Dems OK Boost in Low-Income Tax Credit But Won’t Budge on Pension Payment
Resolution passed by Assembly and Senate pressures Christie to make contribution of $1.3B immediately instead of waiting until end of state’s fiscal year
With Gov. Chris Christie set to announce a run for president this morning, Democrats who control the state Legislature gave him a bipartisan victory to tout by voting yesterday in favor of his proposal to increase a tax credit that benefits the state’s lowest-wage earners.
But the Democrats were far less kind to the Republican governor in their response to another one of his key budget decisions. The Democrats quickly put forward and passed a measure that puts new pressure on Christie to make an immediate contribution into the public-employee pension system instead of waiting until this time next year.
Those actions yesterday came not only on the eve of the new state fiscal year, which begins tomorrow, but also as Christie was preparing to announce todayfor the GOP nomination in the 2016 presidential election.
One of the issues Christie is likely to promote during a campaign kickoff event scheduled to be held at Livingston High School, his alma mater, is an, which he called for Friday as he was using his authority to slash spending from the budget bill advanced by Democrats last week.
Christie said the tax credit for the state’s lowest-wage earners should go up from 20 percent of the federal version of the credit to 30 percent, putting New Jersey on par with neighboring New York. Lawmakers, in response, agreed with the governor yesterday on a bipartisan basis, with the Senate approving the change 38-1, and the Assembly passing it 62-2 with four abstentions.
That sends it back to Christie for his expected signature.
But Democrats reminded reporters during a news conference yesterday afternoon that it was Christie who reduced the credit shortly after taking office in 2010, noting they have tried numerous times to reverse the cut only to be blocked by the governor. Still, they said they had no problem giving Christie the bipartisan victory on the eve of his presidential announcement.
“I could care less about the sound bite,” said state Senate President Stephen Sweeney (D-Gloucester). “It’s more important that you have the working poor (benefitting).”
New Jersey is one of 26 states that offers its own version of the Earned Income Tax Credit. More than 500,000 people qualify for the credit in New Jersey, with income eligibility ranging from $14,590 for workers without children to $52,247 for those with three children or more, according to New Jersey Policy Perspective, a liberal think-tank based in Trenton. The change would give back up to $600 annually to the lowest earners.
“I’m not going to pass a bill or care one whit that the governor chooses to use this as a sound bite,” said Senate Majority Leader Loretta Weinberg (D-Bergen).
But she and Sweeney took a much stronger position on the issue of funding for the chronically underfunded pension system. They’ve been clashing with Christie over that issue for the better part of the past year.
The budget bill lawmakers sent to Christie last week appropriated $2.8 billion for the pension system during the fiscal year that begins tomorrow, nearly the full amount called for in pension-reform laws enacted in 2010 and 2011. But Christie reduced that payment while taking action on the budget Friday, saying taxpayers can only afford to contribute $1.3 billion.
That followedwhen Christie reduced pension contributions for the 2014 and 2015 fiscal years by a combined $2.45 billion, cuts upheld by state courts the last two years and by earlier this month.
Christie, meanwhile, has also called for a new round of benefit reforms, including freezing the current pension system and requiring employees to accept less-generous health coverage.
Democratic leaders didn’t put Christie’s latest pension cut up for an override vote yesterday, but instead put forward a resolution calling on Christie to make the $1.3 billion payment at the outset of the fiscal year rather than following tradition and waiting until the end of the fiscal year.
Though such a move would likely require the state to do short-term borrowing, the Democrats argued any interest costs would be absorbed by investment gains. New Jersey’s pension fund is professionally managed and assumes a 7.9 percent annual rate of return.
Sweeney said the early payment would result in a “net gain” for the state and its taxpayers.
“You’re never going to fix this pension system if you don’t fund it,” Sweeney said.
The pension-funding resolution passed the Senate 24-14 and was approved by the Assembly 45-6, with 18 abstentions.
Since the measure is a resolution and not a bill, it does not have the force of law. Still, Assembly Speaker Vince Prieto (D-Hudson) said Christie should “do the right thing” and follow the Legislature’s request.But Republican lawmakers raised concerns that the early payment would amount to arbitrage, since the state would be counting on investment returns during the fiscal year to outpace any interest that would be owed after borrowing the money upfront.
A spokesman for the state Department of Treasury also cited recent notices from Wall Street credit-rating agencies that warned more short-term borrowing could result in another downgrade for the state. New Jersey has received fiscal downgrades from all three major rating agencies several times during Christie’s tenure, leaving the state with one of the lowest bond ratings in the nation.
“Rating agencies explicitly said in statements on New Jersey this spring that increasing cash-flow borrowing could lead to further downgrades,” Treasury spokesman Christopher Santarelli said.
Assembly Minority Leader Jon Bramnick (R-Union) called the pension-funding resolution “political theater at its worst.”
“What they should talk about is long-term reform,” Bramnick said.