BURLINGTON COUNTY, NJ, February 25, 2015 — Yesterday, Chris Christie delivered his annual budget address to the legislature. Today, he hosted his 128th Town Hall meeting, with as much fan fare as his first. To the repeat offenders as he so amicably calls them, it was a sight for sore eyes.
Infrastructure-wise, as he was keen to point out in his introductory speech, anyone closely following the trends in the national business climate know(s): Forbes ranks the New Jersey climate 41. The Republicans that follow global politics know the significance of that number.
It’s a need for improvement indicator, not a fair weather indicator. That distance away from the central tendency of the fifty state, puts businesses intelligence and the ability to harness investment potential of the state’s human and financial capital as a very low priority for New Jersey’s government agencies.
From a user’s perspective, New Jersey has one of the easiest sites to navigate, and filing Corporate Sales Tax in this state is by far the fastest. It takes a total of almost three minutes, compared to about an hour for states like Washington and Colorado.
So what makes business magazines rate New Jersey so poorly? New Jersey has the highest base sales tax rate in the nation at 7%, and when coupled with local county and municipal surtax, it ranks 20th.
If this legislature gets its way, it would take a 10% sales tax rate, according to estimates, to keep funding government without making serious changes to the system. Specifically, without altering the state’s pensions.
In response to this daunting challenge, Christie established a task force to explore possible alternatives to bring the State’s fiscal house in order. The NJEA, one of the largest unions, partnered with this task force to establish a road-map designed to put the state back on better footing. Two key-points in the plan: 1. allowing unions to manage their members contributions themselves, instead of being managed by the State. 2. Making a special dedication through a constitutional amendment, subject to voter approval, as to the percentage that the State will contribute towards funding the employee pensions.
A third issue is moving away from a defined benefit plan to a defined contribution, a long talked about cost-saving measure. In some regards, this could benefit employees more than the current system. In an economic crisis, the return may be limited for a given period. Over time, however, similar shocks can be absorbed by the market. Those retiring in that unique time span of 2-3 years (2007-09) may have to be issued select retirement privileges. Fortunately, 401K’s and other retirement plans don’t need to be cashed out all at once. They can continue to earn interest income after the retiree stops working. Universities and large charities have what are called endowments, which provide them with a perpetual funding stream for a single, lump-sum investment. The implication for retirees is a future in which the options for wealth creation become endless.
Opponents will quickly argue that not everyone is intellectually savvy enough to navigate the series of investment packages offered by the financial industry, exposing state employees to the same down-side risk managed by private sector workers. And that is true. State workers will have to calculate the risk-return on their investments.
However, acquiring that knowledge will eventually lead to a more affluent society. It would probably lead to more effective and efficient government, simply because the draw of the public employee payroll system will be eliminated, and the feasibility of a career in the private sector will increase for those who previously had not contemplated it.