Sunday, October 2, 2022

Property Taxes and Household Income

People who live in New Jersey and New York already know that their property taxes are high. But they may not know just how high, that these two states have the highest property taxes in the United States, by various quantitative measures as described below.

New York and New Jersey vie in any given year for first place for highest per capita homeowner property tax burden in the nation. The Tax Foundation recently published rankings of median per capita homeowner property taxes paid and 2008 is no exception. The top 10 counties are nearly split between the two states. Number one is Westchester, NY with a median per capita homeowner property tax of $8,890.

When dividing the median property tax burden by median home value, only New York counties make the top ten. Niagara County is number one with median property taxes representing 2.89 percent of median home value.

I decided to do another calculation using the Tax Foundation’s data and combining it with median homeowner income for each county in the U.S. to calculate another measure of property tax pain: how big a bite it takes out of homeowner income.

Not surprisingly, the results don’t help either state.

New Jersey has 16 out of the top 25 highest property tax counties (among counties with populations greater than 65,000) in the US. New York has six counties, and Illinois, three. For three counties in New Jersey — Passaic, Essex and Bergen — the median property tax represents over eight percent of median homeowner income. As a benchmark, the average for the US is 2.8 percent.

New York has six counties in the top 25 in the eight percent range. It’s only by 21st place that a new state jumps into the rankings: Lake County, Illinois with a ratio of median property taxes to median income of 6.5 percent.

Here are all the top 25 counties:

Highest 25 Property Tax Counties in United States, 2008 (Median Homeowner Property Tax as a Percentage of Median Homeowner Income)

County State Taxes as % of Income
1. Passaic NJ 8.7%
2. Essex NJ 8.3
3. Bergen NJ 8.2
4. Nassau NY 8.1
5. Union NJ 8.0
6. Westchester NY 8.0
7. Rockland NY 8.0
8. Hunterdon NJ 7.4
9. Suffolk NY 7.4
10. Putnam NY 7.3
11. Hudson NJ 7.0
12. Sussex NJ 6.9
13. Camden NJ 6.9
14. Somerset NJ 6.8
15. Atlantic NJ 6.8
16. Monmouth NJ 6.7
17. Warren NJ 6.6
18. Mercer NJ 6.6
19. Morris NJ 6.6
20. Middlesex NJ 6.6
21. Lake IL 6.5
22. Orange NY 6.4
23. Gloucester NJ 6.3
24. Kane IL 6.2
25. Kendall IL 6.2

Note that these are counties with populations of over 65,000.

October 20, 2009

Crushed by Taxes in New Jersey

Gannett has done its homework — and the homework of New Jersey’s government(s). This week its New Jersey papers are running a week long series on the state’s property tax crisis.

Visit the Asbury Park Press‘ website and click on a municipality in any one of New Jersey’s 21 counties. Wave your cursor over the bar chart to get a tangible sense of how property taxes are crushing the state’s residents.

For example in Fort Lee, Bergen County, residents face an average tax burden of $8,510, up from $5,545 since 2000. Factor in the property tax rebates from Trenton — the average check sent out in 2008 amounted to $944 — and that’s a 41 percent increase in property taxes in eight years with the rebate. You can get property tax details for each of the state’s 566 municipalities.

Yesterday’s analysis (Day 2) featured a series on one of the major drivers of property taxes: salaries for public sector workers.

Binding arbitration rules mean that unions negotiate their benefits and salaries through a seven-member commission in Trenton with the costs passed on to localities. (For background on the evolution of public sector negotiations in New Jersey from 1968 to today, read, “PERC After 40 Years.”)

Now,  thanks to what must have been a massive amount of data work for Gannett’s reporters, you can easily discover how much police officers, municipal workers, teachers, firemen, and judges are being paid in your town.

Each of New Jersey’s 460,000 public employees enrolled in a benefits program is in this data base by name, jurisdiction, and retirement fund. You can also look inside a police contract.

The Asbury Park Press highlights some of the biggest beneficiaries:

  • A principal at Freehold Regional earns $146,316.
  • A police officer in Belmar grossed $109,975.
  • In Eatontown, a patrol officer earns $90,000.

The reporting continues through Sunday, and it’s worth exploring. It’s also worth asking why some towns were more forthcoming with their data than others.

September 29, 2009

Podcast on New Jersey’s Fiscal Problems

Eileen Norcross, the lead author on Institutions Matter: Can New Jersey Reverse Course?, recently discussed her research and findings on the Inside State and Local Policy podcast. Clocking in at under 13 minutes, the podcast hits the highlights of the paper’s findings about New Jersey’s current fiscal crisis and discusses opportunities for reform.

Click here to download the podcast as an MP3 file, or click here to subscribe to Inside State and Local Policy via iTunes.

September 22, 2009

N.J. Attorney General to sue Stevens Institute of Technology in Hoboken

Stevens Institute of Technology in Hoboken, NJ is in the crosshairs of the New Jersey Attorney General’s office.

A lawsuit to be filed today accuses the school of misappropriation of endowment funds and excessive compensation. If successful in its case, management of the university may be ceded from the university’s nonprofit Board of Trustees to the state.

At the center of the suit are the Board’s chairman, Lawrence Babbio, and university president Harold Raveche (whose salary – in excess of $1,000,000 – is offered as evidence of overcompensation).

According to the Star-Ledger, in 2004, after a decade of aggressive expansion and growth of the university which doubled the number of students, an internal review of the school’s finances called into question the school’s financial health — including a large debt, operating losses, and a deficit of $8.5 million in 2003.

Stevens isn’t sitting quietly. The university pre-empted the state’s lawsuit, filing its own against Attorney General Anne Milgram on Wednesday accusing her of overstepping her authority and making inaccurate allegations.

The state’s claims against Stevens’ budgeting and spending practices are, in a word, ironic.  New Jersey’s fiscal and accounting practices are nothing to emulate. Debt has tripled to $45 billion since 1990. Budget shortfalls are a regular occurence (last year’s shortfall was an historic $7 billion), and recent reforms have tried to tackle the state’s long-running problem of state employees padding their salaries and pension benefits.

This doesn’t make the state a particularly convincing auditor.

September 17, 2009

Less Living for your Dollar: Cost of Living also Drives Migration

People want to live where they can maximize their standard of living.  But it’s not just the high taxes driving residents out of states like California, New York, and New Jersey.

According to Eamon Moniyhan, director of The Cost of Living Project (COLP) in New York, states with the largest population growth are those with a low cost of living, in particular the South and Mountain West states. The reverse is true in the high cost of living Northeastern states — Massacussets, Connecticut, and New Jersey.

According to the U.S. Census, New Jersey has  the second highest median income in the nation at $67,142, but once the cost of living is factored in, that shrinks to $56,147. Not coincidentally, New Jersey has been experiencing a steady loss of residents for lower tax (and lower cost of living) locales such as North Carolina.

As Rutgers economists Joseph Seneca and Richard Hughes find in  “Where Have All the Dollars Gone?”, between 2000 and 2005, over one million people left New Jersey. Among the top ten destination states, some are high tax and high cost of living (New York, California, and Massachusetts). Others are low-tax and/or low cost of living states in the South and West (North Carolina, Virginia, Texas, Georgia, and Florida).

What drives the high cost of living? According to COLP, excessive regulations. This is why the average metro New Yorker’s income doesn’t stretch that far. A person earning $50,789 in Chicago has the same standard of living of someone earning of $100,000 in New York City. For more, read here.

August 31, 2009

Extraordinary Aid for New Jersey’s Extraordinary Times

When New Jersey municipal governments cannot balance their budgets and must resort to dramatic property tax hikes or service cuts, they can apply to Trenton for “extraordinary aid,” one of several aid streams the state doles out to its 566 municipal governments, school districts, and county governments.

According to the Division of Local Government Services, “Extraordinary Aid is awarded to municipalities who, because of extreme circumstances, would not be able to provide essential services to the community without a substantial increase in their property tax rate.”

To get aid, the municipality must apply and show their fiscal status, including documenting efforts to contain costs and share services. In other words, in theory, Extraordinary Aid is for Extraordinary Circumstances. However, some municipalities seem to have been in fiscal distress since 2001.

This year the state will distribute $10.7 million to 39 municipalities. The largest amount, $850,000, goes to Bound Brook in Somerset County. Taking a look at the past seven years of Extraordinary Aid awards reveals 27 of the communities on this year’s list have received it before. In fact, nine communities have gotten it every year since 2001, including Bound Brook Borough — which may indeed have extraordinary needs. Prone to disastrous floods since its founding, a levee is scheduled to be completed by 2012.

Yet the persistent award of aid for out-of-the-ordinary financial crises implies that these communities have come to rely on quick fixes as permanent solutions to their budget problems.

While some communities on the list may seem like natural cases for aid, the question that needs to be asked is: When does extraordinary aid make financial crisis a permanent state of affairs?

August 10, 2009

Budget Gimmickry Goes from Bad to Worse

Earlier this week, Moody’s downgraded New Jersey’s credit outlook from “stable” to “negative” in light of, as the rating agency put it, “the persistent and growing structural imbalance exacerbated by nonrecurring and temporary budgetary solutions.”

Moody’s writes, “The depletion of the state’s rainy day fund, enactment of temporary tax increases and significant reliance on nonrecurring expenditure reductions including minimal pension contributions contribute to both short-term and longer term budgetary pressures resulting in the state’s negative outlook.”

In other words, Wall Street sees right through the budget gimmickry that, while especially prevalent this year, has been a feature of New Jersey’s budget process for two decades. Budget tricks may fool voters, but they’re less likely to fool creditors. And many of the stopgap measures used to balance this year’s budget will not be available next year.

But New Jersey looks positively restrained compared with this new scheme from California, which arguably leads the nation in creative intergovernmental lending:

The cash-strapped University of California plans to loan $200 million to the even more cash-strapped State of California so that—get this—the state can give the money back to UC.

Here’s how we got to this crazy place: First, California’s enormous budget deficit sent the state’s credit rating into a death spiral and prompted massive cuts to a vast array of state-funded enterprises, including UC. The state cut UC’s budget by $813 million, prompting the university to raise student fees, furlough faculty and enact a range of other painful cost-cutting measures. But as bad as things are for UC, the university has managed to maintain a better credit rating than the state. Which means it can borrow money at a low interest rate and loan it to the state at a somewhat higher rate.

Here’s the story from the San Francisco Chronicle.

August 6, 2009

Xanadu Doomed, or just Delayed?

XanaduThis year was to mark the year that Xanadu, a 2 million square foot entertainment/shopping complex, was to open in the New Jersey Meadowlands. Promising an indoor ski slope, tunnel-diving, movie complex, and warehouse-sized shops, the project has few cheerleaders.

Bergen county residents call it “structural graffitti” with its proposed Pepsi Globe Ferris wheel blocking the Manhattan skyline.  Senate President Richard Codey says it’s “yucky-looking,” and the FAA wonders if the Ferris wheel will interfere with air traffic control.

Then there’s the timing: a Disney-meets-Vegas inspired retail center in the midst of a recession?

What’s worrying however is that it won’t matter. “The largest retail and entertainment complex in the United States” partially owes its existence to subsidies, bonds, and taxpayer-financed site remediation.  Can taxpayer life-support be far behind?

Xanadu is a hybrid: last decade’s euphoric consumerism kept alive by misplaced government bets.

The vision belongs to partially to the New Jersey Sports and Exposition Authority, a state agency that oversees New Jersey’s tracks and stadiums. The Meadowlands has been a government target for economic redevelopment for decades. Xanadu is the most recent attempt to fill unused parking lots next to the stadium. The vision also belonged to a real estate developer, the Mills Corporation, which has since backed out.

While not directly subsidized,the $2 billion center is being built on state-owned land, and nearly $80 million is being spent on transportation. Site remediation has cost $2 million. The NJSEA received a $160 million 15-year lease from the private developer Xanadu Meadowlands.

Today, the main players are in financial difficulties. Real Capital Analytics put the project on its “Troubled Assets List.” The NJSEA is in the red. Years of using surplus track betting revenues to finance stadiums, convention centers, and the authority’s penchant for issuing bonds have come to a screeching halt.

Now scheduled to open some time next summer, as Jeff Tittel, executive director of the New Jersey chapter of the Sierra Club notes, “We’ve given millions in incentives, tax breaks and transportation on a project that was pushed through because of political connections — not because we needed it.”

Consumer preferences will reveal how much it is loved or loathed next summer, in theory. Unless the state decides it is “too big to fail.”

Here’s a report from the Star-Ledger on Xanadu:

Ledger Live: Meadowlands Xanadu – A boon or boondoggle?
August 3, 2009

Court Okays Secession for New Jersey Cul-de-sac: Bay Beach Way

bbwNew Jersey residents may be getting some sorely needed control back over their governments — one street at time.

Two weeks ago a state appeals court upheld a ruling to allow one dead end street, Bay Beach Way, to move its boundaries by breaking away from Toms River and joining Lavallette.

The private cul-de-sac was left unplowed during a heavy snowstorm in February 2003. Across the lagoon in Lavallette, roads were quickly cleared. Being stranded for three days proved to be the last straw for the street’s residents, who have complained to the Toms River goverment about garbage collection and the speed of emergency services from the mainland for years. Lavallette is not only closer, it already provides Bay Beach Way with its cable and electricity.

This isn’t the first time sections of Toms River seceded and joined Lavallette.  It’s happened twice before.

Toms River Mayor Tom Kehaler says Bay Beach Way’s residents just want to take advantage of Lavallette’s lower taxes. Lavallete Mayor Walter La Cicero is happy because his town will get “a substantial amount of tax revenue from that, and we’re not going to have to hire anybody to provide the [extra] services.”

Bay Beach Way’s residents are reminding  government of something seemingly forgotten: citizens are taxed because they expect to get certain services in return. When those tax rates are punitive and services poor, the choices are to vote your elected officials out of office (or have them recalled, like Point Pleasant Beach), to “vote with your feet” and move.

Or, in this case, re-draw the line.

July 27, 2009

Something in the Water? New Jersey’s Spider Web of Corruption

Last week’s bust of 30 elected officials by the FBI in a corruption probe in  New Jersey is unfortunately not a shock to many residents. Abuse of public office and public funds in New Jersey is big, and it is small, and it is everywhere.

But is it an expectation?

According to the Cliffview Pilot, that’s how the Mayor of Hoboken, Peter Cammarano, now in custody for allegedly accepting $25,000 in cash bribes, sees it. This spring, then-candidate Cammarano told an FBI cooperator posing as a corrupt developer his election as Mayor was in the bag, “I could be indicted, and I’m still gonna win 85 to 95 percent.” The conversation, recorded in the Malibu Diner, is now evidence of how the Mayor agreed to suspend zoning laws for a developer in exchange for, “some green.”

New Jerseyans like corruption about as much as they like impending state bankruptcy and high property taxes. But what’s not often mentioned is  these things are related.  These arrests fight the symptoms but not causes.

As FBI Special Agent Dun stressed in Thursday’s press conference, “Corruption in this state will not end due to law enforcement’s effort…it’s time for the citizens of New Jersey to ask what do we need to do to wipe the spider web of corruption off the face of this state.”

That spider web has everything to do with the state’s institutions and how individuals choose to profit from, or avoid, the regulations those institutions have created. This is what provides the opportunity for civil servants to take bribes: “I might be willing to waive this permitting fee, but it’s going to cost you.”

Take note, this is also how things work in Chicago. And in countless other places all over the world.

Where costly bureaucracies proliferate, deal-making, evasion, bribery, and black markets grow.  Many politicians know this. They also know that  private parties are willing to pay to prevent a rule or regulation from being implemented.

In his book Money for Nothing, economist Fred McChesney develops the theory of rent extraction. Politicians extort payments (campaign donations) from private parties by making threats to expropriate wealth. People pay politicians to leave them alone.

In a related vein, when rules or burdensome regulations are already in place, enterprising civil servants know that playing with the municipal code has value for someone. That is the essence of the abuse of power.  It happens in Hoboken and in Cleveland.

This raises a question: when does a regulation or rule move from being a means to solve a social or economic problem, to becoming the problem itself — a means for the public sector to extract favors?

Because it has gone on for so long, abusing public office and public money may even be tacitly accepted within the institutions themselves. That is why we are likely to see more enterprising “operators,” who view their electorate with the same near-contempt of Mr. Cammarano.

To hobble the “culture of corruption,” shrink the bureaucracies and petty rules governing private property, and economic activity which provide the ethically-challenged with the means, the money, and the opportunity to win favors by granting them to the highest bidder.

For more, here is Bob Ingle and Sandy McClure’s investigation of New Jersey’s culture of corruption, The Soprano State.

July 27, 2009

Brad Pitt Seeks Stimulus

Make it Right House in New OrleansVariety reports that Brad Pitt’s Make It Right Foundation is seeking stimulus money to continue their work building houses in New Orleans’ Lower Ninth Ward:

In a high profile appearance that even drew live coverage on MSNBC, Pitt visited Washington in March to promote Make It Right, meeting with President Obama and House Speaker Nancy Pelosi, along with an array of cabinet secretaries and other elected officials, including Shaun Donovan and Energy Secretary Steven Chu. With Pitt was producer Steve Bing, who has been a benefactor of his housing project.

The foundation was among 12 non-profits joining with the New Orleans Redevelopment Authority to file an application last week for a total of $65 million through the Neighborhood Stabilization Program, which is administered by the Department of Housing and Urban Development. If they get the funding, Make It Right would probably start spending the money in the spring of 2010. Depending on how many homes the foundation has built by then, it could be used to reach their goal of 150 homes in New Orleans or it could expand the program beyond that, said Kim Haddow, a spokeswoman for Make It Right.

The Make It Right Foundation (profiled here on ABC’s 20/20) — as well as dozens if not hundreds of other local initiatives and non-profits — have done incredible work in rebuilding the Gulf Coast after Hurricane Katrina. But much of this success is due to their independence from large government bureaucracies. Stimulus funding has the potential to act as what Jane Jacobs called “cataclysmic money.” There is a real danger that if social entrepreneurs and non-profits like Pitt’s become dependent upon federal funds, they will in effect become arms of the federal government. This would have a dangerous effect on civil society, and reduce our resilience to disasters and shocks, whether natural or economic.

Another problem, of course, is that it’s not a lack of committed federal funds that have slowed rebuilding in New Orleans; it’s the difficulty with getting that money to the street level, and the mixed and oft-changing signals emanating from all levels of government. Stimulus money has the potential to be yet another promise that never comes to fruition, or comes too late to be helpful.

And moreover, having one of the lowest unemployment rates in the country, is New Orleans really the ideal place to invest stimulus cash?

The foundation also seeks funds to build and refurbish housing in Newark, New Jersey:

In Newark, Make It Right is among a consortium of public and private entities led by the city, which is seeking $45 million in stimulus funds for a wide range of projects to redevelop demolished or vacant properties as housing, and to purchase and rehab abandoned foreclosed homes to sell or rent.

Make It Right’s portion of the Newark application — budgeted at $7.3 million — calls for it to produce a high-density, mixed-use 112 unit development at the entrance to the Fairmount Heights neighborhood that “will combine high quality urban design and world-class architecture, achieving the highest possible levels of energy efficiency and environmental sustainability.” The proposal also includes retail space and plans for a 10,000- to 20,000- square foot community center to be operated by the Boys and Girls Club, as well as about a half-acre for a park.

More on redevelopment in Newark here.

July 24, 2009

Mayors of Hoboken and Secaucus taken into police custody

The New York Times reports that a major FBI sting operation is currently taking place across New Jersey.  The mayors of Hoboken and Secaucus are a few of the elected officials currently in custody at FBI headquarters in Newark. The probe centers on charges of money laundering and political bid rigging.

According to the New Jersey Star-Ledger:

Assemblyman Daniel Van Pelt (R-Ocean), Hoboken Mayor Peter Cammarano, Secaucus Mayor Denis Elwell and Jersey City Council President Mariano Vega are among those who have been already been brought to the FBI building in Newark. Jersey City Deputy Mayor Leona Beldini has also been arrested. A total of 30 people have been taken into custody, officials said.

The corruption centers on, “an international money laundering and corruption probe that includes rabbis in the Syrian Jewish communities in Deal and Brooklyn.”

Other sweeps are taking place in Ocean, Monmouth, Hudson, and Bergen counties.

The sweep follows last year’s arrest, prosecution, and conviction of former Newark Mayor Sharpe James, who is currently serving a 27 month sentence for fraud and conspiracy. And there was also the arrest of 11 elected officials in 2007 on bribery charges. The mayor of Atlantic City briefly disappeared last year pending a corruption probe.

Here’s the Star-Ledger’s rundown of recent corruption probes and scandals throughout the state.

More on this subject as it develops.

July 23, 2009

Point Pleasant Beach to Mayor: “No New Taxes, or Police Furloughs.”

Residents in Point Pleasant Beach, New Jersey have resorted to a seldom-used method to protest their mayor’s proposal to raise taxes: they want him recalled from office. The recall petition containing 1,250 signatures was approved this week, giving Mayor Vincent Barella until July 22 to mount a challenge to the motion being placed on the ballot in November.

point-pleasant-beachThe movement to recall Mayor Barella began in the fall, after he asked the state government permission to levy local special options taxes on beach badges, paid parking lots, and alcohol — and more controversially, proposed parking fees on all neighborhood streets — to meet the $11.5 $1.5 million gap in the borough’s budget.

Republican state representatives don’t  like the idea. “We don’t support raising taxes, and [Barrella] doesn’t accept that response,” said state Sen. Andrew R. Ciesla (R-Ocean), referring to the all-Republican northern Ocean County delegation to the legislature. “He believes that it is appropriate to raise taxes in order to cure the financial ills of the borough on the backs of nonresidents and residents alike.”

And the Mayor’s Democratic rivals who initiated the petition also disapprove, claiming he has other options. Said one petitioner, “We have eight too many cops…. Manasquan has 6,500 people with 18 cops. We have 26 cops for 5,300 people.”

Residents’ motives seem clear — “No New Taxes!” — but the solutions aren’t as easy.

The Mayor argues that Point Pleasant Beach needs extra police and sanitation during the tourist season. Property tax hikes are off the table. And while hotels charge customers a 15 percent tax, the state takes 12 cents and the borough keeps three cents.

Therein lies one root cause: the dysfunctional fiscal relationship between the state of New Jersey and its 566 municipalities.

In New Jersey, localities can only levy property taxes. The state levies all other taxes (including taxes that used to be levied by local governments), and redistributes a good portion of those revenues back to the municipal governments. The result is not property tax relief for localities, but years of fiscal illusion. State aid to local government is treated like money from above, and many lead local governments to systematically spend more than they would if the locality had to raise those revenues directly.

And then there’s the state’s incentives to consider.

In the case of Point Pleasant Beach, the town doesn’t get back much of what it puts into the state’s common revenue pool. The mayor argues, “The state derives a lot of benefit in sales and income taxes, but how much does the state put into it? We pay all the costs and they get all the revenues.” Taxes levied on Point Pleasant Beach’s motels don’t go to the town’s boardwalk repairs, they go to Trenton.

The Mayor’s other options including reducing the police force (he proposed laying off one officer), went down in flames this fall. And without budget cuts, the mayor won’t meet the state-imposed tax cap on local property tax rates.

Point Pleasant Beach could ask the state for more aid, but this plays right into the claims of Trenton. Small towns (Point Pleasant has under 5,300 residents) have long been targeted by the state government for municipal consolidation on the theory they are, by definition, inefficient.  This claim is hard to prove, considering the inefficiencies and bad incentives built into the state’s revenue/aid system.

An excellent solution comes from Stanley Fischer, one of the petition’s authors. The beaches and boardwalks belong to the bars, amusement parks and pavilions. To deal with the summer partygoer crowd,  let the boardwalk businesses hire additional police. Good idea, and it can be taken further. Point Pleasant need only look to neighboring Seaside Heights’ Business Improvement District. There are already about 80 Special Improvement Districts in the state.

The concept is simple: businesses establish a geographical boundary, a board of directors, and agree to a municipal tax. In exchange, the revenues are funneled back to the district to provide needed services: sanitation, street cleaning, boardwalk repairs, security, and marketing.

For more, read this paper by Robert Nelson, Kyle McKenzie and myself.

July 18, 2009

Governor Corzine Signs New Jersey’s FY 2010 budget

New Jersey’s $29 billion budget for FY 2010 is now law. Taxes have been raised on cigarettes, wine, and liquor. And there is a new tax rate of 10.25 percent on those earning over $400,000 (the ever-expanding and misnamed “millionaire’s tax” introduced by Governor McGreevey in 2004 was aimed at those earning over $500 million). In addition to the federal bailout, New Jersey managed to get a $2.1 billion line of credit from J.P. Morgan Chase early last month.If the legislature spends it all, they’ll have to tack on $18 million in interest payments.

There will be no property tax rebates for those earning over $75,000 (excepting the elderly and disabled).

There are no layoffs for union-represented public employees. Spending will be increased in public schools, college tuition aid, and on Family Care health coverage.

July 1, 2009

Experiments in Democracy

A Wall Street Journal editorial discusses the severity of the budget crises in three states: California, New Jersey, and New York.  While all states are suffering decreased revenues this fiscal year, the problems in these states have been especially severe, resulting in possible downgrades for California’s bonds which are already the lowest-rated in the country.

The Journal states:

A decade ago all three states were among America’s most prosperous. California was the unrivaled technology center of the globe. New York was its financial capital. New Jersey is the third wealthiest state in the nation after Connecticut and Massachusetts. All three are now suffering from devastating budget deficits as the bills for years of tax-and-spend governance come due.

During booms in the business cycle, high tax rates accompanied by an increased level of government services are palatable to taxpayers, but as these three cases exhibit, high-tax policies can quickly become unsustainable as incomes fall.

Eileen’s last post explains that state and municipal policy makers including Rudolph Giuliani are currently discussing reforms toward greater fiscal responsibility in order to promote prosperity in their localities, but these reforms are going to be difficult to enact for states that are already deeply indebted.

A great asset of the American federal system is that policy variation across the states allows citizens and law makers to observe how various fiscal policies function in the real world.  As described by the authors of the newly published 2009 edition of Rich States, Poor States, constituents do in fact “vote with their feet” by moving to states with policies that fit their desires.  This year’s index demonstrates that states in the South and West are generally gaining domestic population from the Northeast where taxes and government involvement in the economy are generally higher.

Unfortunately, the same experimentation at the federal level carries much greater costs.  Until now, federal aid has allowed for irresponsible fiscal policies to continue at the state level, but this policy may be coming to an end.  If the federal debt and deficit approach the unsustainable levels that states such as California, New Jersey, and New York have reached, no entity will be able to bail it out.  Additionally, economic policies at the federal level do not provide the same sort of natural experiment within the country and carry a higher risk of severe negative consequences.

The article continues:

At least Americans have the ability to flee these ill-governed states for places that still welcome wealth creators. The debate in Washington now is whether to spread this antigrowth model across the entire country.

While government systems can never incorporate the feedback mechanisms of the market, the federalist system allows for a sort of competition between states and localities in which competition allows successful programs to thrive and spread. However, this system only works when unsuccessful local policies are not subsidized by the federal government and when authority is sufficiently devolved to allow states to differentiate their policies from one another’s.

June 30, 2009

Newark’s Glass Half Full?

From New Jersey Business, “Newark’s Glass Half Full“:

“There were 20 economic development and housing development ground breakings and ribbon cuttings in 2008, half of them in the last quarter,” says Stefan Pryor, the city’s deputy mayor for economic development. “The pace is accelerating.”

The city’s improbable confidence is based in part on a theory that Newark will benefit from the downturn by attracting newly cost-conscious businesses.

“Newark’s time is now. The city is a low-cost alternative to Manhattan,” says Ted Zangari, an attorney with Sills Cummis & Gross PC, who specializes in commercial real estate. Zangari says he has two clients now eyeing 40-50 acre industrial sites in the city, each promising to bring nearly 1,000 jobs from higher-cost locations inside and outside of the state if they sign on. He’s also representing a landlord who is in discussions with a prominent national retailer.

The state’s recently adopted Urban Transit Hub Tax Credit program, designed to spur development in communities near commuter rail stations by providing businesses that locate near them with tax credits based on capital investments and jobs, makes the sale even easier, he says.

While rents for commercial real estate in Manhattan are around $80 per square foot, they are in the $20-range in Newark. Added incentives, such as the new tax credit program, “bring net effective rents into the single digits,” Zangari says.

“If Newark doesn’t undergo a renaissance now, I don’t know when it ever will,” he adds.

The story mentions the Coffee Cave on Halsey Street, one of the new businesses to have started in the city recently. I had a drink there earlier this year and heartily recommend it.

May 19, 2009

NJ Budget – Not Exactly Fixed

When New Jersey’s Governor Corzine released the FY 2010 budget last month, it showed a surplus by $500 million, through a combination of cuts, tax increases, and stimulus funds.

But yesterday the Office of Legislative Services has issued an update, which finds that the budget runs a $100 million deficit.

Revenue projections, the OLS suggests, were too rosy in the FY 2010 budget proposal. This suggests questions about the fungibility of the stimulus finds: It may be that the governor can find the money by pulling money out of education increases.

Further tax hikes and pension holidays are the last thing the state should do. More cuts are the way to go, but given recent history, its an open question: Will states be asking for a second bailout?

April 7, 2009

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