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Toll and Spend
February 23, 2008; Page A8

The slow economy is hurting state tax revenues around the country. But look on the bright side: You could live in New Jersey, where decades of tax and spend politics is reaching its logical conclusion.

"We have a serious structural financial problem," the state's liberal Democratic Governor Jon Corzine told us on a recent visit. "You better address these problems or you will put yourself in a 1970s-style New York City situation, where you get a control board telling you what to do." Mr. Corzine is promoting his own solution, but he's also tacitly admitting that the state's politicians have been sucking the place dry for decades. If you want to know where a state dominated by public-employee unions ends up, Trenton is it.
[Jon Corzine]

Mr. Corzine spent 25 years at Goldman Sachs and is fluent with numbers, most of them harrowing if you're a New Jersey taxpayer. In 1990 the state was $3 billion in debt. Borrowing has since grown at a compound annual rate of about 13%, and now the state is $32 billion in the red. Throw in unfunded pensions and health benefits for retirees, and that number swells to $113 billion, or $3,400 for every man, woman and child in the state. That's three times per capita higher than the national average, making New Jersey the nation's fourth-most indebted state.

Public workers and teachers can retire at age 55 after 25 years with a pension of 60% of salary -- indexed to inflation. Police and firefighters can retire at 65% of salary at any age after 25 years of service and 70% after 30 years. With such generous benefits, you might think funding pensions would be a priority. Ah, no. Last summer the state disclosed it had used accounting tricks to skip more than $7 billion in pension payments over 15 years. That money went to current spending to buy votes.

Mr. Corzine is like a new homeowner who finds rotting floorboards once he moves in. And he deserves credit for acknowledging the problem. He's raised the retirement age to 60 for new state hires, instituted defined-contribution plans for elected officials, and insisted that state employees contribute at least something for health insurance. He's also pushing a spending freeze, but that would only stop the accumulation of new debt.

To pay off the old debt, he's literally proposing to mortgage the state's best cash-producing assets -- its roads. Under his plan, the state would create a new quasi-independent agency that would borrow about $38 billion. The bonds would be financed through steep, inflation-adjusted toll road increases -- 50% each in 2010, 2014, 2018 and 2022, followed by an increase every four years based on the consumer price index.

The toll hikes would hit the New Jersey Turnpike and Garden State Parkway, among other popular roadways. The plan resembles the Indiana Toll Road and Chicago Skyway arrangements enacted in recent years. But in those cases, governments turned the roadways over to private entities for upfront payments. In return, the purchaser gained the right to collect revenues and keep the profits. Mr. Corzine told us he wants New Jersey to retain ownership to keep the revenues.
[Soaking Everybody]

Essentially, the state would be issuing new debt to pay down old debt. There would be an obligation to pay off bondholders and pay a dividend to the state. Mr. Corzine is betting that this bond authority can be made independent enough from Trenton's politicians to guarantee a regular revenue stream that couldn't be spent on the usual political payoffs. But the pols have a way of getting their clutches on such pools of surplus cash (think Social Security), and who is going to pay off the bond holders if voters decide to block further toll increases? This smells a lot like Fannie Mae, with a "nonprofit" entity having an implicit government guarantee.

The real problem is tax and spend governance, by both political parties. State revenues have grown at an average annual rate of 3% over 20 years, while spending has increased by an average of 7%. And that's despite a tax burden that is already nearly the country's highest (see nearby table). Mr. Corzine's predecessor, James McGreevey, jacked up the top income tax rate to 8.97% from 6.37% in 2004, giving more hedge fund managers a reason to move to Connecticut.

Mr. Corzine's toll-hike plan is well meaning but unlikely to work and is already encountering bipartisan opposition. If it fails, he ought to consider the only real solution, which would be a state constitutional tax and spend limitation. He'd be a hero to taxpayers, and it might even save the state from bankruptcy.

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Originally posted by GESince1958:
Third week of last month. I wasn't there, due to the whole going to work thing. Mrs.'58 reported back that her comparisons and calculations of the square footage on all similar nearby vacant lots and their taxes didn't go very well. That tactic was suggested by those on this forum. Lessons next time... 1) Don't always do what the forum members suggest, and 2) Hire a powerful real estate tax attorney to represent us. Someone the likes of Bill Brestal of Napertucky. Costs big money, but +127% in one year?... wtf?