey’s gap is projected to be $10.5 billion, one third of the budget. Governor Christie addressed one remark to the Republican-led Congress reminding them that another round of bailouts only papers over the problems facing state budgets, “It’s time to make some tough decisions.”

Bailouts are indeed a bad idea.  As Thomas Sowell writes, they merely conceal what bankruptcy reveals.