On April 20, New Jersey voters backed Gov. Chris Christie in the first test of his drive to pull their state back from the fiscal brink — producing record turnout as they rejected 58 percent of school budgets. But the war is far from over — and must extend far beyond property taxes.
Having successfully challenged the New Jersey Education Association’s decades-long control over the public purse, the governor is now moving to tackle the issues that drove so many voters to the polls: crushing property taxes and out-of-control spending.
Christie yesterday released a package of 33 bills — which add up to a frontal assault on New Jersey’s tax-and-spend spiral. The key components of his “tool kit” to help municipal government:
* A tighter property-tax cap.
* Collective-bargaining and civil-service reforms.
* A clampdown on pension and benefits costs for public workers.
* A 2.5 percent limit on annual increases in public-employee contracts: Local workers’ total compensation — wages, health benefits, vacation time, etc. — couldn’t rise by more than that.
The proposal needs the approval of the Legislature by August. And the property-tax cap will need voter approval in November as a constitutional amendment.
The reform getting the most attention is the Massachusetts-style 2½ percent cap on property-tax growth — but New Jerseyans should realize that, by itself, it won’t do the job.
Christie wants to tighten the current property-tax cap of 4 percent and broaden it to include pensions and benefits. The intent is to force discipline on local budgets.
And he wants to place the same “hard cap” on 20 percent of the state budget. The idea is to squeeze spending on government operations — liberating more revenue for state aid to supplement local government’s constrained property-tax revenues.
What’s the problem? Consider the Massachusetts record, after three decades under Proposition 2½.
Tax Foundation figures show that Bay State residents have the fifth highest tax burden in the nation, at $5,377 per capita — only slightly better than No. 2 New Jersey, with a tax burden of $6,610 per capita.
The cap may have slowed the growth in property taxes, but it didn’t slow what caused overall taxes to rise. Average spending per public-school pupil in Massachusetts is roughly $13,000, not far behind New Jersey’s $14,300. Teachers’ salaries in Massachusetts average $67,000 — higher than Jersey’s statewide average.
By capping one source of revenue, Prop 2½ shifted part of the bill from local to state taxpayers.
A study by Bruce Wallin found that, from 1977 to 1997, while property taxes fell from 56 percent to 42 percent as a percent of local revenues in Massachusetts, state aid made up the difference, rising from 24 percent to 37 percent.
And shifting the burden up to the state level gives local residents less incentive to monitor local spending.
Indeed, state aid to localities is at the heart of New Jersey’s budget mess. It all goes back to 1976, when the state Supreme Court pushed the Legislature to impose an income tax to fund the Property Tax Relief Fund.
The court directed the balance of income-tax revenues to 31 low-income “Abbott” districts (so named for the case), leaving most of New Jersey’s school districts mostly reliant on property taxes. But even modest state assistance eroded local accountability over the years — while the more generous payments to poor areas failed to significantly improve schools. The real beneficiary of this fiscal shell game was the New Jersey Education Association.
All of which makes the the rest of Christie’s plan far more significant.
Public employees will have to contribute 1.5 percent of their salary to the cost of health-care benefits. Collective-bargaining reforms would require state-appointed arbitrators to consider the impact of union contracts on property taxes. New civil-service rules would make it easier for municipalities to share services, furlough or lay off employees and even to opt out of the civil-service system altogether.
The governor is also directly challenging the monopoly hold of the NJEA. He backs a bipartisan bill to create a voucher program for students in the worst-school districts, and he supports the expansion of charter schools. Each reform would expose the teachers unions to competition, bringing down the cost of public schools while releasing students from some of New Jersey’s highest-spending and worst-performing schools.
Christie inherited an unenviable budgetary framework, strangled with court-ordered school-spending formulas. He’s responding to voter anger over property taxes, but he knows that capping one source of revenue without capping total state spending only shifts the bill. Most important, he understands that New Jersey doesn’t have a revenue problem — it has a spending problem.
On balance, the governor is on the right track. His plan shows resolve in tackling the third rail of New Jersey’s budget: union-negotiated contracts and control. If he can win on that front, it should open the door for broader spending controls — and a full recovery for the state’s finances.
Eileen Norcross is the lead researcher on the Mercatus Center’s State and Local Policy Project at George Mason University.