Call it monetization, leveraging or plain old-fashioned borrowing against what is already owned, but the recent move by Gov. Phil Murphy to turn state assets into cash to close an impending budget gap is a short-term response to the far more serious and systemic issue of how the state raises and spends public money.
Asset monetization is not a new idea — it was suggested by former Gov. Jon Corzine and used by his successor Gov. Chris Christie — but it’s a bit like selling the kitchen table and directing the proceeds toward next month’s mortgage payment.
It’s a quick-hit solution that eases the pressure momentarily (we can get along for a while without a kitchen table), but the overall problem (the mortgage) remains unaddressed.
It is not surprising that Murphy has cottoned to the idea, not simply because it will produce a yet unknown amount of money which he’d prefer to help rescue the state pension system from drowning in a sea of red ink but as a demonstration to the legislative leadership that he’s willing to consider solutions other than tax increases.
Both Senate President Steve Sweeney (D-Gloucester) and Assembly Speaker Craig Coughlin (D-Middlesex) for months have made clear repeatedly they will not accept a fiscal 2019-2020 budget if it includes raising taxes.
Significant change in his approach
Soliciting bids for the sale, lease or naming rights of property owned by the state or its authorities is the clearest sign yet that the governor realizes the leadership’s position is adamant and he is prepared to engage them in serious negotiations over his budget proposal.
It is a significant shift in the governor’s approach, brought on in considerable measure by his experience last year when the state teetered on the brink of a government shutdown over his insistence on raising the state income tax on the wealthy and restoring the sales tax to 7 percent.
He eventually conceded on both those demands and accepted a budget crafted largely by the Legislature.
Neither he nor his top-level staff is anxious for a repeat or dealing with the public perception that he believed greater spending and higher taxes were more important than spending reductions and operational austerity.
Turning assets into cash is a realistic idea, to be sure. It’s not the alchemists’ promise to turn lead into gold, and it does hold potential for producing revenue for whatever purpose the administration identifies; i.e. the fiscally-beleaguered pension system, for instance, which seems to be Murphy’s preference.
What he’ll do for public employees
It is, moreover, a clear indication that the governor will go to significant lengths to avoid requiring public employees to contribute more to their pension and health benefits system or to accept recommendations for scaling back those benefits.
Murphy accurately points out that the pension system is in such a precarious condition largely because previous administrations shortchanged their required obligations while employees held up their end of the bargain. It is, therefore, his view that it is the state’s responsibility to correct it without further burdening the employees.
Fair enough, but criticizing prior fiscal sins does nothing to achieve current fiscal solutions. And, the fact of the matter is that the system’s unfunded liability exceeds $100 billion — making it one of the worst in the nation — and in the absence of major changes will become one of the largest single spending requirements in the budget.
Sweeney, while in support of the monetization plan, remains solidly behind what he views as an imperative to restructure the pension system largely through reducing healthcare coverage from the platinum level to the gold level and placing new employees in some form of a 401(k) plan rather than the current defined benefits system.
It is, of course, impossible to estimate with any degree of certainty the revenue which would be produced by selling off state assets or whether it would put a significant dent in the underfunded pension system.
Pension shortfall isn’t NJ’s only problem
Sweeney is committed to the plan issued by a study commission he created to identify areas ripe for spending cuts or elimination, pointing out that the state’s fiscal difficulties extend well beyond the pension system shortfall.
The state collects sufficient revenue, he insists, and what is necessary is a re-examination of how it spends it. “We don’t have a revenue problem, we have a spending problem” is a bit of an overused phrase, but Sweeney contends it is an eminently valid point which deserves attention.
Interestingly, his point was echoed by State Treasurer Elizabeth Muoio who acknowledged the state faces many fiscal challenges and a single solution doesn’t exist. Hence, the move toward monetization.
With a May 15 deadline for receiving an analysis of the state’s assets and recommendations to leverage them, any anticipated revenue will not be included when the governor submits his budget to the Legislature next month.
He can, though, be expected to tout the idea heavily and urge the Legislature to act with dispatch when the recommendations are received.
Murphy must confront critics who argue he settled on the monetization scheme at the behest of public employee unions — with whom he is exceptionally close — as a legitimate and credible device to thwart Sweeney’s proposed benefits reduction and increased contribution plan.
There has been speculation as well that the monetization plan can be used to soften the impact of tax increase proposals and as a counter argument that Murphy’s solution of choice is raising taxes.
It is clear that the stage has been set for the budget debate and that the governor learned a hard lesson last year when his strategy of insisting the Legislature bend to his demands backfired.
He may want to sell the kitchen table, but he may be in a position to count on Sweeney to deliver the sales pitch.