This is the first in a regular series of articles exploring and evaluating the candidates’ stands on major issues.
As might be expected, the Democratic and Republican candidates in this year’s gubernatorial primaries have very different views about how to solve the state’s biggest fiscal dilemmas. What might be less expected, however, are the differences and disagreements among candidates of the same party.
The Democrats have widely criticized Gov. Chris Christie’s approach to the state budget and taxes, and they’ve also openly talked about hiking some taxes to help ensure priorities like the public-employee pension system and school-aid law are fully funded.
Closing corporate-tax loopholes, getting more tax revenue from millionaires and legalizing and taxing marijuana in New Jersey have all been part of the budget discussion among Democrats Jim Johnson, Ray Lesniak, Phil Murphy, and John Wisniewski in advance of the June 6 primary.
Meanwhile, on the GOP side of the 2017 primary contest, the candidates are offering a far different view when it comes to the budget and taxes. Republican frontrunner Kim Guadagno is taking a firm “no new taxes” pledge, and her main opponent, state Assemblyman Jack Ciattarelli (R-Somerset), is calling for some taxes, like the corporate-business tax, to be phased out.
Guadagno is also promising to conduct a series of audits to control spending even as she’s looking to create a new property-tax relief program that could cost more than $1 billion in revenue. And while Ciattarelli has proposed higher income-tax rates for those making over $750,000, he maintains other components of his broader tax-reform plan would save taxpayers money through a host of proposed policy changes, including getting rid of the inheritance tax.
Right now, New Jersey’s annual budget measures $34.6 billion, but even at that total the state isn’t living up to several noteworthy commitments, including its pension obligation and school aid. For example, fully funding the pension obligation would mean adding roughly $3 billion to the $1.86 billion that’s already been set aside by Christie, a second-term Republican who has prioritized tax cuts since taking office in early 2010. Fully funding school aid would require another $1 billion to $2 billion in annual revenue.
Murphy, the Democratic primary’s frontrunner, has conceded some of his spending priorities, which include full funding of the pension obligation and the school-aid formula, may have to be phased in over time, an approach that would help ease upfront costs. He’s also talked about bringing in new revenue by hiking taxes on millionaires, something nonpartisan legislative analysts have estimated could raise about $600 million annually.
Murphy, a former Goldman Sachs executive, is also calling for a change to the state’s corporate-income tax-filing policy to prevent multistate companies from reporting New Jersey-based profits in states with lower tax burdens. Legislative analysts project that change could net nearly $300 million, and another $300 million could be raised by legalizing and taxing marijuana, according to industry experts.
Murphy said he also supports changing the way hedge-fund profits are taxed, which analysts project could raise at least $100 million for the state budget.
A better overall economic-development strategy would also bring more money into the state budget, Murphy said earlier this month during a debate sponsored by NJTV and NJ Spotlight.
“We’ve got to grow the economy,” Murphy said. “We’re used to, in Chris Christie’s New Jersey, of being stuck in the mud.”
“We’ve left billions on the table in terms of economic development,” he said.
Wisniewski, a veteran state lawmaker from Middlesex County, said he supports putting more state funding into New Jersey Transit, and he ties that proposal to the overall state economy and the issue of economic development.
“The fact of the matter is that we haven’t done enough to grow our economy by investing in what we have,” Wisniewski said during the debate. “New Jersey Transit is a critical asset of the state and we’ve underinvested in it.”
Wisniewski said he also wants to enact a constitutional amendment to guarantee the state’s pension obligation is fully funded, and he would reconsider not just the sales-tax reduction but also the estate-tax phase-out that Christie convinced Democratic legislative leaders to endorse last year as part of a tax-cut plan that will eventually result in the loss of well over $1 billion in annual revenue.
Johnson, a former U.S. Treasury official from Montclair, also favors full funding of the pension obligation and school-aid formula, as well as a higher income-tax rate on millionaires.
“We have to look at all of our options,” Johnson said. “It is a dire situation, and we know it’s unsustainable.”
Johnson has also attempted to link the issue of ethics reform to the budget, suggesting political “insiders” who are supporting Murphy deserve a share of the blame for the state’s fiscal problems. And to provide property tax relief, he’s proposing an amendment to the state constitution that would allow property taxes on businesses to be levied at a higher rate than residential properties.
Lesniak, a longtime state senator from Elizabeth, is the sponsor of the corporate-loophole legislation that Murphy said he supports. Lesniak is also calling for the establishment of tiered tax rates on millionaires to generate $1 billion in new revenue. Full funding of the pension system is also a top priority, Lesniak said during the recent debate.
“We have to make sure those funds will fully fund the pension (system) so we can take that worry out of our employees,” Lesniak said. “It’s our obligation, and we have to fill it.”
Lesniak’s other big proposal involves using a comptroller to closely monitor school-district spending to eliminate waste and redundancies.
On the Republican side of the gubernatorial primary, the issue of public-employee benefits is drawing a different approach. Guadagno, Christie’s current lieutenant governor, has highlighted some of the recommendations made by a special panel of benefits experts that was convened by Christie in 2014. They include freezing the current pension system and moving employees into a “cash-balance” plan that would have some features of a 401(k). Guadagno would also cut worker health benefits to save an estimated $2.5 billion.
Ciattarelli, a state lawmaker since 2012, also favors reducing public-employee benefit costs by forcing workers to accept less generous healthcare coverage. He would also move employees with less than 10 years of service into a cash-balance retirement plan, and force all new employees into a 401 (k).
Instead of making full funding of the school-aid formula a goal like the Democrats have, the two GOP candidates favor making changes to the law that would redistribute billions of dollars in so-called “formula aid.” Ciattarelli’s plan calls for all communities to cover at least 25 percent of their schools’ operating budget, and he would also target places like Jersey City that have cut Payment In Lieu of Taxes (PILOT) deals with developers that intentionally deprive their school systems of revenue.
“What’s going on right now is flawed, unfair and a violation of the equal-benefits clause of the state constitution that says no community is supposed to benefit at the expense of another,” Ciattarelli said during the GOP debate that was held last week.
But Guadagno, who also favors school-aid funding changes, faults Ciattarelli for not giving enough attention to the issue of property taxes. Guadagno has proposed a “circuit-breaker” plan that would use revenue from the state budget to prevent school taxes from eating up more than 5 percent of an individual’s annual income, capped at $3,000. And her proposal calls for the tax relief to come in the form of a direct tax credit.
Though the estimated cost of the circuit-breaker proposal nears $1.5 billion, Guadagno said she would be able to afford it by saving money through audits, annual revenue growth, and reducing employee health-benefits costs and payouts for unused sick and vacation time.
“The most important thing is that we help the people who need the help the most while we take all of the time it’s going to take to fix the school-funding formula,” Guadagno said.
She’s also suggested Ciattarelli’s overall plan to restructure taxes could lead to a tax hike, pointing to the higher income-tax rates on those earning over $750,000 that are part of his plan. But Ciattarelli maintains his broad tax plan “doesn’t raise taxes overall on anybody” due to other tax cuts that are part of the plan, like phasing out the corporate-business and inheritance taxes.
“This is a tax restructuring,” Ciattarelli said during the debate. “This is desperately what we need and it lowers everyone’s overall tax bill.”
He’s also proposed some other creative ideas on taxes, including calling for a reciprocal income-tax agreement with New York and freezing property-tax assessments after a homeowner makes improvements so they aren’t punished with a higher property-tax bill.
Stay ahead of the candidates and on top of the issues with NJ Spotlight’s 2017 primary page.