Day 10: Public Finances

Daniel J. Mallinson

Political ScienceStockton University

Daniel.Mallinson@stockton.edu

POLS 3265

Mallinson Day 10 February 16, 2017 1 / 20

Road map

Explore how parties, candidate-centered elections, andgerrymandering relate to corruption

Discuss the politics of state financing

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The Permenant Campaign

https://www.youtube.com/watch?v=3A2IXsB7C0Q

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Corruption

What are the possible corruptive effects of safe seats,expensive races, and media fragmentation?

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Ingle and McClure (2008)

Reactions? What surprised you?

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Corruption

What practical steps can the state take to preventcorruption?

What might be the unintended consequences of thesechanges (e.g., pay-to-play and parties)?

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How does New Jersey get its money?

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How does New Jersey get its money?

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From the Lowest to “Highest”

$3 million in state tax collections in 1900, $34 billion in2016. Why?

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Broad vs. Narrow BaseBroad-Based

Taxes most of the potential tax base, often at lowerrates

(Personal and Corporate) Income Tax

Sales Tax

Property Tax

Narrow-Based

Taxes a narrow portion of tax base, often at higherrates

Excise taxes (utilities, fuel, registration, sin taxes)

A continuum, not a dichotomyMallinson Day 10 February 16, 2017 9 / 20

Progressive vs. Regressive Taxes

Progressive Tax

Increases as income increases (higher burden on upper income)

Graduated income tax

Estate tax

Regressive

Increase as income decreases (higher burden on lower income)

Flat income tax

Property

Sale tax

Excise taxes (gas, cigarettes, alcohol, plane tix)

Again, a continuum, not a dichotomy

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Progressive vs. Regressive Taxes

Progressive Tax

Increases as income increases (higher burden on upper income)

Graduated income tax

Estate tax

Regressive

Increase as income decreases (higher burden on lower income)

Flat income tax

Property

Sale tax

Excise taxes (gas, cigarettes, alcohol, plane tix)

Again, a continuum, not a dichotomy

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Progressive vs. Regressive Taxes

Progressive Tax

Increases as income increases (higher burden on upper income)

Graduated income tax

Estate tax

Regressive

Increase as income decreases (higher burden on lower income)

Flat income tax

Property

Sale tax

Excise taxes (gas, cigarettes, alcohol, plane tix)

Again, a continuum, not a dichotomy

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Near Unique Reliance on Property Tax

Second only to NH in % of revenuesCreated great inequalities before income tax wasestablished

Drove people and businesses to leave cities for cheap landInequality in local gov’t revenueInequality in school funding (Abbott)

All governors have wrestled with decreasing this taxand increasing others

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Effective Property Taxes

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Dedications

Mandatory spending: Salaries and benefits, Medicaid,Abbott (education)

Income tax: Property tax relief (i.e., schools and localgov’t)

Casinos: Elderly and handicapped

Lottery: Education

Gas Tax: Transportation

75% of revenues

What effect does this have on the Governor’s ability tobalance the budget and control spending?

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Bigger Trends Affecting New JerseyFinances

The Fiscal Ice Age (Kiewiet and McCubbins 2014)

Aging Population and Medicaid

Public Employee Pensions

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Aging Population

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State Pension Obligations

http://taxfoundation.org/blog/monday-map-funded-ratio-state-public-pension-plans

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Unfunded Pensions in NJ

2015 Commission Report (Updated)

2016 Unfunded obligation: $135.7 billion (state and local)

2016 Operating budget revenue: $33.8 billion (Source)

Annual gap: $3.6 billion

Projected Teachers Pension Fund depletion: 2027

Projected Public Employees Retirement System depletion: 2024

Projected Judicial Retirement System depletion: 2021

Side-effects: credit rating (i.e., borrowing costs)

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Unfunded Pensions in NJ

2015 Commission Report (Updated)

2016 Unfunded obligation: $135.7 billion (state and local)

2016 Operating budget revenue: $33.8 billion (Source)

Annual gap: $3.6 billion

Projected Teachers Pension Fund depletion: 2027

Projected Public Employees Retirement System depletion: 2024

Projected Judicial Retirement System depletion: 2021

Side-effects: credit rating (i.e., borrowing costs)

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Unfunded Pensions in NJ

2015 Commission Report (Updated)

2016 Unfunded obligation: $135.7 billion (state and local)

2016 Operating budget revenue: $33.8 billion (Source)

Annual gap: $3.6 billion

Projected Teachers Pension Fund depletion: 2027

Projected Public Employees Retirement System depletion: 2024

Projected Judicial Retirement System depletion: 2021

Side-effects: credit rating (i.e., borrowing costs)

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Unfunded Pensions in NJ

2015 Commission Report (Updated)

2016 Unfunded obligation: $135.7 billion (state and local)

2016 Operating budget revenue: $33.8 billion (Source)

Annual gap: $3.6 billion

Projected Teachers Pension Fund depletion: 2027

Projected Public Employees Retirement System depletion: 2024

Projected Judicial Retirement System depletion: 2021

Side-effects: credit rating (i.e., borrowing costs)

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Unfunded Pensions in NJ

2015 Commission Report (Updated)

2016 Unfunded obligation: $135.7 billion (state and local)

2016 Operating budget revenue: $33.8 billion (Source)

Annual gap: $3.6 billion

Projected Teachers Pension Fund depletion: 2027

Projected Public Employees Retirement System depletion: 2024

Projected Judicial Retirement System depletion: 2021

Side-effects: credit rating (i.e., borrowing costs)

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A Quieter CrisisBorrowing Costs

Nine credit downgrades in NJ since 2009

General Obligation Rating: A2

Building Authority Rating: A3

Moody’s outlook for NJ changed from stable to negative onMarch 17, 2016

Compare to other states

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Direct and Indirect Effects

Downgrade 1Downgrade 2

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The Fiscal Ice Age

Aging population

Public sector pensions

Let’s add other debt obligations

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