Tag Archives: NJ

To merge or not to merge?

Princeton Image

Consolidating municipalities is a common policy prescription from across the political spectrum. In New Jersey in particular, many democratic and republican elected officials have thrown their support behind merging municipalities. In part, this support is based on the experience of Princeton. In 2011, Princeton Borough and Princeton Township moved, the first New Jersey municipalities to do so:

New Jersey GOP Gov. Chris Christie as well as governors in Ohio and Pennsylvania have been urging local governments to seek savings by eliminating unneeded costs. Christie endorsed the Princeton plan and offered to pay 20% of the $1.7-million unification cost, Bloomberg News reported.

The forecast is that Princeton taxpayers will save $3.1 million annually by consolidating services, including those for police and fire protection.

“We have redundancy in government,” borough resident Cole Crittenden told NJ.com in explaining why she supported the merger.

Framing municipal mergers as a way to get more bang for the taxpayer buck makes the proposal difficult for anyone to oppose except for those municipal employees who are redundant after a merger. However, the cost savings of consolidation are not well-understood. In an article in Governing Magazine earlier this week, Justin Marlowe writes:

It turns out that consolidations rarely save money. In fact, for the majority of citizens directly affected in these cases, consolidation has meant higher taxes and spending. Some cities consolidated because a larger government could improve local infrastructure. This has usually meant new debt and new taxes to repay that debt. Others offered generous pensions and health-care benefits to employees pushed out in the consolidation, thus saddling the new government with expensive legacy costs. In the consolidated town of Oak Island, N.C., per capita spending is two or three times higher than before consolidation, and that’s by design. Consolidation allowed this coastal community to offer new services needed to build a vibrant tourist economy.

Superficially, municipal consolidation looks like an opportunity to reduce taxes or to provide increased services for a given level of revenue. However, as Marlowe indicates, larger jurisdictions do not always result in anticipated efficiencies. As policymakers’ gain control of larger jurisdictions and in turn the ability to access more funds from revenue from the state and federal level, they may spend more, rather than less, per capita.

Unions sue New Jersey over pension changes (and a Judge files a separate lawsuit)

In response to the New Jersey legislature’s June pension reforms, New Jersey’s unions have sued the state. The move is not unexpected. Similar actions were taken by unions in Minnesota, Colorado and North Dakota over proposed COLA reductions.

Unfortunately, New Jersey’s pension system is in seriously bad shape and slated to run out of assets to pay out pension promises by the end of the decade. The reasons for this have been discussed many times before. First, is the fundamental misvaluation of pension liabilities, the systematic under-contribution that flows from that and policy choices such as pension holidays, skipped payments and benefit enhancements. To fund pensions according to Joshua Rauh, New Jersey would require the largest per household increase in contributions at $2,475 per household, per year.

In a new paper to be posted soon, my co-author Roman Hardgrave and I take a deeper look at New Jersey’s public employee benefit bill on a local basis. When fully accounting for pension promises, OPEB and other benefits the cost of compensation on the local level is far greater than is recognized.

In the case of Colorado and Minnesota the unions’ suit was thrown out on the grounds that there is no specific right to the COLA. How will the NJ court decide on formula changes and the COLA freeze? Interestingly, a N.J. Superior Court judge has also filed a lawsuit against the state. He says the new law should not apply to judges since the N.J. Constitution says judges’ pay, “shall not be diminished during their term of appointment.”


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.

Assorted Links

Asbury Park Press reports, Monmouth County, NJ pays 336 public employees $100 K a year.

Governor Chris Christie is “stuck with 7 percent pay increase” for public sector workers.

Federal agency to investigate Los Angeles schools.

California’s College Dreamers: UC tuition tax hikes spark protests.

Deathbed bonds: Investors team up to buy bonds from the terminally-ill.

Xanadu or “Xanadon’t?”

The Star Ledger asks if it’s time to rename the Meadowlands. Suggestions: Fairyland, Fantasyland, or Delusion, NJ. Xanadu, a 2 million square foot unfinished entertainment complex is a structural eyesore and financial catastrophe.The Meadowlands Racetrack is losing $10 million a year. And the Izod Center is still standing because of subsidies.

This should be low-hanging fruit for incoming Governor Christie: take a close look at the New Jersey Sports and Exposition Authority. Set up by the state in 1971 to manage the Meadowlands, Mounmouth County Racetrack, and other gaming centers, the NJSEA has overseen the development of Xanadu, including a deal with The Port Authority to build a $150 million rail spur into the entertainment complex. The $182 million, 2.3 mile, spur is  now open, Xanadu is a skeletal enigma, and the NJSEA has long since run out of money.

Once NJSEA’s financing ventures were kept afloat with gambling revenues, but “those days are long gone.” Senate President Richard Codey can think of two reasons to keep it open, to “manage the racetracks” and to save jobs. Yet, both of these would result if the NJSEA was abolished and the racetrack privatized, with the added bonus of saving the state and taxpayers money.

Today, the state is servicing $691 million in NJSEA debt issued for Meadowlands maintenance. On top of this the Meadowlands projects a $3.1 million loss.

As the Star Ledger puts it, “If horse racing can’t support itself, let it die. Close Izod. Dump most of those six-figure salaries on the NJSEA payroll. Figure out what to do with the land, which is valuable real estate, and stop asking taxpayers to foot the bill for an agency whose time has passed.”

The Agony of Tracking Job Creation

You’ve seen the news. Arizona’s 15th Congressional district created 30 stimulus jobs. But there is no 15th district in Arizona. Arizona only has eight Congressional districts. What happened?

According to the administration, “Some recipients clearly don’t know what congressional district they live in, so they appear to be just throwing in any number. We expected all along that recipients would make mistakes on their congressional districts, on jobs numbers, on award amounts, and so on. Human beings make mistakes.”

In other words, the data is as good as the recipient filling out the application.

ABC News reports there are phantom districts in Oklahoma and Iowa.  And in Connecticut 25 jobs appeared with zero dollars spent.

That is why the Obama administration has stripped 60,000 jobs from its report. Twelve stimulus recipients reported “unrealistic data,” such as a recipient in Talladega, Alabama, which reported 5000 jobs created with $42,000.

This gets to a difficult problem in stimulus tracking – it’s hard to follow $787 billion on the ground from Washington D.C.

If you want to see how stimulus dollars are being spent in your town, visit newly-relaunched Stimulus Watch 2.0.

After a few minutes on the site, I discovered that $3.6 million is being spent in Avenel, N.J. on “various energy-efficiency shovel ready projects”. Yet, the place of performance is Bayonne, NJ – a good 15 miles away. Is the Bayonne Housing Authority managing the HUD grant for work being done in Avenel? According to The Star-Ledger, BHA received $3.6 million for a variety of projects all within Bayonne.

On closer inspection, here’s the trouble. Bayonne NJ is 07002 and Avenel is 07001. A simple typo in a government data-tracking database somehwere down the line.

Escape from New York (and California, Illinois, NJ, and Michigan)

Mobility is a feature of American life. People move  in search of jobs, new opportunities, or better weather. There is individual mobility and there are migration patterns. The constant flow of migrants shapes our economic topography. Regions rise and fall based on economic fortune.  When large numbers of people move exit,  they may be following opportunity, escaping the lack of it, or fleeing crisis and decline.

That is why this week’s release of this study by Wendell Cox and E.J. McMahon of The Empire Center is so striking. The authors calculate U.S. migration patterns between 2000 and 2008. New York, on net, lost over 1.5 million people. California lost 1.3 million. Illinois lost over half a million. Michigan and New Jersey round out the top five each losing over 400,000 people.

What might explain these en masse shifts? The strongest contender is fiscal policies that compete with a Category Five Hurricane. High taxes and housing costs, regulations and the growth of government at all levels in New York, California, and New Jersey have bankrupted these states not only of their revenues, but of their most valuable asset – their people.

Property Taxes and Household Income

People who live in New Jersey and New York already know that their property taxes are high. But they may not know just how high, that these two states have the highest property taxes in the United States, by various quantitative measures as described below.

New York and New Jersey vie in any given year for first place for highest per capita homeowner property tax burden in the nation. The Tax Foundation recently published rankings of median per capita homeowner property taxes paid and 2008 is no exception. The top 10 counties are nearly split between the two states. Number one is Westchester, NY with a median per capita homeowner property tax of $8,890.

When dividing the median property tax burden by median home value, only New York counties make the top ten. Niagara County is number one with median property taxes representing 2.89 percent of median home value.

I decided to do another calculation using the Tax Foundation’s data and combining it with median homeowner income for each county in the U.S. to calculate another measure of property tax pain: how big a bite it takes out of homeowner income.

Not surprisingly, the results don’t help either state.

New Jersey has 16 out of the top 25 highest property tax counties (among counties with populations greater than 65,000) in the US. New York has six counties, and Illinois, three. For three counties in New Jersey — Passaic, Essex and Bergen — the median property tax represents over eight percent of median homeowner income. As a benchmark, the average for the US is 2.8 percent.

New York has six counties in the top 25 in the eight percent range. It’s only by 21st place that a new state jumps into the rankings: Lake County, Illinois with a ratio of median property taxes to median income of 6.5 percent.

Here are all the top 25 counties:

Highest 25 Property Tax Counties in United States, 2008 (Median Homeowner Property Tax as a Percentage of Median Homeowner Income)

County State Taxes as % of Income
1. Passaic NJ 8.7%
2. Essex NJ 8.3
3. Bergen NJ 8.2
4. Nassau NY 8.1
5. Union NJ 8.0
6. Westchester NY 8.0
7. Rockland NY 8.0
8. Hunterdon NJ 7.4
9. Suffolk NY 7.4
10. Putnam NY 7.3
11. Hudson NJ 7.0
12. Sussex NJ 6.9
13. Camden NJ 6.9
14. Somerset NJ 6.8
15. Atlantic NJ 6.8
16. Monmouth NJ 6.7
17. Warren NJ 6.6
18. Mercer NJ 6.6
19. Morris NJ 6.6
20. Middlesex NJ 6.6
21. Lake IL 6.5
22. Orange NY 6.4
23. Gloucester NJ 6.3
24. Kane IL 6.2
25. Kendall IL 6.2

Note that these are counties with populations of over 65,000.