Exiting New Jersey's Fiscal Nightmare

Can Chris Christie reform the Garden State?

“I'm gonna govern like a one-termer.” That’s the promise of New Jersey’s Chris Christie, who became New Jersey’s 55th governor this week. If true, it’s a welcome development, because fixing New Jersey’s fiscal mess isn’t a matter of mere accounting. It will require tackling institutionalized corruption head on. The Garden State’s budget has been crippled by spending schemes that largely benefit a well-paid and unionized public sector, itself a creation of New Jersey’s entrenched political class.

The magnitude of the damage is daunting. Last year’s $7 billion budgetary shortfall now stands at $8 billion and growing. The fiscal patches of 2009—stimulus money, tax hikes, and program cuts—spent their magic six months into FY 2010. With the nation’s highest property taxes (an average of $7000 per capita), an eight-bracket, progressive income tax, a $45 billion debt load, and the net loss of more than half a million residents since 2000, New Jersey is suffering the painful fallout of its long-running policy of fleecing residents to benefit politically-connected special interests.

Christie’s first challenge is to cut $8 billion. But, as many of his predecessors have discovered, fine-toothed scouring will not contain a budget that has been designed to expand. To get a sense of how intractable New Jersey’s budget has proven to previous reformers, consider the largest category of spending. Forty-one percent of New Jersey’s budget, $13 billion in FY 2009, is dedicated to the Property Tax Relief Fund (PTRF).

In 1976 the state Supreme Court ruled that New Jersey’s reliance on property taxes to fund schools disadvantaged poor districts and ordered the state to find supplemental revenues. The legislature complied by creating a nearly-flat income tax and dedicating all of the revenue to providing “indirect property tax relief.”

About 78 percent of the fund is spent on the state’s 605 school districts, with nearly half concentrated on 31 court-designated low-income “Abbott districts.” Another 6 percent of the fund supplements revenues in New Jersey’s 566 municipal governments and 15 percent is sporadically awarded as homeowner rebates to help take the bite out of individual property tax bills.

The fund has failed on all counts. Property taxes have risen every year since 1978. Homeowner rebates, averaging less than $1000 when distributed, do little to dull property tax pain. And in the meantime, the court has continued to monitor the Abbott districts, often with disastrous results. For example, a decision requiring poor school districts to spend as much per pupil as the wealthiest school district has transformed New Jersey’s income tax into an eight-bracket beast with a top rate of 10.75 percent on those earning over a million dollars a year.

In spite of this massive transfer of resources to poor districts, however, outcomes remain abysmal. Since 1998, Camden has received $2.8 billion for its schools and has spent close to $24,000 per pupil. Yet last year, just 18 percent of Camden’s 8th graders scored proficient in math. By contrast, Woodbridge Township has received $169 million in school aid over the period, spending a little more than $10,000 per pupil. Nearly 75 percent of Woodbridge’s middle school students met or exceeded proficiency in math.

The perverse outcomes of such decisions won’t be easily undone. In essence, spending that should have been determined by the legislature has been decreed by the court, which claims it is upholding New Jersey’s constitutional guarantee to provide children a “thorough and efficient” education. The biggest benefactor of Abbott’s spending largesse is the New Jersey Education Association (NJEA), which is adamantly opposed to any attempt to rein in costs.

This is just one of the decades-in-the-making disasters confronting the state. Since 1990 local governments have added 45,500 new jobs. Nearly all of them are represented by one of a dozen unions, which have helped secure some of the plushest public sector jobs in the nation. It’s easy to see how property taxes have grown at twice the rate of inflation over the past decade. A government worker in New Jersey earns an average of $58,963, a police officer averages $84,223 (the second highest in the nation), and six-figure public sector salaries are commonplace. Compare this to neighboring Philadelphia, where the average police salary is $49,000. According to one estimate, of the $23 billion New Jersey raised in property taxes in 2008, $18 billion was spent on police, municipal, and teacher salaries.

The tab for public workers doesn’t end there. Factor in the state’s pension plan, currently under-funded by $34 billion. The New Jersey Taxpayers’ Association calculates pension payouts for the average teacher range from $1.6 million to $2.5 million, per retiree. For the average police officer, that range totals between $3.2 million and $6 million, per retiree.

As he takes office this week, Christie’s real challenge is to stop this exploitation of the state’s treasury by the public sector unions. Here are some easy ways to start. He can lead the charge in rooting out obvious public sector excess, such as massive cash payouts for unused leave, and paid time off for holiday shopping.

More difficult but still essential is changing the state’s budget rules. Christie must pull the plug on the Property Tax Relief Fund and reject the state Supreme Court’s Abbott funding requirements. He must return the state to a flatter income tax and put the revenues in the general fund. And finally, he must discontinue the fiction that this immense redistribution of revenues has anything to do with property tax relief.

Christie seems serious about his one-term pledge. He once told the unions he may declare a “fiscal state of emergency”—a move the public sector unions call “dictatorial.” That would allow him to void former Gov. Jon Corzine’s agreement to double the rate of increase in union salaries in 2011. Christie also has strong words for the NJEA: “They need to get realistic that change is coming.” He supports both charter schools and vouchers, noting that competition will force failing schools to “change or perish.”  

He’s also proposed cutting back on two wasteful programs, the “Extraordinary Aid” and “Special Aid” to municipalities, both of which simply subsidize municipal mismanagement. Another bold policy sign is Christie’s nomination of former Jersey City mayor and outspoken school choice proponent Bret Schundler to serve as education commissioner.

These are good signs, but implementation is the hard part—especially in a political climate where patronage and rent-seeking seem to be the explicit goal of most policy makers. Chris Christie has his work cut out for him.

Eileen Norcross is a senior research fellow at the Mercatus Center at George Mason University. She is the author of the recent study "Institutions Matter: Can New Jersey Reverse Course?"

Editor's Note: This article originally misstated the rate of increase in union salaries set by Gov. Jon Corzine.

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  • ||

    IF his resolve is true, I admire his courage.

    I like his "gonna govern like a one termer" approach; hopefully it will send the message that he can't be bought and has little concern for proponents of NJ's status quo.

    I wonder what the likelihood of public sector strikes would be should Christie apply Occam's Razor to the NJ budget, particularly the teacher's union and the civil service sector?

  • ed||

    Fine bit of research and reporting in that article. And yes, the self-induced term limit is a good strategic move if he means it. Then again, let's not discount how election-year politics serves also as one of those (unintended) checks and balances that prevents one party from gaining dictatorial powers. The Dems are running scared in this election year, and that's a very good thing.

  • ||

    my home state, finally, perhaps, on course for some improvement.

    My husband and I are both union (Steamfitter and NJEA, respectively). I find my own union membership distasteful, but as I've said before, non-membership still requires me to pay 85% of the dues fee and leaves me without due process or legal representation in case of suits, so the extra 15% payment for the protection from wrongful prosecution does a mind good.

    My husband's union strongly urged its members to vote Dem, but he shares my largely small "l" libertarian sensibilities and tends to vote republican or independent. There was no way Corzine's $5K contribution to his union was going to buy his vote, and I'm glad it didn't.

    I both of our respective workplace congregating areas, there is much a do about Christie's propositions that I just do not see: suddenly all teachers and steamfitters, will, apparently, lose jobs, pensions, be expected to contribute to benefits (heavens to betsy) and generally have to actually prove their worth as workers.

    I don't see tenure being taken off the table, nor do I see "prevailing wage" legislation being repealed or unenforced after the swearing-in. But what I hope will happen is that the largess bestowed on Abbot districts and wasteful construction contracts will be cut. Efficiency is something I'm supposed to teach and exemplify, and it is one thing my husband and his co-workers strive to achieve-even with union labor laws in place, contractors know who works hard and well for them, and tend to keep those guys employed while others languish at the shape-up hall.

    The disparity in student performance versus money spent is neither new information, nor is it endemic only to NJ's schooling issues. One Abbot district in NJ has happened to get it right. Asbury Park has improved student performance and cut out much of the typical wasteful spending that one usually finds in Abbot (and other, I have no illusions about wastefulness elsewhere) districts. The administrative and teaching staff are paid well and the money put toward initiatives to improve infrastructure has led to real progress: students are getting services and facilities they need as opposed to want. Contrast them with Elizabeth, another Abbot district, that built a new school with new athletic fields, a pool, state-of-the-art gymnasium facilities, computer labs, science labs, and libraries that go unused by the student body because they largely have no interest in using pools or computers or libraries.

    This is a headache issue for me. I love being in the classroom and teaching (with its benefit to my own continued learning), but the political environment gets tough to navigate sometimes.

    I got out of Paterson and now am in one of NJs "marquis" high schools, where the students perform well and the per-pupil spending is below the state average. We have many low-income, ESL, and special needs students who nonetheless blossom, and I think the important component, more beneficial than money or facilities or resources, is community. Parents/guardians, teachers, kids, local businesses and charities, and a host of other people really make this school a success, and what kids bring to school from these experiences does far more to further their development than certain things we teach in school. I really believe this, however trite it might sound (especially in this declared year of the Schadenfreude). Abbot districts cannot solve all of their problems with money alone - something in the communities has to change and I don't know what it is. Education has no intrinsic value in many Abbot districts, and when the student is not willing, he does not care if or when the teacher presents himself.

  • ||

    "Education has no intrinsic value in many Abbot districts"

    I should say, education has no intrinsic value to many people, no matter what school district they attend. Compulsory education does nothing to make people learn. By no means am I asserting that my school is perfect and graduates all kids who all perform well on HSPA. But there is value to education in the five districts my regional school serves, and placing a premium on education is what makes high performing schools successful, regardles of per-pupil spending.

  • ||

    parents and children placing a premium on education is what makes high performing schools successful

    Yes?

  • ||

    yes, exactly. Or some other individual or group responsible for the care and concern of children.

    there is some level of spending necessary to support education (whether it be public or private; the days of arbor-shaded Socratic seminars have passed), but the tremendous waste on the costs of infrastructure creation/maintenance, administrative salaries, teacher salaries (yes, some are overpaid, esp. those who have tenure and longevity but no energy for the grind), and school supplies that do not directly serve students is unconscionable.

    Dewey's philosophy says we can fix society by spending on education, and I think its an idea that pretty much upended by the evidence Abbot presents.

  • kodiac1221||

    Parents, parents, parents...the top 3 factors leading to academic success. our society just cant handle that THEY might actually be responsible for their childs future. Naw, its easier to just throw money at the schools and then blame the schools, and throw more money at them, and blame the schools, and throw more money at them... and well you get the point.

  • Ragin Cajun||

    Christie's first hire should be a redshirt to start his car every morning. If the regular guy calls in sick, don't let Fredo drive.

  • ||

    Wow, now this dude has some serious issues man!

    RT
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  • ||

    YES YES RAPTURE ME WITH YOUR WISDOM ANON-BOT!

  • Jersey Patriot||

    Obviously this is an issue near to my heart. My South Jersey hometown of ~14,000 people currently has 3-4 retired police chiefs, on full pension, making six figures apiece. Manufacturing, the bedrock of middle-class South Jersey, is absolutely dead. State-subsidized human trash has been moved into the towns on either side of mine, turning a beautiful little city and a pleasant small town into shitholes. They're now being moved into mine, and crime has already started to rise, to no one's surprise.

    I haven't lost hope. NJ's DMV, which made the Soviet Union bureaucracy look rational and accomodating, has undergone repeated & deep reforms over the past 15 years. Most everything can be done on-line, in a minute, with no additional costs. Inspections are now by appointment in many counties, and only required every other year, saving a massive amount of time. Fewer people have to go to the actual DMV building, so the lines are short and move quickly when you do have to go. Oddly enough, this has improved DMV worker morale, and they're actually pleasant to deal with.

    Moreover, NJ's ridiculous car insurance regulatory scheme was recently dismantled, bringing it in line with the rest of the country. Competition increased and rates dropped dramatically: my mother, who has had a clean driving record for 15 years, pays about 35% of what she used to pay, getting similar coverage.

    Christie's got a tough road ahead, and I'm not at all confident that he himself isn't a crook, but here's hoping.

  • ||

    +1 on the insurance issue. Having GEICO, eSurance, and Progressive available to compete with Allstate and NJM has made my insurance finally affordable.

  • DG||

    Edison's DMV workers must not have gotten the memo - some of them are/were totally unprofessional, and just a pain.

  • Hacha Cha||

    just curious, what is Christie's position on the new medical marijuana law? also has he said he would consider pardoning that guy with MS who got convicted of growing marijuana and psilocybin mushrooms?

  • Rhywun||

    Jon Corzine’s agreement to double union salaries in 2011

    Please tell me that's a misprint.

  • ||

    I wish Gov. Christie well. One question: Can a state declare bankruptcy and thereby void these union contracts? If they can, I would strongly consider it if I were Christie.

  • ||

    I had exactly the same question as EllisWyatt.

    Why not junk every pre-existing obligation in bankruptcy and start anew? The rage from everyone sucking on a government or public-sector union (ie, the same thing) teat would be so delicious it would be worth trashing NJ's bond ratings.

    Some things are so broken that maybe repair is just not worth the effort (q.v. Detroit, California.)

    Of course, this presupposes that the judiciary overseeing the bankruptcy would not muck things up.

  • ||

    I hate unions. Look what they did to Enron and Merril Lynch, not to mention poor Lehman Bros. Unions put these great institutions out of business by forcing them to engage in dangerous business practices.
    And how about the public sector. Do you know that many of the spouses of those union cops and firemen that were killed on 9/11 still receive pension benefits. Disgusting. And don't get me started on teachers. We should privatize all education. Then we can bring in H1B Visa candidates from India to teach our children. I mean, we're outsourcing so many jobs to India now, that the Indians must be the smartest people in the world, right...

  • RightWingSlate||

    I hate leftards posing as right-wingers and sarcastically spewing forth their hateful stereotypes of them. Let's start by making left-wing trolling a capital crime and hanging all those commie traitors by their intestines from the nearest street lamp, OK, Nate?

  • ||

    Why RightWingSlate, such big words. Good for you! Your teachers must have taught you well. However, I still think all schools should be privatized and run by large corporations. I know you will agree with me, being a corporatist yourself...

  • ||

    Why RightWingSlate, such big words. Good for you! Your teachers must have taught you well. However, I still think all schools should be privatized and run by large corporations. I know you will agree with me, being a corporatist yourself...

  • ||

    Why RightWingSlate, such big words. Good for you! Your teachers must have taught you well. However, I still think all schools should be privatized and run by large corporations. I know you will agree with me, being a corporatist yourself..

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  • HeadTater||

    I'm surpassed I haven't seen any "Jersey Shore" references. It doesn't usually take this long for the comments to get off topic.

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    We're all surpassed that you can write a coherent sentence.

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  • ||

    Even if Christie is the proverbial "knight in shining armor" for NJ, he cannot defeat the entrenched political factions who benefit from the current arrangement. Like the Wall Street idiots and their "too big to fail" positions, the NJ factions believe that Washington will have to bail them out.

    Educate children? Not a chance. New Jersey, like most places, is full of people who lack the will to take responsibility for their children, to raise them according to some notion - hell, any notion - of right and wrong and to socialize them to self-control. Too many of the children in "low-performing" districts are so inadequately socialized that even waiting in line to eat seems beyond their ability to master. Please. No fantasy any more.

  • Chad||

    Here is an issue where I agree with conservatives and libertarians: public sector unions need to take a significant haircut. We would immediately review all federal salaries and benefit packages, and keep sure that they are in line their private sector counterparts. States should do the same. We can likely shave a couple percent of our spending this way. Unfortunately, we need to shave around ten times that, which isn't possible without slashing SS, Medicare, or defense. Everything else is chump change.

  • Creamy Goodness||

    As long as I can still spray tan and abuse steroids, none of this means anything to me. Don't mess with Jersey Shore! ***Fist Bump***

  • Creamy Goodness||

    ***Fist Pump*** (like a champ)

  • Biff||

    I realize that the URL for this article was certainly automatically generated, but "exiting-new-jerseys-fiscal-nig" is an unfortunate way to finish a link.

  • ||

    Is the author, Eileen Norcross, any relation to the all powerful South Jersey Norcross family that essentially owns and operates the NJ Democrat/Union political machine?

    http://en.wikipedia.org/wiki/George_Norcross_III

  • ||

    NJ has been shady for years. We pay the most for everything. Police are retardly over-paid, how does a Lyndhurst cop make $100k when a NYC cop makes $30K. One guy is not going to fix it, I don't care how big he is. Trump let the EnCap project rot and how about the Xaundu. We live in the most depressing state in the union.

  • Community South NJ Moorestown||

    Its seems that we need a bold leader willing to do the right thing that won't be bullied by the legislature. Christie can be that guy though the road ahead will be riddled with challenge. He made a wise choice with his education commissioner.

  • ||

    I laugh when I hear about cutting police salaries. Without a competitive salary, you will not get good, hard working people. They will go to the private sector. Police work is not like any other job. You NEED good, hard working people. In addition, the police actually generate revenue for the state. This article should include how much revenue was generated by the police yearly. Finally, 23 billion made on property taxes and 18 billions spent on police, municipal, teachers? So that leaves 5 billion extra!
    This State is as corrupt as you can get!

  • ||

    How much money are these salaries worth the State is the real question.

    I can tell you from first-hand experience that Summit pays fireman $100k a year and they sleep at night and sit around watching TV during the day waiting for the bell to ring while other towns have to rely on volunteer help to arrive and it's the same competency level. Match that up with the police in Summit who make the same but are busy from the time they get on duty until the time they get off. Sure we need good public sector employees, but come on, some of them get paid way over what they should and the balance is definitely not there when scaled with other towns of lesser income brackets.

    But the worst has to be the teachers and their unions because it's gotten to the point that their arrogance with our children supersedes the rights of even the parent. They make over $100k a year with all the perks and then have the audacity to shove their liberal views down every kids' throat and if you complain, they're gunning for your kid for the rest of his school days.

    Don't even get me started on the Public Works departments because I've never seen lazier people who don't want to work and get lost most of the working day. I had to laugh when the government said stimulus money was going towards public facility repairs. They don't repair anything now with the money they take in! The additional slush fund Obama added to the pot was going toward padding the pockets of his cronies as patronage perks, an added bonus to insure their vote again in 2012, at the taxpayer's expense.

    All I can say is the party had to end and it's best Christie does it quickly before they destroy the house they're getting drunk in. If Corzine remained in office, you might as well have kicked this State into the ocean because that's how much it would be worth.

    Doing this may just save this State and bring the businesses back that left in droves. If these spoiled brats don't like it, they can be the ones to leave, but I guarantee they won't.

    All these Unions have done is produced lazy workers who don't give a damn and kids who don't learn anything but their political indoctrinations, while the Principals defend their actions and I'm sick of it.

    I'm GLAD this day has come! Thank you, Governor Christie!

  • Baby Bath Mat||

    @ Michelle - totally agree, I am so glad for this day too. Way to go Gov!

  • abercrombie milano||

    State and Local Public Policy from the Mercatus Center Gov. Christie declares a “fiscal state of emergency” in New Jersey by Eileen Norcross on February 11, 2010 in Uncategorized Just as he promised, after winning the office in November, Governor Chris Christie has declared a fiscal state of emergency in New Jersey. The move gives him broad powers to reform the state’s finances. He will…

  • watches||

    Doing this may just save this State and bring the businesses back that left in droves. If these spoiled brats don't like it, they can be the ones to leave, but I guarantee they won't.

    All these Unions have done is produced lazy workers who don't give a damn and kids who don't learn anything but their political indoctrinations, while the Principals defend their actions and I'm sick of it.

  • watches||

    Here is an issue where I agree with conservatives and libertarians: public sector unions need to take a significant haircut. We would immediately review all federal salaries and benefit packages, and keep sure that they are in line their private sector counterparts. States should do the same. We can likely shave a couple percent of our spending this way. Unfortunately, wereplica IWC need to shave around ten times that, which isn't possible without slashing SS, Medicare, or defense. Everything else is chump change.

  • Micheal||

    "To get a sense of how intractable New Jersey’s budget has proven to previous reformers, consider the largest category of spending. Forty-one percent of New Jersey’s budget, $13 billion in FY 2009, is dedicated to the Property Tax Relief Fund (PTRF)."
    The budget should be spend properly.

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  • jeff||

    spending that should have been determined by the legislature has been decreed by the court, which claims it is upholding New Jersey’s constitutional guarantee to provide children a “thorough and efficient” education.

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