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Elections 2017

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Governor’s Race 2017: Property Taxes, Pension System, Economic Growth

Sound bites and TV spots aren’t enough to get an accurate understanding of the leading candidates’ policies and platforms

murphy-guadgno debate10-18

This article is the first in an occasional series assessing and exploring where the leading candidates stand on the most important issues facing New Jersey. Follow this link to read all the articles in this series.

From property taxes to pension funding to how the state distributes economic development tax incentives, some of the sharpest policy disagreements that have emerged during this year’s gubernatorial election in New Jersey are related to state finances and the economy.

On one side of the divide is Democrat Phil Murphy — the contest’s current frontrunner — who’s been arguing that policies enacted by Republican Gov. Chris Christie during his two terms have largely been favoring the state’s well-to-do residents and large corporations.

2017 election issues bug

To re-level the playing field, Murphy, a former Goldman Sachs executive, wants to hike taxes on millionaires and wealthy corporations, adopt a $15 minimum wage, and make community college free.

“If you’re the very wealthiest among us, a big corporation, or a hedge fund, you’ve had the time of your life, because they’ve had lots of breaks and the middle class has paid through the nose,” Murphy said during the most recent debate between the two candidates.

But Republican Kim Guadagno, Christie’s longtime lieutenant governor, has attempted to counter Murphy’s message by making the case that the key issue for New Jersey voters is really taxes, and specifically property-tax relief. She’s defended her administration’s use of tax incentives, saying they’ve been vital to the redevelopment of places like Camden and Atlantic City, and she wants to audit state government and find other places to reduce spending so there are more dollars freed up to fund more property-tax relief.

“I believe the people of New Jersey need property tax relief,” Guadagno said during the debate. “It is the number one problem facing them today.”

Property-tax relief

Guadagno’s central campaign message has lined up with public-opinion polling that suggests the tax issue is the top concern this year among New Jersey voters. That should come as no surprise since it was just a year ago that the gas tax was increased by 23 cents. Meanwhile, New Jersey homeowners continue to pay property-tax bills that are the highest in the nation, now averaging $8,549.

Christie worked with Democrats during his first term to enact a cap on annual property-tax increases, but funding for most state property tax-relief programs has been trimmed during his tenure, meaning many taxpayers have been dealt a net increase even as the rate of growth in bills has slowed.

Without blaming Christie directly, Guadagno has been promising since the start of her bid for governor to boost property-tax relief, going so far to promise she will not seek re-election if she’s unable to deliver. The main element of her property tax relief plan is a proposal to create a new, state-funded program that would attempt to cap the school-tax portion of a local property tax bill for most homeowners. Calling it a “circuit-breaker,” Guadagno’s proposal would provide rebates worth up to $3,000, though she estimates it would provide, on average, nearly $900 in relief.

“You should never have to pay more than 5 percent of your household income for your school property taxes,” Guadagno said during a September news conference where she walked through the details of her proposal. “It’s as simple as that.”

How to pay for it

But where she could face trouble is how she will cover the $1.5 billion that she expects the new program could cost. She hopes to find significant savings in the audit of state government, and she’s also banking on a swell of economic growth to help boost state revenues. Guadagno is also assuming that money could also be repurposed from existing property tax relief programs as homeowners decide her new offering is more generous, but many homeowners who live in communities where the state is already covering a good share of the local education bill through the state school-aid law may end up better off sticking with the existing property-tax relief programs.

One area of more certainty for Guadagno is her firm support for the renewal of a 2 percent limit on salary increases that must be followed by arbitrators who are brought in when unions representing police officers and professional firefighters cannot reach a new deal on a contract with their local-government employers. The cap, which is due to expire at the end of the year, has saved as much as $530 million by some estimates since it went into effect in 2011.

Murphy, meanwhile, has taken a different approach to the arbitration cap, one that echoes the posture adopted by Democrats who control the state Legislature. Murphy said he’s holding back judgment until a full report is issued by a special task force that’s been evaluating the cap’s effectiveness. The report is due at the end of the year.

Importantly, neither Murphy nor Guadagno has proposed abolishing the state’s broader, 2 percent cap on property-tax levy increases.

Murphy, meanwhile, also breaks from Guadagno in how he plans to deliver property-tax relief, arguing that the most effective way to do so is to pump more state dollars into K-12 school districts. Under Murphy’s plan, the state would eventually fully fund the school-aid law, which Christie has shorted by as much as $2 billion annually throughout his tenure — favoring cutting taxes instead. Murphy’s betting that more from the state budget – fueled by income, sales and business-tax revenue – will relieve pressure on property taxes.

“We will fully fund public education in this state,” Murphy said during the contest’s first debate earlier this month.

But the key to Murphy’s plan to boost education aid is a proposal to revamp economic policies and launch a series of targeted tax-policy changes. For example, Murphy has proposed hiking the income-tax rate levied on earnings over $1 million from 8.97 percent to 10.75 percent to bring in an estimated $600 million in new revenue.

His plan also calls for closing what he considers to be a tax loophole that allows large, multistate corporations to report some profits earned in New Jersey in other states with lower tax rates. Murphy also plans to hit hedge-fund managers with a new tax that treats their earnings as true income instead of as a capital gain, and he would also legalize and tax marijuana. In all, Murphy believes the tax-policy changes could bring in up to $1.3 billion annually.

But whether he can get enough lawmakers — even those from his own party — to enact his full agenda remains to be seen as things like legalizing marijuana may face a bumpy ride in the Legislature. Also unclear is whether the revenue projections he’s relying on to support each tax proposal will hold up over time to fully cover his funding commitments.

Pension funding

Though property-tax relief has been the top concern for voters, a key issue facing the state budget right now is the public-employee pension system, which is underfunded by at least $50 billion And while state contributions to the pension system currently total $2.5 billion, they are expected to rise to as much as $6 billion within the next several years.

For Murphy, the central problem has been the state’s longstanding failure to fully cover its annual obligation, and he’s pledging to bring the state up to full funding of the employer obligation. He has, however, acknowledged that it may have to be done in phases, just as he’s planning to increase school aid incrementally over time, as his economic policies take hold and grow revenues.

Murphy has also refused to talk about doing any cost cutting on the employee-benefits side, pointing to a 2011 reform effort led by Christie and Senate President Stephen Sweeney (D-Gloucester) that forced workers to contribute more toward both their pensions and their healthcare benefits. Though employees are still paying more, Christie backed off a promise to more aggressively ramp up state contributions.

“We’ve got to get back to fully funding the pension plan,” Murphy said during the first debate. “Only then can you start talking about what else are you going to do.”

For her part, Guadagno is more closely aligned with Christie when it comes to the pension issue. She’s embraced the findings of a nonpartisan benefits-study commission that was impaneled by Christie, and is calling for the adoption of many of its key recommendations, including the creation of a new “cash-balance” retirement plan that would have some features of a 401(k).

Guadagno would also cut costs – by as much as $2.5 billion according to the study commission’s estimates — through offering workers less generous healthcare coverage. She’s also embraced an idea backed by the police officer and firefighter unions that would see them gain more control over their own retirement funds, but, like Murphy, has not committed to signing a measure backed by Democratic legislative leaders.

Economic growth

While the U.S. unemployment rate dropped to 4.2 percent last month, in New Jersey, the unemployment rate has been on the rise in recent months, landing at 4.7 percent in September. The state has also added about 20,500 jobs since the start of the year, a growth rate that measures less than 1 percent. And while New Jersey has finally recovered all the jobs that were lost to the Great Recession, the latest figures compiled by the federal Bureau of Labor Statistics indicate the rate of growth here over the past year has been 40th out of the 50 states and the District of Columbia.

That record has given Murphy an opening to criticize Christie’s economic policies, including a decision to use lucrative tax incentives to either lure companies to New Jersey or keep them from leaving. And among his own economic proposals is a plan to focus more on nurturing startups and tech-driven businesses. He also supports calls for a $15 minimum wage, which would be phased in over time, and wants more investment in transportation infrastructure and higher education to boost economic development.

“This is an investment,” Murphy explained as he discussed the goal of providing free tuition to community college students during an October news conference in Trenton.

“This is investing in the economy … this is investing in our most important asset, which is our people,” he went on to say.

Guadagno, meanwhile, is pledging to do more work with the military and veterans to get more economic growth, citing the state’s close ties to Joint Base McGuire-Dix-Lakehurst in South Jersey. She’s also defended the tax-incentive programs, and while Murphy is hesitating, Guadagno has decided to fully support Christie’s push to dangle as much as $7 billion in state and local tax breaks in front of Amazon as it looks for a location to build a second corporate headquarters. She’s also criticized Murphy’s plan to hike taxes on millionaires as a chill on investment.

During the contest’s first debate, Guadagno also issued a stern warning about a $15 minimum wage, saying it could hurt the state economy and “take away the very jobs” that low-wage earners currently fill.

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