Governor Chris Christie focused much of his final State of the State Address on how to combat the opioid crises afflicting the region while also touching on tax reform and partial solutions to the ongoing pension crises. In particular, the governor proposed using $1.9 billion in discretionary spending savings as an infusion to shore up the state’s pension fund. According to him, this would constitute the largest one-time pension investment in the last 23 years. He also applauded recently passed reforms estimated to save New Jersey’s pension system nearly $120 billion over 30 years.
But these reforms-albeit commendable-are only small first steps in ensuring the state honor its promises to the hundreds of thousands of public retirees reliant on these plans. New Jersey’s legislature consistently underfunded the programs from years past. The ALEC report Unaccountable and Unaffordable 2016 ranks the state’s pension funding level at 47thnationally. Using a risk-free rate of return of 2.344 percent (the average of the 10 and 20 year U.S. Treasury bond yields from March 2015 to March 2016), New Jersey’s state pensions are underfunded by more than $235 billion, or $26,288 per capita.
On tax policy, the governor praised Republicans and Democrats for reducing the state sales tax and increasing the exclusions for the state’s estate tax (to be eliminated completely in 2018); but he failed to mention the tax cut savings are almost entirely offset by the enormous 23-cent per gallon increase in the gas tax. This year’s sales tax reduction of 0.125 percent will save a whopping $1.25 on a $1,000 purchase; meanwhile, the gas tax hike will cost twice this much on a single 11 gallon fill-up. And while he commended the implementation of a property tax cap during his tenure (projected to save taxpayers $520 million), he failed to mention that New Jersey’s property tax burden is the worst in the nation. Capping the tax does not alter this harsh reality.
Despite the governor’s repeated exhortations for reforms since assuming office in 2010, substantial change has proved elusive for the Garden State. As a result, economic outlook remains dismal relative to the other states (48th in the latest edition of the ALEC report Rich States, Poor States).The top marginal income tax rate for individuals and corporations (state and local rates combined) remain the 4th and 9th highest in the nation respectively. As mentioned, the property tax burden is the worst in the nation. Furthermore, economic growth remains stunted by forced unionization and the third highest workers’ compensation costs in the nation. It’s no wonder that New Jersey has experienced domestic outmigration each year for more than a decade. Renewed economic robustness requires a bipartisan commitment to extensive reforms on these economic matters.