americans for prosperity fy 2017 taxpayers' budget

8/18/2019 Americans for Prosperity FY 2017 Taxpayers' Budget

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TABLE OF CONTENTS

Overview

About Page & Contact Information Page 1

Key Issues & Background Page 2

Where does all the money come from? Page 2

Income Tax, Sales Tax, and Corporate Taxes by the Numbers Page 4

Growth in Major Taxes Page 5

Expenditures Not Budgeted Page 6

Federal Government Control Page 8The Earned Income Tax Credit Page 10

Agricultural Sector Page 11

Medicaid Expansion Page 12

Public Employees’ Retirement System (PERS) Page 13

PERS Liabilities Page 15

Transportation Infrastructure Issues Page 17

Budget Recommendations

Highlights of the Americans for Prosperity Taxpayers’ Budget Page 21

Explanation of Categories of Funding Page 21

Department of Agriculture Page 22Department of Banking and Insurance Page 24

Chief Executive Page 28

Legislature Page 29

Children & Families Page 30

Community Affairs Page 34

Department of Corrections Page 37

Department of Education Page 41

Department of Environmental Protection Page 46

Department of Health and Senior Services Page 56

Department of Human Services Page 57

Labor and Workforce Development Page 63

Law and Public Safety Page 67Interdepartmental Accounts Page 70

Miscellaneous Commissions Page 71

Military & Veterans Page 72

Judiciary Page 74

Department of the State Page 78

Higher Education Page 80

Department of Transportation Page 87

Department of the Treasury Page 91

Model Budget

Summary of Appropriations Page 100The Model Budget in its Entirety Page 105


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ABOUT THE AMERICANS FOR PROSPERITY TAXPAYER BUDGET AUTHOR, STEVE ANDERSON:

Mr. Anderson is the managing partner of Anderson, Reichert and Anderson CPAs, LLC’s Oklahomoffice. Prior to joining the firm, he spent an extensive portion of his career in the oil and gindustry first as a comptroller of a multinational company and later as owner and operator his own firm.

He served in the administration of Oklahoma Governor Frank Keating and most recently spe

three years as the Kansas State Budget Director and State Comptroller in the administration Governor Sam Brownback. The Kansas City Star noted that, “Perhaps no one is more pivotalBrownback’s call to limit spending than one of his first appointees...Steve Anderson.”

He has been a prolific author on efficiency in government operations and on governmentaccounting issues as well as a lecturer for a number of state and national think tanks on a varieof governmental budget issues. He serves on the Governmental Advisory Board of the KansState Society of CPAs, as well as being a Continuing Professional Education lecturer on multipgovernmental accounting and finance issues. His study of Oklahoma school spending, “The ReCost of Education” was praised by Nobel Laureate Milton Friedman as a “great service”.

Forbes magazine described his actions in designing a new form of governmental accountinthat measured cost of service delivery as “revolutionary.” He holds a B.S. in finance from FoHays State University and a MBA from University of Central Oklahoma; in addition to teachincertifications from Advanced Placement Calculus to Physics and Business in Oklahoma.

AMERICANS FOR PROSPERITY’S MISSION:

Americans for Prosperity exists to recruit, educate, and mobilize citizens in support of tpolicies and goals of a free society at the local, state and federal level, helping every America

live their dream – especially the least fortunate.

CONTACT:

Americans For Prosperity - New Jersey550 West Main Street, Suite 5, Boonton NJ, 07005Erica L. Jedynak, State Director

Phone: 862-229-4953


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THE AMERICANS FOR PROSPERITY TAXPAYER BUDGET FY-2017KEY ISSUES AND BACKGROUNDIt is a sad fact that hardly anyone, including the politicians who spend it, understand where the dollars that pass through Trenton come from or where they go. It is difficult for the averacitizen to understand not only the magnitude of the spending from the state of New Jersemuch less the multitude of different revenues sources that New Jersey state government drawon. This disconnect is partially the fault of government accounting rules that produce financdocuments which are so different from the private sector that even experienced financial experhave trouble deciphering them. The Americans for Prosperity Taxpayer Budget attempts to cthrough this confusion and create a document that allows for citizens to become more inform

about how elected officials are spending taxpayer money.

WHERE DOES ALL THE MONEY COME FROM?There are some dollars that never make it to the state’s coffers that should be just as interestito the average citizen as the final amount of funding that the state legislature allocates various state programs. Sometimes these diversions make perfect sense, but many times thare nothing more than favoritism to specific industries. As the following chart shows, the amouof funding that could have been collected before the various exemptions and deductions findustries or individuals totaled a staggering $64.4 billion in forgone taxes over just a thryear period.i If these exemptions, deductions, and credits were eliminated, New Jersey cou

significantly lower taxes across the board.


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THOSE FUNDS NEVER REACHING THE TREASURY

$s in Millions

FY-2015 Actual FY-2016 Estimated FY-2017 Estimated

Gross Income Tax

Credits $3,820.30 $4,088.70 $4,243.80

Deductions/

Exemptions

$2,330.10 $2,465.50 $2,582.60

Exclusions $1,387.60 $1,438.80 $1,469.60

Total $7,538.00 $7,993.00 $8,296.00

Sales and Use Tax

Credits $14.10 $14.80 $13.00

Deductions/ Exemptions

$4,465.10 $4,595.50 $4,620.70

Exclusions $4603.60 $4,512.00 $,448.70

Total $9,082.80 $9,122.30 $9,082.40

Corporate Business Tax

Credits $203.50 $205.80 $386.20

Deductions/ Exemptions

$1,052.00 $1,060.00 $1,063.00

Exclusions $3,100.00 $3,118.90 $3,140.00

Total $4,355.50 $4,384.70 $4,589.20

Grand Total $20,976.30 $21,500.00 $21,967.50

Any time the legislature has a discussion of tax increases, citizens should insist politicians loto end costly special interest handouts before looking to taxpayers for additional sources revenue.

Citizens seldom are aware of all the revenue sources and hidden taxes they pay outside of saland income taxes, even though they can be just as costly. Politicians often prefer this tacto hide funding for programs within different revenue streams. They can make the claim threduced General Revenue funding despite the fact total spending increased. The following lis the sources of funding for expenditures used to finance state government and its programsthe recently proposed Fiscal Year 2017 Budget.ii

BUDGETED EXPENDITURES FY-2017General Revenue $19,398,167,000

Casino Control $50,268,000

Casino Revenue $199,927,000

Gubernatorial Election $6,200,000

Property Tax Relief $15,174,130,000

Total $34,828,692,000


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General Revenues is typically the category that receives the majority of the attention, becauthis is the fund that is debated on the chamber floors and attract most of the media attention

General revenue comes from a diverse set of tax sources and as the following chart shows, asa total, they grew at over double the rate of the consumer price index in the last five years.iii It’s critical to understand that the goods and services which are purchased by governmeshould have roughly the same cost increases as the economy overall, assuming that there weno new services or programs provided.

MAJOR TAXES TO GENERAL REVENUE 5 YEARS GROWTH RATESales 21%

Less: Sales Tax Dedication 20%

Corporation Business 16%

Transfer Inheritance 32%

Motor Fuels 28%

Insurance Premium 3%

Motor Vehicle Fees 11%

Cigarette 15%

Realty Transfer 16%

Petroleum Products Gross Receipts -30%

Alcoholic Beverage Excise 24%

Corporation Banks & Financial Institutions 4%

Tobacco Products Wholesale Sales 7%

Public Utility Excise (Reform) 8%

Total Major Taxes 19%Property Tax Relief funding is where New Jersey’s Gross Income Tax and one half-cent the Sales and Use Tax are dedicated by the State Constitution for the purpose of reducing offsetting property taxes.iv The legislature over the years has strayed from its original purpowith this revenue flowing to counties, municipalities and school districts. This funding has begrowing at a rather high rate, increasing 8.7% higher than the consumer price index over tsame period.

The Casino Revenue Fund comes from taxes imposed on the casinos, internet gaming and othrelated activities. Appropriations from this fund must be used for reductions in property taxeutility charges and other specified expenses of eligible senior citizens as well as for individuawith disabilities.V

PROPERTY TAX RELIEF $S IN THOUSANDS

5 Year Growth Rate

Gross Income Tax 23%

Sales Tax Deduction 16%

Total Property Tax Relief 22%


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CASINO CONTROL $S IN THOUSANDS

5 Year Growth Rate

Investment Earnings -45%

License Fees 7%

Total Casino Control 7%

CASINO REVENUE $S IN THOUSANDS

Casino Simulcasting -48%

Gross Revenue Tax -14%

Investment Earnings -14%

Total Casino Revenue -36%

EXPENDITURES NOT BUDGETEDFor such a benign-sounding category, “expenditures not budgeted” exceeding $22 Billioncertainly shocking. Generally, the term “expenditures not budgeted” simply means that theexpenditures are not going through the proper appropriations process. Unfortunately, the med

often fails to report on this category leaving nearly 40% of the state’s expenditures unreporteThe chart shows the tendency for growth in these funds that are not being exposed to tpublic scrutiny.iv

BUDGETED EXPENDITURES 10 YEAR GROWTH EXPENDITURES NOT BUDGETED 10 YEAR GROWTH

General Revenue 3% Dedicated 56%

Casino Control Budgeted -24% Federal 90%

Casino Revenue Budgeted -55% Revolving 21%

Property Tax Relief Fund 24% Special Transportation -11%

Total Growth 10% Total Growth 64%

The Dedicated and Special Transportation expenditures that are off budget are especiainteresting given the current discussion of raising the gasoline tax. Although many politiciahave claimed the need to raise additional road funding they often omit that the Department Transportation revenue stream has grown by 236% in the last ten years, more than offsettithe reduction in the Special Transportation fund. This will be covered in more detail in tTransportation section.

Equally if not more troubling, this process of budgeting reduces the flexibility of the legislaturereact to fiscal crisis moving funds to where they are most beneficial. Not only has the legislatu

reduced its flexibility but they have also hidden the funding from the light of day, keeping tspending away from scrutiny. Despite these pitfalls, total off budget spending has grown by 87since FY-2002 while total budgeted expenditures has grown 51% over the same period.


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All of this off budget spending allows statements such as “spends $2.3 billion less in discretionaspending compared to fiscal 2008”vii in the current Governor’s Citizens’ Guide to the Budget,be made with a straight face.

A COMPLETE LACK OF ACCOUNTABILITYThe off-budget issue is only part of how spending is hidden from view in government financeA citizen cannot compare how much any New Jersey state program or service costs relative another state’s similar program going through all 400 pages of the FY-2017 governors GovernoBudget. I have served as State Comptroller and Budget Director of a state, as well as sittion the Governmental Accounting Board of a State Society of CPAs but after examining tbudget documents of the state, I cannot tell the citizens of New Jersey how much they are truspending on any service or program they finance with their tax dollars. How can citizens majudgements on their government’s programs if they do not know what they truly are spendin

After my examination of the state’s budget process the only reasonable conclusion is that NeJersey’s government structure, like most but not all the states, is designed to hide expendituron the various programs and services that it provides. For example, when a consumer entersstore and buys an item, they know the cost of the cashier is included in the price of the produthey purchased. That is not so in their state government. The Department of the Treasurycost of collecting funds from taxpayers and other sources of revenue are not allocated to tprograms and services that they fund. This ‘hiding’ of expenditures is repeated in various formin New Jersey but the most egregious is the use of a whole department to hide expenditureHidden near the end of the budget documents is the Interdepartmental Accounts which provifunds for the cost of certain services that are administered centrally on behalf of all agencies

State government.

viii

These are large costs that are being hidden here as the graph below show


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A total exceeding $4 billion is not an inconsequential sum. These costs include things such employee benefits and salary increases, which should be allocated and appropriated to tho

services and programs where those funds will ultimately be spent. However, this is not the onarea where transparency is an issue in the budget processes of New Jersey.

An individual wishing to see just how effective the hundreds of state programs are will find ththe “Evaluation Data” for each service is merely inputs and outputs almost without exceptioFor example, K-12 education expenditures are one of the largest taxpayer-funded services. Byet, there is almost no data on outcomes that the nearly $13 billion in state funds achieve thcitizens can use to judge the efficiency or results generated by that amount of funding. ix

In summary, citizens and legislators have no idea exactly how much is spent or what is achievwith that expenditure. Is it any wonder that citizens have concerns about where their tax dollago? Transparency is not a partisan issue, but the single most important quality a governmen

financial document can have to ensure the citizens are properly informed. The state has obligation to fix this flawed system and provide a real ‘accounting’ to their citizens who are aftall the primary stakeholders of what goes on in Trenton.

THE FEDERAL GOVERNMENT CONTROLS A LARGE PART OF THE STATE BUDGETHidden in the off-budget numbers is an area that creates a similar conundrum for citizens antheir legislators, but with greater damage to the state’s constitutional powers. The followigraph shows the 131% in growth of the amount of federal funds received by the state since F2002.


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These funds are almost all part of ‘cost sharing agreements’ where the state agrees to fundprogram with the understanding the federal government will contribute either on a short long term basis some percentage of the program cost. The federal government buries a ty

of ‘worm’ in many of their programs that either by design or happenstance has already takeover large parts of state budgets and continues to grow in New Jersey. Unless you are on tinside of government, you may never have heard of the term “Maintenance of Effort” (MOE), banyone who has had to construct a state budget knows that federal MOE provisions serioushamper states’ ability to make effective and efficient use of taxpayer money.

Those who are naïve about the acceptance of federal funds in these cost sharing agreemenwill often proclaim those funds to be “free money” or “just getting back some of what we seto Washington.” The federal government does not see it through the same lens as those whmake those claims. The intent of the federal government’s MOE provisions is explained in uncertain terms by the Congressional Budget Office, which offers an insightful observation o

the federal grants and attendant MOEs: “Federal grant programs provide a mechanism ffederal policymakers to promote their priorities at the state and local levels by influencinthe amount of money spent by state and local governments and the types of activities owhich those governments spend their money.”x This amounts to federal policy manipulation control of state budgets that may not represent the policy views of its citizens or their electofficials. As the following graph shows, the percentage of federal funds in the total stabudget has grown by 51% over the last decade.


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The majority of these funds are in Medicaid and No Child Left Behind’s (NCLB) K-12 educationservices. But when I served as Budget Director of a Midwestern state, I found federal funwith MOE constraints on the ability to control or reallocate spending in almost every paof the budget. Once a Governor and Legislature accept a program with MOE, the long tercommitment begins. Every administration that expands the program hands down to the neadministration a bigger MOE to deal with. Once you have committed to a “level of servicefloor under the Medicaid MOE, you are now subject to the restrictions on the amount thspending can be reduced, if at all, going forward. Even if a state finds a better way to provian equivalent or better service, if that better way changes the level of service offered, or some programs merely reduces expenditures, the state is in a position to either have to submiwaiver application or increase spending in another part of the program to avoid any MOE issue

This budget will note in the various sections the existence of MOEs in various programs and t

hidden costs these federal programs can bring to state government. The scope of this budgwill not allow full discovery and reporting on the impact but there is no doubt that within juthe two programs already discussed a large part of the New Jersey budget process is controllby the federal government.

THE EARNED INCOME TAX CREDIT (EITC) PROGRAM IS NOT TAX RELIEFIn his latest budget, Governor Christie trumpeted his enacted law to increase the “EarneIncome Tax Credit from 20% to 30% of the federal benefit. Approximately 500,000 Garden Stahouseholds will benefit from this tax relief, with the credit for an average working family risiby 50% from approximately $420 to $630.”xi A bit of math using the Governor’s numbers sho

that, including the federal EITC benefit, recipients in New Jersey will now receive a lump supayment averaging $2730 per filer. Here are some facts about this payment for the taxpayewho finance EITC.

EITC is not a reduction in the taxes of the person receiving it, but instead a social welfaprogram which redistributes citizen’s tax dollars to the recipients of EITC. Those individuawho receive EITC did not pay enough taxes to receive this large of a refund and this poseems to be left out of the Governor’s description of the program when he claims it is “tarelief”. EITC is a redistribution program, not a tax reduction of an amount owed or any othclassical definition of tax relief. However, that is not the only significant problem with EITC athe Governor’s claims.


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EITC is racked with fraud and “IRS estimates that in FY2013, 22% to 26% of EITC paymentsbetween $13.3 billion and $15.6 billion—were issued improperly”.xii As a partner in a CertifPublic Accounting firm, I have seen EITC up close and personal and the fraud issue is certainreinforced by that experience, but the issue goes deeper than just the fraud. EITC recipients aoften not knowledgeable about the conservation of fiscal resources and a lump sum paymecan be spent in places that do not provide benefits to the family as a social welfare progralike this is intended to provide. There is an alternative approach that can ensure these taxpayfunds end up providing the assistance they were intended too and prevents the element of frau

It is difficult to tell from the records that are publicly available, but there is almost certainlypart of that EITC disbursement being used to meet a Maintenance of Effort (MOE) obligatiofor the Temporary Assistance for Needy Families (TANF) program that the state operates conjunction with the federal government. Most states used the liberalization of the TANF ruto fund part of their EITC program, and though it is difficult if not impossible to completeeliminate the EITC program because of the MOE, it can be converted to better uses via the TANprogram. The state could direct TANF vouchers funded by the money currently being sent EITC to be specifically aimed at purchasing milk, and fresh or frozen fruits/vegetables similto the Women, Infants and Children (WIC) program. You will see WIC certified products in tgrocery store and the state could have a similar certification for these new TANF vouche

Vouchers that can only be used for certified produce reduce fraud and increases the probabilof these funds feeding needy citizens and their children.

Furthermore, there is an opportunity to make a significant part of that funding stay with NeJersey agri-industry via the emphasis on fresh produce. The principal variable cost in freproduce is shipping distance between farm and retailer. The further the farm from the grocestore where the produce is sold, the higher the cost of the produce. New Jersey produceof which there is a significant agricultural community growing produce that qualifies, woucertainly be a beneficiary of such a change from the EITC program to a TANF-type program.

WAYS THE STATE CAN HELP SUSTAIN THE AGRICULTURAL SECTOR WHILE REDUCING STATE EXPENDITURThe state Agriculture Department conducts advertising, market development, and promotionactivities to create a positive image of New Jersey’s agricultural products and to increaconsumer awareness and sales. These sort of activities are the agricultural sector’s obligation anot for the citizens of New Jersey to fund with their tax dollars. These policies and expenditurare obviously inappropriate uses of tax dollars, but the distortions of the free market do not stthere.

State agricultural policies directly support price suppression of certain segments of the stateprivate sector real estate. The State Agriculture Development Committee (SADC) administeNew Jersey’s Farmland Preservation Program. The Farmland Preservation Program compensat

farm owners for their development rights if their deeds restrict their farms against futudevelopment. The terms of these deed restrictions can be permanent or for as short a perioas eight years. Future owners of permanently preserved farms must comply with all derestrictions. The SADC also coordinates a variety of programs with participating counties afarmland owners to protect important farmland in sufficient quantity and quality to foster lonterm agricultural viability. It is also charged with specific right to farm responsibilities relatito agriculture.xiii If the state desires to support agriculture it can do it through the free marknot by separating taxpayers from their hard earned dollars.

The state has several opportunities to use existing federal programs that are not direct subsidifor any industry to facilitate the goals of the two programs listed in the prior two paragraph


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As noted in the prior section on EITC there are federal programs that have an element of stacontrol that can be reshaped to keep more of those dollars in state when they are spent.

The state receives federal funds from multiple sources to provide support for New Jerseyfarmers, but they are either being used ineffectively or not at all. For example, the USDFarm to School program has the stated purpose of assisting eligible entities in implementinfarm to school programs that improve access for local growers to public schoolsxiv. On top that up to $5 million in the grants per year is available for implementing the program includina provision that, “support service grants are intended for state and local agencies, Indian triborganizations, agricultural producers or groups of agricultural producers, and non-profit entitiworking with schools or school districts to further develop and provide broad reaching supposervices to farm to school initiatives.”xv

The New Jersey State Department of Education can be a central player in addressing tseasonal issues with this program by accessing the grants available. The program providspecial funding that state agencies can use their State Administrative Expense (SAE) fundboth as initially allocated and when reallocated, and State Administrative Funds (SAF) for statlevel coordination of farm to school activities. This guidance applies to the National SchoLunch Program, School Breakfast Program, Special Milk Program, Child and Adult Care Foo

Program (CACFP), Summer Food Service Program (SFSP), Fresh Fruit and Vegetable Prograand Food Distribution Programs that provide USDA Foods to applicable programsxvi. The staand/or local school districts could use grant funds to bulk buy and contract with frozen produprocessers, effectively putting New Jersey-grown produce on school menus all over the stawhile providing savings for local school districts.

A program already in place in many states solves some of the logistic issues in moving freproduce for either consumption or to freezing facilities. The United States Department Agriculture (USDA) in cooperation with the Department of Defense (DoD) operates a progracalled DoD Fresh. It provides easy ordering and funds tracking: Schools place orders via tweb-based Fresh Fruit and Vegetable Order/Receipt System (FFAVORS). FFAVORS trac

schools’ entitlement fund balances and total order costs. DoD manages vendor payment areconciliation. USDA does not impose a cap on the amount of entitlement dollars that a stacan allocate to DoD purchases making this a program with great flexibility for New Jersschools and growers.

This is a potentially huge marketplace for New Jersey farmers, and as noted in the EITC sectio

the advantage to New Jersey agriculture producers is not a state subsidy, but the pricinadvantage from the free market.

THE ILLUSION OF SAVINGS FROM THE MEDICAID EXPANSION

Taxpayers are always pleased when they hear any program has saved some tax dollars as tGovernor claims in regards to Medicaid expansion; which was packaged under the moniker NFamilyCare. His budget in brief claims: “In response to a steep reduction in the demand funcompensated hospital care due to the expansion of NJ FamilyCare, the budget recommena $75 million State-funded reduction in Charity Care grants to hospitals.”xviii

However, savings in government programs don’t end up back in taxpayers’ pockets but another program, and that is the case here too. Per the Governor: “A portion of these funds wbe reinvested and matched with federal dollars to provide $60 million in increased funding fGraduate Medical Education grants, and to provide additional State and federal funding of $4million to annualize the January 2016 increase in NJ FamilyCare physician reimbursements.”


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We should note the use of the term “annualize,” which translated into common terms meathat the expenditure base for this program just became a fixed part of their budget even thouthe savings from the reduction in demand could be temporary. However, in this particular cait gets worse even if the savings somehow became permanent and it is potentially much wors

A large part of the ‘lure’ of Medicaid expansion for states was the promise to states the federgovernment will pay 100 percent of the cost of expansion in 2014, 2015 and 2016. Then tfederal match is eventually pared back to 90 percent in 2020 and beyond. It would stay at t90 percent level unless the lawmakers change or repeal the legislation. It needs to be noted thrate of cost sharing does NOT apply to the administrative costs of NJ FamilyCare which will subject to the roughly 50% match rate of the regular Medicaid programxx. Even if the fedegovernment sticks to its promise, the costs to the state will go up.

However, the rate the state’s share of costs will go up will be far greater than the reduction the federal percentage paid of NJ FamilyCare. The Maintenance of Effort (MOE) agreemefor Medicaid and Medicaid expansion are unique in the MOE agreements with the fedegovernment, in that MOE is tied to eligibility. In other words, once you have set an incomlevel for an individual to qualify you are committed to continue that level. Why is this suchdangerous policy? Consider that incomes will usually go up AND populations grow in stat

which means more and more people will qualify over time. On top of that health care cosrise annually and at a rate much greater than inflation. For instance, in New Jersey in a ten yeperiod those costs grew at 5.3% per year. Mathematicians will tell you that multiple increasifactors in an equation create a “geometric progression” which creates a very rapid increasThis mathematical certainty of states that have accepted the Medicaid expansion MOE will fintheir costs going up greater than the change in matching dollars. But wait, it gets worse!

The Congressional Budget Office in their March 2013 publication Federal Grants to State aLocal Governments noted: “Adjusted for inflation, the amount of federal grants for healprograms in 2011 was about seven times the amount in 1980. Over that period, such granmore than tripled as a share of GDP, rising from 0.6 percent in 1980 to 1.9 percent in 2011.

particular, the share of federal health grants in the national economy has increased significantprimarily because of rising federal spending on Medicaid”. That has led President Barack Obamto backtrack from the claim that the federal government will pay all the costs for 3 years andleast 90 percent thereafter, and begin to talk about blended rates that will transfer a sizeabportion of the cost to state budgets.xxi One of the major groups supporting Medicaid expansithe left-leaning Center on Budget and Policy Priorities, is cautioning that this new shift b

the President in how Medicaid expansion will be financed will “likely prompt states to cpayments to health care providers and to scale back the health services that Medicaid covefor low-income children, parents, people with disabilities, and/or senior citizens (includinthose in nursing homes). Reductions in provider payments would likely exacerbate the problethat Medicaid beneficiaries already face regarding access to physician care, particularly frospecialists.”xxii This analysis actually left out the administrative cost impact on the statesMedicaid expansion and the geometric progression of total cost so more than likely the impais going to exceed even those dire predictions.

THE FISCAL ISSUES WITH THE PUBLIC EMPLOYEES’ RETIREMENT SYSTEM OF NEW JERSEY (PERS)New Jersey uses a type of pension plan called a defined benefit plan that has largely beabandoned by the private sector and a growing number of public sector entities. A defined beneplan identifies the specific benefit that will be payable to the employee at retirement assuminthat employee “vests” in the plan. PERS requires 10 years of service before an employee vesand actually qualifies for retirement. Leaving state service before vesting means the employ


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receives a refund of their accumulated contributions plus, if the member has completed thryears of service, interest on those contributions with the state, keeping all of the employcontributions made on behalf of the employee.xxiv In other words, an employee is left withpittance of a benefit if they serve for less than a decade making this a benefit system threwards primarily longevity.

An inspection of the actual outcomes for state employees in PERS is eye-opening. The NeJersey state employee retirement benefit is based on a formula that is generally determinas a percentage of the retiree’s final salary, which is the average of either the average annucompensation for the three years of creditable service immediately preceding retirement, thighest three fiscal years of membership service, or the highest five fiscal years of membershservice, depending on what “Class of Member” the employee is, multiplied by the number years of service times 1.66 percent. While this is a guaranteed payment for a lifetime there atwo very troubling issues for the employee if they do vest and reach retirement age.

First is that it is actually not a very lucrative retirement income for the state retiree that PERgenerates given the amount of money taxpayers invest in PERS. For example, a retiree withfinal average salary figure of $75,000 and 20 years of service is only going to receive $2075 pmonth from PERS. Second there is no guaranteed cost of living increase and in a retireme

system that has funding issues like PERS it is not likely to receive one. The net effect is someowho receives a pension they plan to live on for 20 or 30 years is ravaged by any inflation thoccurs during their lifetime. The effect can be dramatic even in the relatively low inflatiperiods of the last 20 years. That $2075 payment if it had been received starting in 1996 wouonly have the equivalent buying power of $1374 in 2015.xxvi

There are additional problems with how defined benefit systems like PERS treat employeebesides the requirement of 10 years until vesting. For example, a husband/wife can only leaa lowered monthly payment to their spouse if they die. What’s worse, heirs cannot inherit abenefit like they might with a personal retirement account. The PERS system gets to keep t‘savings’ when a retiree dies soon after retiring just as they get to take back their part of PER

contributions if an employee leaves before vesting. A system that cannibalizes retiremeaccounts of those who leave through early death or taking a private sector job does not makegreat argument when it is suggested that PERS helps attract and retain good employees.

The deal provided by PERS to New Jersey taxpayers is just as poor. One of the fiscal issuwith defined benefit plans is the full costs of any benefit improvement or plan change do

not show in the budget for the year in which it is enacted. Since defined benefit cost of liviadjustments (COLAs) or other system changes that benefit state employees do not incur curreperiod expenditures because they are promises to pay in the future. The state of New Jerslike all other states uses something called cash basis accounting. Cash basis budgeting onshows those expenditures that will be incurred in the current budget year and does not includany future expenditures that may be written into law in that year. Therefore, when a COLAgiven that might actually be estimated to cost $500 million in the future, that amount is nshown in the budget nor in any future budget. This is one of the ways the sort of huge unfundliabilities---known as Unfunded Actuarially Accrued Liability (UAAL)---that plague PERS occu

The other way these UAALs grow is because defined benefit plans also offer a loophole tight budget years to legislators. Often the legislature or governor will choose to not funthe pension and instead use those funds for other purposes. Typically, citizens only find oabout this budget disparity when the pension’s UAAL reaches the point that the system mube subsidized with an influx of cash, leaving the taxpayers financially responsible for the budg

mismanagement. PERS is a great example of these two issues but there is one more fundamen


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problem with defined benefit plans that creates problems not even the most conscientiolegislator can avoid.

Legislators are asked to make decisions based on ‘information’ that is limited in trustworthineAaron Shapiro, the principal consulting actuary for Buck Consulting which perform the actuaservices for PERS, said this in his April 1, 2015 letter to the Board of Trustees of PERS: “Futuactuarial measurements may differ significantly from current measurements due to plexperience differing from that anticipated by the economic and demographic assumptionincreases or decreases expected as part of the natural operation of the methodology usfor these measurements, and changes in plan provisions or applicable law. An analysis of tpotential range of future results is beyond the scope of this valuation. Use of this report fany other purpose or by anyone other than the Board of Trustees or staff of the State of NeJersey’s Division of Pensions and Benefits may not be appropriate and may result in mistakeconclusions because of failure to understand applicable assumptions, methods, or inapplicabilof the report for that purpose. No one may make any representations or warranties based oany statements or conclusions contained in this report without Buck Consultants’ prior writtconsent.” It needs noted that in 2005 this same firm did NOT make these same statements whthey produced the same report.xxvii Here is an example of the sort of ‘errors’ that occur withPERS that are included in the UAAL long after the original report was given to the legislature

DATA VALUATION APPLIES TO ACTUARIAL VALUE OF LIABILITIES

2005 PERS report page 39 6/30/2005 $13,432,528,883

2014 PERS report page 20 6/30/2005 $13,682,163,564

Difference $249,634,661

Gaining $250 Million in liabilities after the fact shows one of the basic problems with definbenefit systems. The estimates never seem to hit the mark and the actuary admitted as muchhis disclaimer. The State of New Jersey cannot accurately plan if the underlying numbers th

are provided cannot be trusted to be relatively accurate. While the failure to adequately plan hlittle cost to the government, it will have large costs to New Jersey taxpayers. When the annurequired contribution to the pension system begins to become a significant part of the budga state has problems. New Jersey citizens need to understand these payments are not curreexpenses but are payments on debt that was accumulated in the past, and directly remofunding from the ability to provide essential services like schools and public safety.

Many states have either moved to or are in the process of going to a defined contributiosystem for employees. The state of Oklahoma Public Employees Retirement System(OPERS)amongst those where all new employees now go into a defined contribution system instead the old defined benefit plan. The author of this study designed a conversion with the knowledand input of Oklahoma Public Employees Association (OPEA) that was the model for the finplan. A properly designed system conversion, even if just for new employees, can provia funding stream to accelerate the payoff of the UAAL, while reducing the total amount funding required from General Revenue.

For example, the approach the author used was to assume an employer contribution to tstate employee’s account that began at 3% of salary and grew to 8% of salary by the end the fifth year of service. However the employer payment that was being made to the definbenefit plan was approximately 14% of salary. The state continued to fund retirement at 14% salary and directed the employer difference between those in the defined contribution syste

to be used to pay off the UAAL. The net effect was employer contribution was now not on


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frozen instead of constantly increasing like the situation in PERS but the amount of liabilbeing created within OPERS was instantly reduced. The astronomical growth from 2006 2015 of 294.4% (shown in the chart below) of the actuaries recommended contribution to PERunderscores how important it is to start to reduce the creation of new liabilities and be able freeze or even reduce the growth in employer contributions as soon as possible.

Just as importantly for the long run fiscal stability of the state, a defined contribution systedoes not involve accruals and hidden debt. The cost of the retirement system for employeis known at the time of each years funding and is transparent in a state budget, versus whNJ currently has in PERS. From the state employee’s perspective, the positives are they “owtheir retirement account and can take it with them when they change jobs and pass it o

to the heirs of their choosing. They also can control the investments if they choose or alloprofessional management---in the New Jersey design the investor can give it to OPERS aallow them to invest for the employee---which can provide an avenue to defeat the long ter

effects of inflation on their pension’s value.

One of the other huge benefits of the movement to a defined contribution is that it automaticabrings one of the hidden costs of government out into the open and simultaneously ensurthe state receives every dime a federal program owes them. The flip side of the MaintenanceEffort (MOE) requirement is that the federal government agrees to pay their share of expenson the joint state and federal programs when the state pays theirs. The cash basis assumptithat both the states and federal government uses does not allow the state to bill the fedegovernment when unfunded liabilities are created such as in PERS. A defined contributiemployer payment is always incurred in the year it is received thus the federal governmentbilled for that expense as it is incurred.

During the course of this paper, the Americans for Prosperity staff discovered in conjunctiowith the author that because of the way the PERS UAAL is currently being funded the stamay be missing out on hundreds of millions of federal payments owed to the taxpayers New Jersey. As we noted in the prior paragraph, the unfunded liabilities that accrued to thojoint programs was not being funded by either the state or federal government. However, thliability is now being paid on by the state in a direct payment to PERS.

During the Christie administration, approximately $6.3 billion has been paid to PERS. xxviii Tscope of this paper does not allow a full investigation of how much of those funds were direpayments, but AFP staff found that the current payment of $1.8 billion is being paid in that mann

$-

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

PERS Actuarially Determined Contributions for State Employees


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The author was involved in the discovery and application of billing the federal governmentjust such a situation in a Midwestern state. If the rate of participation in federal programssimilar, New Jersey taxpayers missed out on about $520 million during that time of monthey were owed.

STATE EMPLOYEE HEALTH BENEFITS COMPOUND STATE FISCAL ISSUESIf New Jersey continues to disregard the growth in pension and health benefits, by the end 2016, we could see the State spend 23% of its budget on pension and health benefits.xxix Priva

sector employers pay approximately 18% of health premium costs while state employees ha95% of their premiums paid by New Jersey taxpayers.xxx There are a number of issues with tdisparity. First and very importantly, is that much of the funding source for these state benefcomes from the citizens of New Jersey who are having to pay 82% of their health premium coversus the 5% for the employees they fund with their tax dollars.

What is the net effect of New Jersey government employees only having to pay 5% of their heabenefit payment? State employees have significantly less financial incentive than the privateemployed NJ taxpayer to control their health care costs. Economics has long shown that the lethat something costs the more of it will be consumed. It also tends to attract workers who alikely to be older and higher users of medical care. Thus it is no surprise that in FY-2014, 48,1

of the 81,957 or 58.7% of state employees who are also in PERS were between the age of 40 a60xxxi. This raises the cost of employing government workers, as well as discourages youngworkers who might prefer different types of benefits.

Furthermore, every dollar spent on pension and health benefits for employees is money awfrom the core functions of government. The Report of the New Jersey Pension and HeaBenefit Study Commission dated February 24, 2015 stated: “Public employee health benecosts have always been high: New Jersey’s public-sector health benefits are the third-costliein the nation. These costs, projected to increase from $3.1 billion in 2014 to $3.7 billion for 20for State-paid groups alone, place a significant drag on the State budget and have done so f

decades. The same is true at the local level, where annual health benefits costs, without reforcould approach $10 billion by 2016.” Without substantive reforms to the retirement and heasystem, now these costs will continue to grow at an unsustainable pace and little money will left for providing other essential services.

Transportation Infrastructure IssuesThe Reason Foundation’s 21st Annual Report on the Performance of State Highway Systemconfirmed what many of New Jersey’s drivers already know--- in general the state’s roads anot in great condition. The report rated the state’s system as the third worst system in tcountry but it also highlighted some issues the detractors of the report have conveniently leout of their critique.

New Jersey citizens have been told that the state’s widespread infrastructure issues can only solved by increasing the gas tax and pumping hundreds of millions of additional funding inthe state’s transportation agencies. Here are a few facts for citizens to consider.

• The legislation which would raise the gas tax hike 25-cents per gallon, effectively tripling tstate’s gas tax, and imposing a $1.5 billion per year hike on motorists.xxxii

• New Jersey already has the 2nd highest tax burden and highest property taxes in the countHigh taxes are hurting our economy and costing NJ jobs.xxxiii

• New Jersey spends over $2 million per mile in roadwork – that is 3 times more than the ne

closest state, Massachusetts, and 4 times more than New York.xxxiv


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• New Jersey collects more revenue for roads than 42 other states, yet ranks 48th in overroad conditions.xxxv

Americans for Prosperity has reviewed available data to find potential approaches to tinfrastructure issues and finds that the solution set is not a tax increase of any type, butmore comprehensive plan that brings better accountability. One of the glaring examples the infrastructure issues in New Jersey is also the poster child for the lack of a commonsenapproach to infrastructure.

Just this last summer for three days, electrical problems in century-old rail tunnels under tHudson River left commuters frustrated and late to work. Citizens need to consider what ttunnel provides to New Jersey and just as importantly what it provides to New York City anthe state of New York. The net result for New Jersey is to see state income tax dollars flointo the coffers of the two aforementioned beneficiaries of the project. According to the TFoundation of the $6,926.47 in per capita income tax paid by New Jersey residents $2,050.0is paid to other states.xxxvi As we mentioned earlier in this section, New Jersey’s Gross IncomTax is one of the sources dedicated by the State Constitution for the purpose of reducing offsetting property taxes but when those income tax dollars are going to New York there shoube little doubt that income leaving the state has helped create property taxes that are some

the highest in the nation.

In FY-2016, over $3.2 billion in tax credits were given for taxes paid in other jurisdictions xx

In other words a wage earner who works in New York City, but lives in New Jersey will hatheir New Jersey income tax calculated and then reduced dollar for dollar by the amount income taxes paid in New York City and the state of New York. The New Jersey state TreasuDepartment has the data in their system to tell citizens how much money was provided to NeYork through this credit. It begs the question why should citizens in New Jersey rebuild ttunnel to enrich New York without driving an equitable agreement asking the state of New Yoto contribute some percentage of the revenues they gain to the construction of the tunnels

One of the issues that creates both transparency and inefficiencies is the structure of NeJersey’s approach to infrastructure. There are three major entities involved in transportatioissues in the state:1. The New Jersey Department of Transportation (DOT) which is the primary road and brid

entity in the state.2. The New Jersey Transit Authority which operates bus, rail and light rail services.3. New Jersey Turnpike Authority that builds, maintains and operates the toll roads.

One of the overlooked issues with transportation funding in the state is that the TranAuthority siphons off funds that could be spent on roads and bridges with $503 million frothe Special Transportation Trust fund in FY-2016 alone.xxxviii This should come as no surpriseyou look at how the Transit Authority came to be. Created by the Public Transportation Act 1979, was established to “acquire, operate and contract for transportation service in the pubinterest.”xxxix

In 1980, the Transit Authority purchased Transport of New Jersey, the State’s largest privabus company at that time. The services of several other bus companies were incorporatedthe mid 80’s into the Transit Authority and the agency assumed operation of bus service in tTrenton/Mercer County area.xl In short, New Jersey taxpayers purchased failing or struggliservices and began subsidizing riders in those areas served by the Transit Authority. Every dolin passenger fares is split roughly 50/50 with state and federal taxpayer funding. Witho

the funding the Transit authority would go bankrupt very quickly with the stark fact that tot


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fares collected in the last year fell far short of Transit’s labor costs. The fact that this entityoperated so inefficiently that it could not cover even employee costs should be cause to ask fan external examination of the operations.

When the citizens of New Jersey encounter a pot hole on their drive to work, they can looto the Transit Authority for a large part of the reason that infrastructure has been neglecteMaybe it is time the state consider if subsidizing all users of the services the Transit Authoriprovides is appropriate. Means testing fare riders and providing a subsidy in the fare raschedule only for those whose income levels justify it would provide savings currently missinfrom the system. Without question, the current infrastructure issues suggest that no expansioof the Transit Authority’s operations should be allowed until the ‘siphon’ is turned off or at leasignificantly reduced.

The New Jersey Turnpike Authority has a role to play that can be significant in eliminating tneed to raise the gas tax. The Authority has permission to improve and maintain roads that fethe Turnpike which is not only good for the taxpayer in New Jersey but can be a sound businepractice if that work funnels more vehicles to the toll roads. The importance of this should nbe underestimated. The ability to share or avoid costs that DOT might have to manage alocould help significantly in reducing DOTs capital construction cost issues.

DOT has its own issues that must be resolved before the state provides it more fundinthrough a gas tax increase. No legislator should vote for a gas tax increase on drivers in NJersey when there is the huge disparity in DOT’s costs compared to the surrounding states. Tsimplest approach is to copy New York’s approach, which according to the report cited earlin this brief, allowed New York to only spend 25% per mile what New Jersey is spending. is unconscionable to dip into citizens’ pockets, when the state is being so inefficient with tmoney currently being provided for transportation.

When advocates, lobbyists and the media’s editorial boards are claiming that throwing momoney at the problem is the solution, citizens should consider the recent lessons of the fede

stimulus program that was aimed at “shovel ready” infrastructure projects – infamous for thfraud, waste and inefficiency as those funds flowed into projects across the country. Tartificial change in the demand-supply curve that dumping billions of dollars into the constructisector revealed what any business person could have told them would be the problems inherein that approach. The construction entities were no more prepared than state departments transportation to take on such large projects as quickly as was required. The result can be tsame in a state when the solution is to dump more money into what in New Jersey’s case issystem that appears to have enough problems being efficient with the money already provideHowever, the total solution will not be easy or quick and requires a fully comprehensive reforto operations. AFP suggests that the following steps should be taken and allowed for somtime for them to take effect before considering the gas tax increase option:1. A top to bottom review of the cost factors that drive the difference in building costs betwe

New Jersey and the surrounding states. Bid requirements, regulatory issues, and constructirequirements that create the cost differences should be quickly reviewed and dealt with either DOT management or legislators if DOT fails to act or lacks the regulatory authority.

2. All three transportation entities should be required to coordinate projects with each othand share resources when appropriate and it might be wise to go even further in achievincoordination. While serving a Governor in a Midwestern state, we consolidated managemeof the toll roads and the highway department. The net result is we removed redundant layeof costly upper management while minimizing equipment costs as the two entities enterinto cost sharing agreements on big ticket items. With commodity prices on constructi

materials currently at a low ebb, the ability of the three New Jersey transportation entities


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cost share should bring down the cost to build significantly. The scope of this paper did nallow a full review of the debt structure of the three entities, though it did appear that thealso were significant opportunities to better manage debt with a coordinated approach bonding and long term debt.

3. Begin a non-partisan structured approach to prioritizing road and bridge construction amaintenance. There are a number of models to look at, but there are a few points that aessential to any approach that could eliminate the critical issues in New Jersey. The fipriority as always should be public safety with the volume of traffic as a weighting factor oany road or bridge project. The second should be the cost/benefit weighting base applito the previously identified and prioritized project list. Any project should have the perceof city, county, or federal participation in relation to the state’s cost calculated to adjust tpriority list and maximize the state dollars spent. Accomplishing these two steps alone mby themselves create enough savings to allow the state to do more projects simultaneous

4. This last suggestion is really the most important but has clearly been ignored in New Jersgovernment operations. Issues of the past cannot be avoided if we don’t know what they aAmericans for Prosperity’s review of how agencies measure services found that performanmeasures provided by the different programs are often useless in providing legislators acitizens any information on how much each program’s services actually cost, and DOT wno exception. “If you aren’t measuring you aren’t managing” has long been the mantra in t

private sector and it is clear that New Jersey’s state governmental units are not measurintheir costs in any way that is discernable. Typically, any businessperson can explain tvarious cost components of their service or product. If one uses the performance measurprovided by DOT one can only assume they cannot. Legislators must demand a new set performance measures that will provide for better management of resources to avoid tproblems that led New Jersey roads and bridges to the condition they are currently.

i. Compiled from New Jersey Governor’s Budget FY-2017

ii. Compiled from New Jersey Governor’s Budget FY-2017iii. Compiled from New Jersey Governor’s Budget FY-2008 to FY-2017iv. New Jersey Governor’s Budget FY-2016 Page C-1

v. Ibidvi. Ibid

vii. http://www.state.nj.us/treasury/omb/publications/16citizensguide/citguide.pdfviii. New Jersey Governor’s Budget FY-2016 Page D-421

ix. New Jersey Governor’s Budget FY-2016 Page D-81x. Congressional Budget Office Publication, Federal Grants to State and Local Governments March 2013 Page 9xi. FY-2017 Governor’s Budget in Brief page 9

xii. http://www.fas.org/sgp/crs/misc/R43873.pdfxiii. New Jersey Governor’s Budget FY-2016 page D-13 through D-21

xiv. http://www.fns.usda.gov/farmtoschool/farm-school-grant-programxv. Ibid

xvi. http://www.fns.usda.gov/farmtoschool/farm-schoolxvii. http://www.fns.usda.gov/fdd/dod-fresh-fruit-and-vegetable-programxviii. FY-2017 Governor’s Budget in Brief page 9

xix. FY-2017 Governor’s Budget in Brief page 9xx. http://kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier/

xxi. http://www.cbpp.org/cms/index.cfm?fa=view&id=3521xxii. Ibid

xxiii. http://www.state.nj.us/treasury/pensions/pdf/financial/2014pers.pdf Appendix Axxiv. http://www.state.nj.us/treasury/pensions/pdf/financial/2014pers.pdf Appendix Axxv. http://www.state.nj.us/treasury/pensions/pdf/financial/2014pers.pdf Appendix A

xxvi. http://www.bls.gov/data/inflation_calculator.htmxxvii. http://www.state.nj.us/treasury/pensions/pdf/financial/actuary-reports-2005-2000/pers2005.pdf

xxviii. FY-2017 Governor’s Budget in Brief page 10

xxix. http://www.state.nj.us/treasury/pdf/FinalFebruaryCommissionReport.pdf


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xxx. Pension Crisis Policy Brief, Americans For Prosperity

xxxi. http://www.state.nj.us/treasury/pensions/pdf/financial/2014pers.pdf Age and Gender Breakdown of PERSmembers

xxxii. http://taxfoundation.org/article/facts-figures-2015-how-does-your-state-compare?mc_cid=fa4ca825d&mc_eid=52ce65c525

xxxiii. http://www.njleg.state.nj.us/2014/Bills/A4000/3886_I1.HTMxxxiv. http://reason.org/files/21st_annual_highway_report.pdfxxxv. http://reason.org/files/21st_annual_highway_report.pdf

xxxvi. http://taxfoundation.org/article/state-and-local-tax-burdens-1977-2012xxxvii. http://www.state.nj.us/treasury/taxation/taxexpenditurereport.shtml

xxxviii. http://www.njtransit.com/pdf/FactsAtaGlance.pdfxxxix. http://www.njtransit.com/tm/tm_servlet.srv?hdnPageAction=CorpInfoTo

xl. http://www.njtransit.com/tm/tm_servlet.srv?hdnPageAction=CorpInfoTo

The Americans for Prosperity Taxpayer Budget addresses all current costs and still delivesavings. Most of the identified savings will be in the areas of General Fund Revenue dueboth the amount of legislative control and ease of compiling programs revenue from tappropriations process. This budget recommends cuts in many fees that were identified ‘back door taxes’. These revenue sources are being used to fund other programs or representincreases unsupported by service volume or improvements. The Americans for Prosper

Taxpayer Budget advocates for a broad based, legislatively-driven revamp of the curredepartment performance measures that are largely just inputs and outputs, and that in thplace, a comprehensive set of data aimed at outcomes be included to reflect the actual impaof those inputs and outputs. If a program cannot meet expected outcomes, then funding shoube reduced or removed and transferred to programs that are performing.

HIGHLIGHTS OF THE AMERICANS FOR PROSPERITY TAXPAYERS’ BUDGET• This budget frees over $1.1 billion for tax relief for New Jersey citizens.• This budget shows how the state can save $750 million and solve the huge debt problem

created by the public workers’ retirement systems, while providing an inflation protecteretirement.

• This budget points to and shows how to collect hundreds of millions of federal dollars thNew Jersey is owed – but have not been collecting – leaving the burden to be carried by thstate’s taxpayers.

• This budget provides an alternative for fixing the infrastructure issues to raising the gas ton citizens.

• This budget removes $105 million from a program with a fraud rate that exceeds 25% areturns it to citizens.

• This budget addresses individual programs on a point by point basis showing where existiprograms, including those federal programs administered by the state, can be retooled either benefit New Jersey’s private sector or operate more efficiently.

EXPLANATION OF CATEGORIES OF FUNDINGState Operations consists of programs and services operated directly by the State GovernmeThe largest single component is for the salary and benefits of State employees. This portion the budget is subject to the spending limitations imposed by the Cap Law.

Grants-in-Aid appropriations are for programs and services provided to the public on behof the State by a third party provider, or grants made directly to individuals based on assorteprogram eligibility criteria. The NJ Family Care program, Tuition Aid Grant Program, HomesteBenefit Program, and funding for New Jersey Transit and State colleges and universities fall in

this category.


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State Aid consists of payments to or on behalf of counties, municipalities, and school districto assist them in carrying out their local responsibilities. This category of expenditure includschool aid and municipal aid. It also includes funding for county colleges, local public assistancand county psychiatric hospital costs.

Dedicated Revenues consists of Special Transportation Trust Fund, Property Tax Relief, CasControl Funds, Casino Revenue Fund, and Gubernatorial Elections Fund. This category includthose funds that are removed from the appropriation process and directed by statute.

DEPARTMENT BY DEPARTMENT BUDGET DISCUSSIONSDEPARTMENT OF AGRICULTURE“The mission of the Department of Agriculture is to promote and provide high-quality, nutritiouabundant, safe, and affordable food and other agricultural products; improve the economviability of the agricultural industry; foster opportunities for farm profitability; preserve aprotect agricultural and natural resources; and provide leadership and excellence in services New Jersey agriculture and to the general public.

The Department’s goals are to preserve farms; protect producers and consumers by ensurisage, high-quality agricultural products and services; support and expand profitable, innovatiagricultural and food industry development; protect and conserve natural and agriculturesources; provide access to fresh and nutritious foods for children, the needy, and other NeJersey citizens; promote agricultural education awareness and involvement; and guarantee tdelivery of quality services.”i


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PROGRAM ANALYSIS FOR COST SAVINGS:i

Animal Disease Control: Resident and imported animals are subject to Department prograof disease detection, control, and eradication. This is one of the essential services provided

the Department but there are areas of concern when you have a 46% increase over a five-yeperiod. In reviewing the evaluation data for this function there is neither an increase in actual anticipated demand for regulatory licenses or in laboratory examinations performed. Subjeto the Department providing a reasonable explanation for this inequity, this budget reducfunding by $248,000 to reflect a Consumer Price Index adjustment.

Food and Nutrition Services: This division provides some of the most essential functions of tdepartment in their commodity distribution and child nutrition programs. The Americans fProsperity Taxpayer Budget believes resources focused on the truly needy are an appropriaexpenditure of taxpayers’ dollars; however, this budget believes legislators and citizens nee

to ensure that the recipients qualify for their assistance. The Child Nutrition program consisof six components in public and non public schools, residential and non residential childcainstitutions, day care centers, recreation centers, and other agencies. The huge growth in fedefunds in this area indicates a large expansion of the population being served. This budget suggesmeans-testing for all programs should be instituted, if not already in place for each componeIn addition, Americans for Prosperity would like a review to ensure that those program optionlike the United State Department of Agriculture Farm to School program, are being maximizeFarm to School uses the school lunch program as an end market for local produce thus puttinfresh fruits and vegetables in the school lunches, but also provides a relatively stable market flocal truck farmers.

Marketing and Developmental Services: Some of these programs’ services should be discontinuimmediately as an inappropriate use of tax dollars. Eliminating the programs that conduadvertising, market development, and promotional activities to create a positive image of NeJersey’s agricultural products and to increase consumer awareness and sales and the promotiof the New Jersey horse industry are inappropriate, even if like the horse industry; as they afunds derived from a small percentage of the pari mutuel handle at both the thoroughbred astandard bred racetracks. This budget discontinues the fee for the racing industry promotioand believes there will be savings in overhead for the remaining programs. Appropriatiofor the remaining industry promotional programs are removed. The discontinuation of theprograms will allow more focus of the Agriculture Department on more essential services. Thbudget reduces the budget by 25% immediately and encourages a phase out as an unnecessa


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function of government.

Farmland Preservation: “The State Agriculture Development Committee (SADC) administNew Jersey’s Farmland Preservation Program. The Farmland Preservation Program compensatfarm owners for their development rights if their deeds restrict their farms against futudevelopment. The terms of these deed restrictions can be permanent or for as short a perioas eight years. Future owners of permanently preserved farms must comply with all derestrictions. The SADC also coordinates a variety of programs with participating counties afarmland owners to protect important farmland in sufficient quantity and quality to foster lonterm agricultural viability. It is also charged with specific right to farm responsibilities relatito agriculture.”ii This budget finds the allocation of taxpayer funds, to commit land to leproductive use than market forces dictate, is an inappropriate use of hard working New Jersfamily’s tax dollars and discontinues appropriations to this program beginning with a phase oof 25% immediately.

Administrative and Support Services: This area has grown by 42%, just since 2011, withoincluding the personnel costs hidden in the pension and benefit payments made within tInterdepartmental funds. The Americans for Prosperity Taxpayer Budget reduces this departmeby 30% to reflect the phase out of some programs and/or scaling back of others per the abo

sections. Americans for Prosperity’s proposals included in the first section of this report will more to support the agricultural community using free market principles then the misguidallocation of resources that some of these programs represent.

DEPARTMENT OF BANKING AND INSURANCE“The mission of the Department of Banking and Insurance is to regulate the banking, insurancand real estate industries in a professional and timely manner that protects and educatconsumers and promotes the growth, financial stability, and efficiency of those industries.

The Department’s goals are to ensure the solvency of the financial institutions through regu

financial examinations and analysis; to protect the public from unlawful or unfair practices insurers, financial institutions, and real estate licensees by promptly investigating complaints filby consumers and aggressively prosecuting violators; to issue licenses to qualified individuaand companies to provide banking, insurance, and real estate services to New Jersey citizens; improve the efficient and effective review of insurance rates and forms; and to apply technologwhere appropriate, to more effectively interact with the public and regulated industries.” iii

This budget believes it is inappropriate for the citizens to fund services that are primarindustry-oriented. The many regulatory services that this department performs are transferrto a fee base system with the consumer protection functions being transferred to the appropriaagency within the Department of Law and Public Safety. Fees are invariably passed thru by t

regulated entities to their consumers, but not every New Jersey citizen experiences expensrelated to the industries these programs regulate. However, this budget believes that transferrithis department to a primarily fee based revenue stream should not be a carte blanche to kefunding levels at current appropriations. This budget believes there are opportunities to redufees by increasing efficiencies with modern technology or system redesigns. The Americafor Prosperity Taxpayer Budget suggests reducing the fees by cutting the expenditure of thdepartment across the board and discusses the reasoning and amounts in each program writup.


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PROGRAM ANALYSIS FOR COST SAVINGS:iv

Consumer Protection Services and Solvency Regulation: “Insurance companies, brokers, aagents are licensed to engage in the business of insurance in the State. Companies are examinperiodically for solvency and compliance with statutes and regulations and market conduct wregard to treatment of consumers.” This budget finds these regulatory functions acceptable ffee based funding and reduces the budget by 10% in relation to the existing appropriation provide some relief to the industries regulated and the consumers they supports.

Actuarial Services: “Reviews policy forms and other insurance forms relating to individand group, accident, health, life, annuities, property, liability and title; regulates complianwith the rating laws for insurance of property, liability and title; reviews networks, premiurates and loss ratios for health insurance; and reviews and analyzes reserve calculations domestic life and health insurers.” Actuaries are high pay band employees and this budgfinds some of the functions performed to be questionable from both an industry regulatioand consumer protection perspective. For instance, domestic life and health insurers risk thcapital and accordingly use the best actuaries they can find to control their risk and the functiof verifying and analyzing their work seems to be purposeless at best and an unnecessary coto the consumer at worst. This budget finds these regulatory functions acceptable for fee basfunding and reduces the budget by 10% in relation to the existing appropriation to provide som

relief to the industries regulated and the consumers they supports.


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Regulation of the Real Estate Industry: “Ensures that members of the industry comply wexisting statutes and regulations; investigates and resolves complaints, conducts hearininvolving violations and improper practices; registers and regulates out- of- state land sathrough New Jersey brokers; inspects brokers’ offices; examine and licenses brokers asalespersons; and maintains a directory of licensees and publishes bulletins.”

Public Affairs, Legislative and Regulatory Services: “Promulgates regulations, drafts bulletiorders and other public notices, drafts legislation, serves as the Department’s liaison with tLegislature, the Governor’s office and other government agencies, serves as a liaison to tpress and the industry on policy matters, and monitors proposed legislation and legal issuaffecting the regulation of the insurance, banking and real estate industries; handles internlegal issues and legal inquiries from the public; publishes a newsletter and consumer bookleon various types of insurance; and researches policy questions and consumer issues.” Thbudget does not believe that any agency should perform lobbying functions or participate the legislative process other than to answer direct questions of elected officials, while expenditax or consumer fee dollars and therefore recommends immediate closure of this office.

Bureau of Fraud Deterrence: (Formerly Insurance Fraud Prosecution and Prevention) “T

program is funded by a dedicated assessment on the insurance industry which funds both tBureau of Fraud Deterrence (BFD) in the Department of Banking and Insurance and the Officethe Insurance Fraud Prosecutor (OIFP) in the Department of Law & Public Safety. Both entitinvestigate allegations of insurance fraud in a coordinated fashion, in order to fully develothe facts and evidence, so that the State can make a reasoned decision as to how to globaaddress each alleged scheme and individual case: by civil and/or criminal prosecution anor administrative professional licensing sanction. Both entities coordinate with the insuranindustry’s Special Investigation Units and their affiliates, as well as other law enforcement aregulatory agencies to implement the statewide enforcement strategy addressing insuranfraud in its many forms. Information is collected and analyzed about persons and entities allegto be engaging in insurance fraud- related conduct in order to assess the prosecutorial merit a

to support actual criminal, civil or administrative actions.” The only area without redundancythat BFD pursues civil cases and OIFP is the criminal prosecution arm. This budget consolidatboth functions into the Attorney General’s office and reduces the appropriation by 15% to reflesavings from consolidation, reduction in paperwork between bureaucracies and self-fundicreated by successful prosecutions after transferring this function. It will improve efficiency aallow more coordinated prosecutions.

Supervision and Examination of Financial Institutions: “Responsible for the supervision aexamination of New Jersey State-chartered commercial banks, savings banks, credit unions asavings and loan associations. Responsible for the supervision and examination of consumfinancial institutions such as check cashers, insurance premium finance companies, pawnbrokeand money transmitters. Ensures compliance with the mortgage loan discrimination statu(C.17:16F et seq.). Regulates, supervises and examines residential mortgage bankers and broke(C.17:11C-51 et seq.). Determines financial and legal compliance with all applicable statutes aregulations and takes appropriate legal and regulatory action to ensure compliance with exististatutes and regulations. Responsible for examinations and enforcement action under the NeJersey bank holding company law (C.17:9A- 409 et seq.); responsible for examination of savinand loan holding companies (C.17:12B- 281 et seq.).” This budget finds these regulatory functioacceptable for fee based funding, but reduces fees by 10% to provide some relief to the industand the consumers it supports.

Pinelands Development Credit Bank: “Empowered to purchase and sell Pinelands developme


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credits in accordance with the Comprehensive Management Plan for the Pinelands, thpreserving the resources of this area and accommodating regional growth in an orderly fashioThis is not an acceptable function of government and this program should be discontinued.there is asset value available in this program it should be liquidated and used to help funnecessary and essential programs.

Administration and Support Services: Directs the activities of the Department and providadministrative and support services. The Office of the Commissioner provides legislative apolicy guidance to programs within the Department and coordinates all regulatory and legislatiinitiatives with the Legislature, Executive Branch, and the financial community. This section meither be absorbed within the above programs or those deemed unnecessary services may discontinued to allow the reductions in fees of those programs. The Americans for ProsperTaxpayers’ Budget immediately reduces funding by 25% to reflect the transfer of a division ato force efficiencies on the remaining commingled group of functions.

SUMMARY OF APPROPRIATIONS BY PROGRAM $S IN THOUSANDS

Governor’s Budget 2017 AFP’s Budget 2017

Direct StateServices

Grantsin Aid

StateAid

Direct StateServices

Grantsin Aid

StateAid

Consumer ProtectionService

$21,484 $13,336

Actuarial Services $5,200 $4,680

Regulation of the RealEstate Industry

$3,680 $3,680

Public Affiars,Legislative &Regulatory

$2,322 -

Bureau of FraudDeterrence

$22,996 $8,853

Supervision &Examination ofFinancial

$4,159 $3,743

PinelandsDevelopment CreditBank

- -

Administration &Support Services

$4,172 $4,172

Totals $64,013 - - $44,464


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CHIEF EXECUTIVE“The Governor is the State’s chief executive officer. The Governor’s Office directs and coordinatthe activities of the various State departments. These duties include the implementation of nelaws and activities, as well as ongoing responsibilities associated with existing laws and othessential aspects of governing. The Office reviews and formulates proposals of law that aultimately submitted to the State Legislature. It develops public policy affecting the citizens New Jersey, and implements the State’s fiscal plan, once it is adopted.”

It is always the expectation, especially in a strong executive power state like New Jersey, tha Governor will lead by example. Americans for Prosperity is pleased to note that GovernChristie has made changes to the issues we raised in 2010 about some of the memberships tGovernor’s office has paid for in the past and removed them from taxpayer support.



Chief ExecutiveDirect State

ServicesGrants in Aid Dedicated State Aid

Direct State

Services

Grants in

AidDedicated

State

Aid

Personal Services $5,724 - - - $5,724 - - -

National GovernorsAssociation

$185 - - - $185 - - -

Educaition Commision of

the State$125 - - - $125 - - -

National Conference

of Commissioners OnUniform State Laws

$65 - - - $65 - - -

Brian Stack Intern Program $10 - - - $10 - - -

Allowance to the Governorof Funds

$95 - - - $95 - - -

Materials & Supplys $133 - - - $133 - - -

Services Other ThanPersonel

$356 - - - $356 - - -

Maintenance & Fixed $43 - - - $43 - - -

Executive Management - - $775 - - - $775 -

Totals $6,736 - $775 - $6,736 - $775 -


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LEGISLATUREMISSIONThe Legislature is the State’s highest lawmaking body. It is one of the three separate aindependent branches of government that make up the checks and balances system created the New Jersey Constitution and is empowered to appropriate funds for the operation of stagovernment. The 40 members of the Senate are elected for a term of four years, except aft

the decennial census. The 80 members of the Assembly are elected for a term of two years. TOffice of Legislative Services, a nonpartisan agency that provides legislators with economic abudget analyses required for making legislative decisions, is also a part of the legislative brancLegislative commissions assist in the legislative process by providing in- depth studies, holdinpublic hearings and making recommendations on select issues as they arise.

The funding stream has been relatively flat, but the large growth since 2015 in LegislatiCommissions is an area that should be scrutinized for savings possibilities and/or tappropriateness of those items that have been lump summed into the line item.



LegislatureDirect State

Services Grants in Aid Dedicated State AidDirect State

Services Grants in Aid Dedicated Stait Aid

Senate $11,700 - - - $11,700 - - -

General Assembly $18,217 - - - $18,217 - - -

Legislative SupportServices

$32,146 - - - $32,146 - - -

Legislative Com-missions

$15,573 - - - $15,573 - - -

Total $77,636 - - - $77,636 - - -


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CHILDREN AND FAMILIESThe mission statement of the Children and Families is “In partnership with New Jerseycommunities, the Department of Children and Families (DCF) ensures the safety, well- beiand success of New Jersey’s children and families.

With a staff of approximately 6,600 employees, DCF encompasses Child Protection aPermanency, Children’s System of Care, Family and Community Partnerships, Specializ

Education Services, the Division on Women, Adolescent Services, Child Welfare TrainiAcademy and the Centralized Child Abuse/Neglect Hotline.

DCF focuses on partnering with children, youth, families and communities to achieve child afamily safety, support, well- being and success. DCF incorporates the best thinking of New Jersstakeholders, frontline workers and supervisors to achieve positive results and improvemenin supporting New Jersey’s women, children, youth and families. Current priorities includreducing the incidence of child abuse and neglect, ensuring permanency for children who entout- of- home care, managing outcomes by data, continuing the integration of a system care for children with behavioral, intellectual and developmental disabilities and co- occur- ridisorders, supporting programs and services for women and adolescents in the transition

adulthood.”vi

While this mission statement outlines a worthy endeavor, we should look a little deeper into thagency. This agency had been under “Modified Settlement Agreement (MSA) in a class actilawsuit regarding improvements to the State’s child welfare system. Under the terms of tMSA, the Center for the Study of Social Policy (CSSP) was appointed by the U.S. District Couof New Jersey as the independent Federal Monitor to assess the compliance of the Departmeof Children and Families (DCF) with the terms and conditions of the MSA. The MSA required timplementation and evaluation of certain child welfare reforms, as follows:

Phase I (through December 2008) required systematic reforms to improve the State’s chwelfare system, including: development and implementation of a new case practice modimproved delivery of critical services; reduced caseloads; improved caseworker traininimproved recruitment and licensing of foster/kinship care resource families; and improved uand publication of performance data.

Phase II (beginning January 2009) required the measurement of certain performance indicatoto evaluate the Phase I reforms and assess the State’s overall compliance with the MSA. Trequired performance targets were established either in the MSA or by the Federal Monitor consultation with the State and other parties involved in the lawsuit.”vii

This case could have been dismissed as early as 2010, if the State had achieved and maintainthe established performance targets. As of this budget, that has not occurred, but in tmeantime the agencies budget has grown by 68% since FY-2005. Is it time for legislators ask for a change of management? Even without the MSA hanging over their heads, the need fstringent performance measures is more important in these areas than possibly any other. Tamount of money available for any single function of government is a finite resource and it essential particularly in this area that limited resources not only be focused on the truly needyour society, but also that the taxpayer’s investment actually produces positive results for thoserved.

The following charts show the huge amount of funding that is going to this department. The


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is a decrease of $9.9 million or 0.9% attributable to a reallocation of State- supported costs the federal Social Services Block grant.vii


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PROGRAM ANALYSIS FOR COST SAVINGS:ix Social programs need to be examined to determine whether all the individuals being servare truly needy. Too many government programs have moved from being safety nets for tneedy to being a permanent welfare for elements of the population. Citizens expect their stagovernment to provide essential support services for those in need but they also expect it spend their tax dollars wisely. Programs within social services should be means tested whenevpossible and fees set relative to income and/or asset ownership of the non-impoverisherecipient for those services.

Increasing responsibility for taking care of others is placed at the foot of government. Inculture that speaks about desires in terms of needs, needs in terms of rights, and rights in termof entitlements, government is considered obligated by many to be

americans for prosperity fy 2017 taxpayers' budget

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