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Department of the Treasury FY 2017-2018

Discussion Points

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DEPARTMENT OF THE TREASURY

1. a. The Governor’s FY 2018 Budget Recommendation includes an estimated $325.0 million

from unspecified “Asset Sales” as Schedule 1 revenues (page C-6). According to the State

Treasurer, who testified before the Senate Budget and Appropriations Committee on April 6,

2017, this anticipated revenue is comprised, in part, of proceeds from the New Jersey Public

Broadcasting Authority’s (NJPBA) participation in the Federal Communication Commission’s

(FCC) Broadcast Incentive Auction, which was authorized by Congress in 2012 to reclaim a

portion of the available spectrum dedicated to broadcast television for wireless broadband

use. The remainder of the anticipated $325.0 million would be derived from the sale of

unspecified State properties.

The NJPBA is the FCC licensee for four broadcast television stations in this State, for which

Public Media NJ provides programming: two channels that serve Northern and Central New

Jersey (WNJB Channel 8 New Brunswick and WNJN Channel 51 Montclair), and two channels

serving Southern New Jersey (WNJS Channel 22 Camden and WNJT Channel 43 Trenton).

On April 13, 2017, the NJPBA announced it had relinquished its surplus broadband spectrum

and monetized the asset without diminishing availability. According to the FCC’s final bid

prices for the broadcast spectrum relinquished by the NJPBA, WNJN Channel 51 Montclair’s

spectrum was relinquished for $193.9 million and WNJS Channel 22 Camden’s spectrum was

relinquished for $138.1 million, totaling approximately $332.0 million. The NJPBA will continue

to operate WNJN Channel 51 Montclair by sharing the broadcast spectrum previously

associated only with WNJB Channel 8 New Brunswick. Similarly, WNJS Channel 22 Camden

will share the broadcast spectrum previously associated only with WNJT Channel 43 Trenton.

Despite knowing the value of the revenue the State will receive from participation in the

auction, a number of unknowns remain. In particular, it is unknown how much of the

anticipated State revenue derived from the incentive auction is included as part of “Asset

Sales” noted above and how those revenues will be used. While the exact date of when the

auction proceeds will be available is unknown, the NJPBA does not anticipate receiving auction

proceeds until after July 1, 2017.

Pursuant to P.L.2010, c.104, all monies received by the State from the sale, lease or assignment

of any assets or property of the NJPBA which comprise the public broadcasting system are

required to be deposited into the “Trust Fund for the Support of Public Broadcasting.” The

funds deposited into the trust fund are dedicated solely for the support of a public

broadcasting system serving New Jersey. However, a proposed General Provision would newly

divert proceeds received from the sale of non-real estate assets to the General Fund as State

revenue (page F-10).


Discussion Points (Cont’d)

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• Questions: How does the NJPBA intend to expend the auction proceeds?

Would any of the proceeds be deposited into the nonlapsing “Trust Fund for the

Support of Public Broadcasting,” as required pursuant to P.L.2010, c.104 and

used for purposes of the trust fund? What is the expected timeline for the receipt

of auction proceeds? How firm is the timeline? Please provide an accounting of

the “Trust Fund for the Support of Public Broadcasting.”

• How will the auction affect Public Media NJ and the NJPBA’s public television

operation? How will stations cover the cost of any upgrades related to spectrum

sharing? By what date does the NJPBA project vacating the broadcast spectrum

to be relinquished?

• What portion of the $325.0 million in “Asset Sales” is attributable to the $332.0

million in revenue derived from the incentive auction? What other unspecified

assets are included as part of the $325.0 million?

Answer: The FCC announced the results of the Broadband Incentive Auction on April

13, 2017, providing specific amounts to the participants. The outcome of the auction

will have almost no impact on the delivery of Public Media NJ’s (PMNJ) programming

service to the citizens of New Jersey. The vast majority of New Jersey consumers utilize

cable, satellite, FiOS or over-the-top (IP) outlets to view the stations and will see no

change. A very small percentage of viewers may need to retune their receiver or

reorient an antenna, depending on their location. The NJPBA, through PMNJ, will

broadcast a television receiver retuning campaign to educate over the air viewers on

the changes to the broadcast signals. Any costs incurred by NJPBA will be covered by

the auction proceeds.

The date to vacate relinquished broadcast spectrum is 90 days after the receipt of the

auction funds. There is no firm date for the actual distribution of the proceeds.

A portion of the proceeds will be retained in the Trust Fund for the Support of Public

Broadcasting to be used by NJPBA for facility upgrades and any one-time expenses.

The remainder will be available to the State as revenue. The Division of Property

Management and Construction (DPMC) is in the process of reviewing all State property

for opportunities to repurpose or vacate and sell buildings and property.

The following chart provides information regarding the Trust Fund for the Support of

Public Broadcasting as of April 18, 2017.



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1. b. On May 28, 2015, the New Jersey Public Broadcasting Authority (NJPBA) passed a

resolution approving a “Concurrent Operations and Interference Avoidance Agreement”

between the NJPBA and T-Mobile USA, Inc. (“T-Mobile”). The agreement allowed T-Mobile to

operate in broadcast bandwidth adjacent to the NJPBA’s Channel 51 in Montclair. In

exchange, T-Mobile was required to make a $5.0 million upfront payment to the NJPBA in

addition to a $2.0 million incentive payment if the agreement was executed and delivered to

T-Mobile before June 3, 2015, and an annual $5.0 million fee payment for the duration of the

three-year contract period (renewable once for an additional three-year period). The

agreement is subject to termination if the NJPBA ceases to operate on Channel 51, which is

set to be reassigned or eliminated as a result of the Federal Communication Commission’s

(FCC) Spectrum Auction.

ACCOUNTING FOR THE "TRUST FUND FOR THE SUPPORT OF PUBLIC BROADCASTING"

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 TOTAL

Revenue:

Radio sale 1,888,584.00 1,888,584.00

Auction 152,640.64 39,731.16 27,748.01 15,987.02 1,257.46 237,364.29

Scrap metal 5,452.31 5,452.31

T-Mobile interference 12,000,004.00 4,012,497.00 16,012,501.00

WNYC rent 25,684.10 25,684.10

TOTAL REVENUE 18,169,585.70

Expenditures:

Statehouse TV studio (5,175.00) (121,183.00) (126,358.00)

Design svcs Statehouse TV studio (24,131.00) (10,857.00) (34,988.00)

Transport stream monitor (141,046.00) (141,046.00)

Lawrence guy anchor upgrade (33,900.00) (33,900.00)

Security upgrade (4,374.99) (14,196.33) (18,571.32)

Microwave system replacement (221,204.69) (221,204.69)

Battery backup power (16,957.00) (25,899.00) (42,856.00)

Montclair tower lighting system (1,250.00) (134,068.00) (241,600.86) (376,918.86)

Tower painting (6,350.00) (420,460.20) (555,623.72) (982,433.92)

Transmitter building roof replacement (26,019.18) (26,019.18)

Digital conversion of TV translators (102,750.77) (102,750.77)

Archive mgmt. Phase II (250,000.00) (250,000.00)

Transmitter HVAC replacement (78,266.00) (78,266.00)

TOTAL EXPENDITURES (2,435,312.74)

Transfers out:

PMNJ equipment (100,000.00) (100,000.00)

OMB (9,000,000.00) (9,000,000.00)

Reclass WNYC rent to Tower Revenue account (25,684.10)

TOTAL TRANSFERS OUT - - - (9,125,684.10)

PRE-ENCUMBERED FOR APPROVED PROJECTS (4,730,684.30)

ENCUMBERED FOR PROJECTS IN PROGRESS (366,803.21)

TOTAL ENCUMBERED (5,097,487.51)

BALANCE 4/18/17 1,511,101.35

42341.03 included in encumbered for proj in progress

for encumbered balance still open in FY16

prepared 4/18/17



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According to the department’s response to last year’s OLS Discussion Points, the NJPBA

received the $2.0 million incentive payment from T-Mobile, the initial payment of $5.0 million,

and was receiving monthly payments of $416,666 (the $5.0 million annual fee). In total, the

NJPBA anticipated receiving $12.0 million from the agreement with T-Mobile in FY 2016.

P.L.2016, c.8 supplemented the FY 2016 Appropriations Act with language appropriating from

the Trust Fund for the Support of Public Broadcasting to the General Fund $9.0 million received

by the NJPBA from T-Mobile. The FY 2017 Appropriations Act included similar language with

a reduced appropriation of $5.35 million. The Governor’s FY 2018 Budget Recommendation

includes this language; however, the language no longer specifies the amount to be

appropriated. Thus, any amounts received from T-Mobile are recommended to be

appropriated to the General Fund. The Administration anticipates $5.7 million in revenue from

this source in FY 2018.

• Questions: By Fiscal Year, please provide the total amount of revenue the

NJPBA has received from T-Mobile as part of the agreement and specify the

purposes for which the moneys were used. If any amount thereof was or is

intended to be used for general State purposes, please explain the reasons for

not using all of the revenue for the support of public broadcasting.

Answer: See above chart. In addition to the $12 million received in FY 2016, as

mentioned above, the annual fee increases by 7% during the length of the agreement.

• Is the agreement between the NJPBA and T-Mobile still in effect? If so, does the

NJPBA intend to renew the agreement at the end of the agreement’s initial three-

year term? How will the outcome of the FCC Spectrum Auction affect the

agreement and the amounts the State has received or is anticipated to receive

thereunder?

Answer: The agreement with T-Mobile, giving it the ability to operate in bandwidth

adjacent to, and potentially interfering with, WNJN/Montclair Channel 51, is in effect

until May 31, 2018 or until NJPBA ceases the broadcast operations of the station.

2. Pursuant to P.L.2015, c.298, the New Jersey Small Business Retirement Marketplace

(“the marketplace”) is to be established in the Department of the Treasury. The purpose of

the marketplace is to educate small business employers on retirement plan availability and to

promote, without mandating participation, qualified, low-cost, low-burden, retirement savings

vehicles. The marketplace is meant to further greater retirement plan access for New Jerseyans

while ensuring that individuals participating in these retirement plans will have all the

protections offered by federal law.



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The State Treasurer, or the Treasurer’s designee, is required to design and implement a plan

for the operation of the marketplace and to facilitate the connections between eligible

employers and approved plans included in the marketplace. Additionally, the Treasurer is

required to approve a diverse array of private retirement plan options, available to employers

on a voluntary basis, and includes life insurance plans designed for retirement purposes and

at least two types of plans for eligible employer participation: SIMPLE IRA type plan; and a

payroll deduction individual retirement account type plan or workplace-based individual

retirement accounts. But the marketplace is not to operate unless at least two financial

services firms offer approved plans on the marketplace.

In accordance with P.L.2015, c.298, a fee system may be established which charges financial

services firms that participate in the marketplace for the startup and annual administrative

expenses of the Department of the Treasury.

• Questions: Please provide an update regarding the current status of the

marketplace. Is the marketplace still in the design phase or is it operational? If

the marketplace is operational, how many employers and financial services firms

are participating in the marketplace? How many plans have been approved for

the marketplace and how many plan accounts have been opened through the

marketplace? If the marketplace is not operational, please provide an

explanation for the delay in implementation and indicate the date by which the

department expects to have the marketplace operational.

Answer: The marketplace is still in its design phase. We are working within the

statute’s guidelines to establish how the marketplace should be implemented, as well

as how it will be administered, once in operation.

• Has a fee system been established to cover the startup and annual administrative

expenses of the marketplace? If so, what are the fees associated with the

marketplace, how much revenue has been collected from those fees, and in what

revenue line of the FY 2018 Governor’s Budget are collections located? What

were the startup costs of the marketplace? What are the expected annual

administrative costs of the marketplace?

Answer: We have not established a fee system or funding source for marketplace.

NEW JERSEY LOTTERY

3. On October 1, 2013, Northstar New Jersey Lottery Group, LLC (“Northstar New Jersey”)

assumed full control over the New Jersey State Lottery’s sales and marketing operations.

Despite higher gross lottery sales during Northstar New Jersey’s tenure, lottery net income

stagnated in FY 2014 and receded in FY 2015, causing the vendor to miss its net income targets



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and to incur performance penalty payment obligations for both years. In response to the State

Lottery’s underperformance, the State agreed in December 2015 to amend the lottery

contract, guaranteeing a $960 million FY 2016 lottery net income payment by Northstar New

Jersey to the State and lowering future vendor net income targets as well as the range of

future incentive compensation payments to the vendor. In FY 2016, Northstar exceeded its

net income target for the first time and received an Incentive Compensation Payment of $30.6

million.

Northstar New Jersey’s annual compensation has two components under the State contract:

the reimbursement of the vendor’s administrative expenses and a performance-based

incentive payment or penalty. The arrangement’s pay-for-performance component shifts a

portion of the Lottery performance risk to the vendor and has the following three elements:

Accelerated Guarantee Payment: Northstar New Jersey made a one-time $120 million

Accelerated Guarantee Payment to the State in FY 2013. The vendor was authorized to use

up to $20 million thereof to offset any future “Contribution Shortfall Payment obligations,” as

explained in greater detail below. Northstar New Jersey used $14.1 million of the $20 million

credit in FY 2014 and the remaining $5.9 million in FY 2015.

Contribution Shortfall Payments: Northstar New Jersey must make Contribution Shortfall

Payments to the State for any contract year in which it fails to meet the Lottery net income

target, but not more than 2.0 percent of a contract year’s Lottery net income, except for FY

2017 and FY 2018 when they are capped at 3.0 percent if net income falls below the set

guaranteed amounts. The payments represent a partial shift of the risk of Lottery net income

shortfalls to the contractor. The payment equals 50 percent of the difference between the net

income target and the base net income level if the actual net income falls between the two

markers. If the actual net income is less than the base amount, the payment is 50 percent of

the difference between the net income target and the base amount plus 100 percent of the

amount by which the actual net income falls below the base amount.

Initially, the contract specified an annualized 0.9 percent increase in base net income levels, or

the annual rate of growth Treasury estimated the State Lottery would achieve were it managed

by Division of State Lottery staff, and an annualized 1.5 percent increase in net income targets,

as bid by Northstar New Jersey. These base net income levels and net income targets were

lowered in December 2015,1 resulting in an annualized growth rate of approximately 0.9

percent for base net income levels and 1.2 percent for net income targets.

Incentive Compensation: Initially capped at 5.0 percent of annual lottery net income, but

reduced to 3.0 percent in December 2015, Incentive Compensation payments by the State to

Northstar New Jersey occur in any year in which the Lottery net income exceeds the

1 Base net income levels and net income targets were reduced following FY 2015. These reductions occurred

following the settlement of the second adverse action which will be discussed in the next section.



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contractual base net income level. The base net income level in contract year 3 (or FY 2016)

is $814.0 million, which rises to $914.1 million in contract year 16 (or FY 2029). A payment is

calculated as a percentage of the year’s net income in excess of the base amount with the

percentage ranging from 5 percent to 20 percent depending on the size of the excess over

the base and middle net income levels, as defined in the contract. The range was lowered

from 5 percent to 30 percent in December 2015. Net income targets are immaterial to the

computation.

Therefore, should a year’s actual net income fall between the base net income level and the

net income target, Incentive Compensation payments and Contribution Shortfall Payments

will both come due and will offset one another to varying degrees.

Net Income Levels and Targets

Fiscal Year Base Net Income Level Net Income Target

2016 $813,984,000 $963,478,103

2017 $821,490,000 $990,513,343

2018 $828,996,000 $1,009,871,643

2019 $835,668,000 $1,023,554,636

2020 $843,174,000 $1,036,114,600

Source: State Contract No. T-2884, as revised by Amendment No. 2

The FY 2016 transfer of State Lottery income into the State General Fund equaled $987.0

million, $27.0 million more than the $960.0 million guaranteed by Northstar. Because FY 2016

Lottery net income prior to the deduction of Northstar’s compensation payment ($1.024

billion) exceeded the $963.0 million net income target and the $814.0 million base net income

level, the vendor received a $30.6 million Incentive Compensation Payment. The $30.6 million

represents 3.0 percent of the State Lottery’s FY 2016 net operating revenues prior to deducting

the vendor’s compensation payment ($1.024 billion). However, absent the contract

amendment, the $1.024 billion FY 2016 net operating income would have resulted in Northstar

being liable for a Contribution Shortfall Payment of approximately $15.6 million.

The Governor’s FY 2018 Budget Recommendation anticipates a transfer of $970.0 million from

the State Lottery for FY 2017 and a transfer of $1.014 billion for FY 2018.

• Questions: Please assess Northstar’s performance as the manager of the State

Lottery’s sales and marketing operations. Has the Lottery identified any

structural changes in consumer behavior with regard to the demand for lottery

products?



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Answer: Northstar manages sales and marketing operations under the direction

of the Lottery. Northstar and Lottery have formed several working groups that

meet regularly to guide and monitor the various sales and marketing initiatives.

Every sales and marketing initiative must be first approved by the Lottery before

implementation commences.

As Northstar completes its third full year under the Services Agreement, the overall

impact on operations, the public, and retailers has been positive. It has fulfilled all

the operational requirements of the Services Agreement.

Northstar has expanded Lottery’s instant ticket vending machine (ITVM) network

and introduced full-service vending machines (Geminis). The Geminis enable

customers to purchase tickets for lottery draw and instant games without the

assistance of a sales clerk. Introduction of the Geminis allowed for the addition of

WAWA and Rite Aid to the retailer network.

At the request of retailers, new instant and Fastplay games have been introduced.

For all prizes less than $599.99, players may collect instantly, without having to

submit a form to the Lottery for payment.

The increase in sales above the $3.2 billion threshold has indicated that there

continues to be a significant demand for lottery products. The Lottery and

Northstar are always reviewing the portfolio of games to ensure that there is a

proper mix of games that appeal to all segments of the lottery playing public.

• Given the anticipated transfers of $970.0 million for FY 2017 and $1.014

billion for FY 2018, please indicate the anticipated FY 2017 and FY 2018 net

incomes, as the term is defined in the contract with Northstar, and the

amount of any anticipated Contribution Shortfall Payment by or Incentive

Compensation Payment to Northstar.

Answer: The anticipated net income as predicated in the contract for Fiscal 2017

and Fiscal 2018 is $990.5 million and $1.010 billion respectively. If the anticipated

revenue transfers of $970 million and $1.014 billion are achieved, the anticipated

Compensation Payments to Northstar for Fiscal 2017 and Fiscal 2018 would be

$25.4 million and $31.3 million respectively. By law and consistent with the terms

of the contract, the Lottery must remit no less than 30% of its revenue to the State

for aid to education and institutions. If the revenue transfer falls short, any

Compensation Payment to Northstar would be reduced by the amount necessary

to ensure the 30% is achieved.



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• Does the State anticipate any additional amendments to the contract due to the

performance of the lottery?

Additional amendments to the contract will be executed as needed.

4. a. N.J.S.A.5:9-7 dedicates at least 30 percent of the gross receipts from the sale of lottery

tickets to the support of State institutions and State aid for education. In FY 2016, some 30.0

percent of gross lottery sales was used for that purpose and the Administration anticipates

that 30.2 percent of gross lottery sales would be used in that manner in FY 2017 and 30.3

percent in FY 2018 (Evaluation Data on page D-391 of FY 2018 Governor’s Budget). The

Governor’s FY 2018 Budget on page H-3 includes a schedule of programs that the estimated

$1.014 billion from the State Lottery Fund would support in FY 2018. The Governor proposed

during his FY 2018 Budget Message transferring the State Lottery as an asset to State public

employee retirement systems and contributing the operating revenues from the State Lottery

to eligible pension plans. According to the Governor, “the contribution would have the

immediate effect of reducing the unfunded liability of the pension system by approximately

$13.0 billion, and would increase the funded ratio of the pension system by almost 15

percentage points.”

• Questions: How would the programs on page H-3 of the Governor’s FY 2018

Budget Recommendation be supported absent the revenues from the State

Lottery Fund?

Answer: The proposal provides a new revenue source for funding the State Pension

System. This new source will alleviate pressure on the General Fund to accommodate

ever increasing payments to cover the Actuarially Determined Contribution, freeing up

additional general fund resources to cover the cost of these programs.

• Have any other states implemented a similar plan? What is the origin of the

current plan? Did this plan originate with the department or was it proposed by

a third party?

Answer: Addressing both the appropriate level of funding for the State pension

system and reforming the cost structure of post-employment benefits have been top

priorities for the Christie Administration. We continue to explore every avenue in

relation to these two objectives. Therefore, in November 2016, the Office of Public

Finance issued an RFP to solicit ideas from the financial community, leading to the

Governor’s current proposal.

As part of the due diligence surrounding this proposal, the Department is aware of the

fact that other states, including Pennsylvania, are examining similar ideas.



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4. b. On March 29, 2017, the Department of the Treasury issued a Request for Proposal

(RFP) for a Valuation Service Provider to be appointed to the Office of Public Finance. The

winning bidder would serve in the role of Valuation Service Provider concerning the

Governor’s proposal to contribute the State Lottery Enterprise to various State retirement

systems.

The deadline to submit a response for the RFP was April 10, 2017. The Treasurer is expected

to select one provider with the intent to have the selected provider render its services on or

before May 15, 2017. The RFP was issued under procurement laws of the State of New Jersey;

thus, the engagement has a fee and expense cap of $250,000.

• Questions: Please provide a status update on the Valuation Service Provider

RFP. Please indicate the number of RFP submissions and the date by which the

contract is expected to be awarded. If applicable, please provide the name of the

selected provider.

Answer: There were two submissions for the RFP. The contract was awarded to Acacia

Financial Services.

DIVISION OF TAXATION

5. In March 2014, the Division of Taxation released a Request for Information (RFI) for

the State of New Jersey Tax Systems Modernization Project, which solicited possible

solutions for the replacement of the division’s current separate tax administration and

collection systems with a more versatile, integrated system. The division envisioned a benefit-

based procurement model, whereby the vendor would get paid a percentage of the

incremental savings and revenues the vendor’s solution generates. The State would thus not

face any significant up-front costs for the capital project and limit its financial liability in case

of cost overruns and nonperformance of the vendor’s solution. The Office of Information

Technology’s project team had readied an RFP whose release was expected at some point in

FY 2015. Subsequently, during FY 2016, the RFP was still under review and being prepared for

release.

The State’s current tax administration systems, collectively known as TAXNET, date from the

mid-1980s. They are: 1) the Taxpayer Registration System (TAXREG); 2) the Generic Tax

System (GENTS), which is used for taxpayer account maintenance; 3) the Taxation Unremitted

Liability Inventory Plotting System (TULIPS), which is used for collections case management;

4) the Cash Receipts Account System (CRAS); and 5) the Set-Off of Individual Liability (SOIL)

system. In addition, the division would like to replace its audit case management system

(ESKORT), which dates from 2005. According to the March 2014 RFI, the division hopes that

a new integrated tax administration system that delivers a single view of the taxpayer and



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audit process will: a) improve customer service, in part through the centralized capture and

tracking of all taxpayer communications; b) increase online public access and services to

taxpayers; c) comply with industry security standards; d) enhance the efficiency of the

division’s taxpayer accounting, tax compliance, and auditing processes through the use of up-

to-date database technology and big data analytics strategies; and e) augment the system’s

long-term viability over the current legacy systems whose maintenance depends on a

shrinking number of proficient programmers.

• Questions: Please provide a status update on the State of New Jersey Tax

Systems Modernization Project. Has the division issued an RFP to solicit bids for

an integrated tax administration system? If so, please indicate: a) the number

of RFP submissions; b) whether any of the respondents to the earlier RFI

submitted bids; c) the date by which the division expects a contract award; d) if

applicable, the name of the bidder to whom the State has awarded any contract;

and e) if applicable, whether the contract winner was an earlier RFI respondent.

If the State has not yet issued an RFP, by what date does the State expect

releasing an RFP and awarding a contract? Does or will the successful vendor

receive compensation in accordance with a benefit-based procurement model?

If so, please explain the formula used to determine the vendor’s compensation.

If the State has abandoned the modernization initiative, please detail the

reason(s) for doing so.

Answer: The RFP is under review by the Division of Purchase and Property and is

expected to be released in Calendar Year 2017.

6. a. The Division of Taxation operates two permanent amnesty-like programs: the

voluntary disclosure agreement program and the closing agreement program. Voluntary

disclosure agreements bring previously unknown, non-filing taxpayers into compliance with

their tax return filing obligations. Closing agreements, in turn, settle ongoing cases and

current issues involving known taxpayers who are already filing returns.

Specifically, N.J.S.A.54:53-1 et seq. authorizes the division to negotiate amnesty-like closing

agreements with known taxpayers that permanently and conclusively resolve issues related

to past and future tax liabilities. The law grants broad discretion to the division as to the type

of cases it may settle and the scope of any agreement. Closing agreements may cover tax

liabilities for any taxable period ending prior or subsequent to the date of the agreement. The

division may conclude an agreement in any case in which there appears to be an advantage

in having the case permanently and conclusively closed, or if the taxpayer shows good and

sufficient reasons for desiring a closing agreement and the division determines that the State

will sustain no disadvantage through consummation of an agreement.



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Closing

Agreements

Closing Agreement Net Collections

FY 2010 25 $46,330,172

FY 2011 52 $11,696,567

FY 2012 84 $11,176,959

FY 2013 261 $8,977,314

FY 2014 182 $7,154,177

FY 2015 106 $95,464,433

FY 2016 Y-T-D 51 $13,496,557

• Questions: For FY 2016 and FY 2017 to date, please indicate the number of

closing agreements the division concluded, the amount of revenue collected

pursuant to the agreements, and the amount of disputed tax liabilities and

penalties that the agreements settled. Please provide the equivalent data for

refund disputes that were settled through closing agreements. If applicable,

please indicate and describe every closing agreement which the division has

concluded since FY 2016 that included prospective tax exemptions that were

contingent upon the generation of economic activity in New Jersey.

Answer:

For July 1, 2015 to June 30, 2016:

The Conference and Appeals Branch has executed 45 closing agreements. Of these, 39

were to settle amounts of tax owed and disputed by the taxpayer and 6 were to settle

amounts of refunds requested by the taxpayer.

Assessments

Agreements Completed 39

Amount of Tax Disputed $9,709,617

Amount of Penalty Disputed $631,518

Amount of Interest Disputed $4,170,419

Amount of Revenue Collected $8,009,138

Refunds


Amount of Refunds Requested $35,392,800

Amount Refunded $32,977,675

For FY 2016, a total of 20 additional closing agreements have been executed by the

audit branch for $9,577,395.



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It should also be noted that the Division settled a court case resulting in the payment

of a $30,500,000 refund.

For July 1, 2016 to April 20, 2017:

As of April 20, 2017, the Conference and Appeals Branch has executed 19 closing

agreements. Of these, 15 were to settle amounts of tax owed and disputed by the

taxpayer and 4 were to settle amounts of refunds requested by the taxpayer.

Assessments


Amount of Tax Disputed $31,023,527

Amount of Penalty Disputed $5,387,233

Amount of Interest Disputed $12,570,970

Amount of Revenue Collected $5,721,906

Refunds


Amount of Refunds Requested $1,279,171

Amount Refunded $838,868

For FY 2017 to date, a total of 32 additional closing agreements have been

executed by the audit branch for $92,456,590.

It should also be noted that the amount of tax, penalty, and interest disputed for FY

2017 includes an estimated assessment of $25M for one taxpayer.

• Please explain the spike in collections during FY 2015 relative to FY 2014.

Answer: The FY 2015 number includes a $33M payment from a single taxpayer who

lost their case in Tax Court.

6. b. The Division of Taxation’s Audit group administers voluntary disclosure agreements.

The amnesty-like program allows taxpayers who failed to file tax returns or collect sales tax to

come forward prior to being contacted by the division and file the appropriate tax returns as

well as registration materials, and pay outstanding tax obligations. If approved, a voluntary

disclosure agreement requires the payment of taxes owed for a look-back period equal to the

current year plus the three prior years, and interest. In return, the division waives the late filing

and late payment penalties for the tax years covered by the agreement. In years past, the

division has provided data regarding voluntary disclosure agreements in tables similar to the

one below.



14

Voluntary Disclosure

Agreement Requests


Agreements

Concluded


Agreement

Collections

FY 2011 357 286 $36,503,763

FY 2012 454 339 $91,177,294

FY 2013 321 144 $57,770,457

FY 2014 370 334 $64,641,711

FY 2015 305 311 $65,151,352

FY 2016

(As of Discussion

Point Response)

223 261 $43,368,660

• Questions: For FY 2016 and FY 2017 to date, please provide summary statistics

for the voluntary disclosure program: the number of taxpayers coming forward,

the number of concluded voluntary disclosure agreements, the amount of

revenue collected pursuant to the agreements, and the amount of penalties

waived. What is the current backlog?

Answer:


Agreement Requests


Agreements

Concluded


Agreement

Collections

FY2016 271 323 $53,565,372

FY 2017 Y-T-D 175 194 $28,119,979

There are currently 103 cases pending final disposition.

7. The State Earned Income Tax Credit (EITC) program, which piggy-backs on the federal

credit program, is intended to offset the burden of Social Security payroll taxes on the working

poor and provide an incentive to work. Pursuant to N.J.S.A.54A:4-6 et seq., the State EITC

provides a refundable credit under the State gross income tax, currently equal to 35 percent

of the federal EITC benefit amount. To claim a State credit, taxpayers must first file for the

federal EITC.

According to the Division of Taxation, beginning in Tax Year 2011, the division implemented

an EITC fraud screening process. As part of the program, certain taxpayers claiming a NJ-

EITC were asked to provide the division with supplemental documentation such as Social

Security cards, IRS account transcripts, W-2’s, 1099’s, pay stubs, and birth certificates to

substantiate their EITC claim. The division also provided statistics, reproduced in the table

below, on the number of EITC claims filed, paid, and rejected or withheld pending the receipt

of additional information. As a result of the fraud screening initiative, the number of EITC filers



15

whose claims have been rejected or held in abeyance spiked in Tax Year 2011 and has since

held at a relatively elevated level.

Tax

Year

EITC Claims Filed EITC Claims Paid EITC Claims Rejected or

Pending

2010 546,871 493,551 53,320

2011 583,330 475,927 107,403

2012 583,760 485,032 98,728

2013 603,262 520,105 83,157

2014 610,183 530,247 79,936

2015 570,539 479,212 91,327

In the OLS’s FY 2017 Department of the Treasury Discussion Points, the OLS requested a

separate table be provided detailing EITC claims filed by month. The department stated a

table for the number of EITC claims filed each month for the last three tax years was being

developed, but would take some time to prepare.

• Questions: Please provide an update on the division’s EITC fraud prevention

efforts. Has the number of claims converting from “pending” to “paid” been in

line with division expectations for TY 2014 and TY 2015? Of the number of

pending claims outstanding for TY 2013, TY 2014, and TY 2015 what amount, in

accordance with GAAP principals, was accrued in FY 2015 and FY 2016 to account

for refund claims? When and on what basis will such accruals be reversed?

Answer: The EITC fraud screening program continues to request additional

documentation from certain taxpayers to validate their refund claims. The requested

documentation, with the exception of pay stubs, remains the same. The systemic

information available coupled with the W2’s allow for substantiation of the claim. The

number of claims that convert from “pending” to “paid” remains consistent with

expectations, with only a small percentage of taxpayers providing documentation to

substantiate their claim from one year to the next.

There were 2,398 pending EITC claims totaling $1.867 million at the end of FY 2016, of

which $1.087 million was accrued back to FY 2016. The table below breaks down the

corresponding amounts for TY 2015 ($1.027 million), TY 2014 ($0.047 million), and TY

2013 ($0.013 million).



16

Refund accruals for each year are reversed in the following year.

• Please provide a separate table which details EITC claims filed by month. Has the

division noticed any patterns in regard to when EITC claimants file? When do

EITC claimants receive their refund checks?

Answer: As the below table indicates, over 90% of all EITC claims are submitted during

the first four months of the processing season. EITC claimants typically receive their

refunds in the same timeframe as non-EITC filers, with the exception of those that

undergo a manual review. For Tax Year 2016, the Division generally has been able to

issue refunds within four weeks of return receipt.

EITC claim

filed

Tax

Year

2016

Tax

Year

2015

Tax

Year

2014

Tax

Year

2013

January 97,173 105,113 95,108 67,342

February 243,743 257,152 261,707 265,511

March 129,295 118,084 118,459 125,757

April 76,123 101,943 99,185 101,497

May 6,898 7,179 7,362

June 4,386 4,946 4,906

July 2,765 3,351 3,609

August 2,673 2,592 2,734

September 2,455 2,552 2,733

Count Request Amount Coefficient Accrual Amount

Tax Year 2013

FY 2014 79 50,968$ 16.8% 8,547$

FY 2015 5 3,919$ 24.9% 976$

FY 2016 29 6,186$ 61.7% 3,819$

Total 113 61,073$ 13,341$

Tax Year 2014

FY 2015 170 110,690$ 24.9% 27,563$

FY 2016 88 30,844$ 61.7% 19,041$

Total 258 141,534$ 46,604$

Tax Year 2015

FY 2016 2,027 1,664,334$ 61.7% 1,027,426$

Total 2,398 1,866,941$ 1,087,371$



17

October 5,840 5,891 5,672

November 1,015 947 897

December 536 610 681

• For all years since Tax Year 2010, please update the number of EITC claims: a)

filed, b) paid, and c) rejected or pending.

Answer:

Tax

Year

EITC Claims Filed EITC Claims Paid EITC Claims Rejected or

Pending

2010 547,108 493,603 53,505

2011 583,749 476,291 107,458

2012 585,106 486,437 98,669

2013 606,200 523,503 82,697

2014 616,405 538,258 78,147

2015 614,537 543,592 70,945

2016 546,334 430,238 116,096

8. In April 2014, the New Jersey Superior Court’s Appellate Division affirmed a Tax Court

judgment that allowed a nonresident limited partner to file for a corporation business tax

refund even though the nonresident limited partner refused to submit to New Jersey’s

jurisdiction to tax income from an interest in a limited partnership operating in New Jersey

(BIS LP, Inc. v. Director, Div. of Taxation, 2014 N.J. Tax LEXIS 6 (App.Div. Apr. 11, 2014)).

Underlying litigation had already allowed the nonresident limited partner to avoid corporation

business tax liability for its sole source of income, a 99 percent limited partnership interest

operating in New Jersey. In response to this case, New Jersey enacted P.L.2014, c.13, which

newly required nonresident partners to file a tax return as a prerequisite to receiving

refunds related to partnership activities in New Jersey. The Department of the Treasury

estimated informally at the time that the new requirement would result in an additional $40

million in FY 2015 State tax collections. However, the department was unable to update its

estimate last year since the return and payment processing for Tax Year 2015 was not

complete.

• Questions: How many additional tax returns has the division had to process

because of the law change? Did the new filing requirement increase FY 2015

State tax collections by $40 million, as initially projected?

Answer: The table below indicates the number of CBT returns filed and collections for

FY 2014 and FY2015. Although the total collections increased from FY 2014 to FY 2015,



18

the actual number of returns received decreased. The Division of Taxation is not able

to determine if these changes were directly related to the enactment of P.L.2014, c.13.

9. The Office of the Taxpayer Advocate (OTA) in the Division of Taxation is to help

enhance voluntary compliance with tax laws by simplifying tax administration procedures and

assisting taxpayers. Specifically, it is intended to identify systemic tax administration problems

encountered by taxpayers and recommend administrative and legislative solutions. The office

is also to assist taxpayers who: a) face a threat of immediate adverse action for a disputed tax

liability; b) believe that they did not receive adequate notification of the division’s actions or

that the division’s actions are unwarranted, unfair or illegal; c) suffer or are about to suffer

“undue hardship” resulting from the division’s administrative actions or d) have experienced

a delay of more than 75 days in their quest to resolve a tax account problem or obtain a

response to an inquiry from the division.

• Questions: How many taxpayers have contacted the OTA in FY 2016 and FY

2017 to date? How many cases has the OTA accepted for assistance in FY 2016

and FY 2017 to date and how many cases has the office closed? What taxes have

produced the most requests for OTA assistance in FY 2016 and FY 2017 to date?

For the last 12 months, please indicate: a) the systemic tax administration

problems encountered by taxpayers that the OTA has identified; b) the

recommendations the OTA has made to rectify them; and c) the changes in tax

laws, rules, and regulations that have been made subsequent to OTA

recommendations. What issues confronting taxpayers has the OTA identified

which would require legislative action to resolve?

Answer: During FY 2016 and FY 2017 (through 4/15/2017), OTA received 677 requests

for assistance from taxpayers. All requests have been met with some manner of

assistance. Only four of the cases remain open.

Of the cases received during FY 2016 and FY 2017 to date, 53% involved gross income

tax, 20.6% involved property tax relief programs (homestead benefit and PTR), 8.6%

CBT RETURNS FILED AND TAX COLLECTIONS FOR FY 14-15

FY14 RETURNS FILED 239,223

FY14 COLLECTIONS $2,041,983,592

FY15 RETURNS FILED 235,630

FY15 COLLECTIONS $2,279,618,828



19

involved corporation business tax, and 8.3% involved sales tax. The remaining 9.5%

involved numerous topics including inheritance tax, estate tax, and bulk sales.

The lOTA has identified issues surrounding innocent spouse relief under the Gross

Income Tax Act as an area that may warrant legislative attention.

10. The contours of the Governor’s proposed FY 2018 New Jersey Homestead Property

Tax Credit program (N.J.S.A.54:4-8.57 et seq.), renamed the Homestead Benefit Program

by the Administration, are largely unchanged from FY 2017. Overall, the Executive estimates

that 592,800 homeowners would collect an average $478 benefit in FY 2018, after estimating

that 645,700 homeowners would collect an average $474 benefit in FY 2017. Although the

program’s eligibility criteria have not changed since FY 2010, the number of claimants is

projected to fall by 346,300, or 34.9 percent, from 992,000 in FY 2010 to 645,700 in FY 2017.

Some 84,200 fewer seniors, or 16.4 percent, are projected to participate in the program in FY

2017 (429,800 participants) than in FY 2010 (514,000 participants). But the more significant

decline would be among non-seniors whose participation is projected to drop by 262,100

claims, or 54.8 percent, from 478,000 claimants in FY 2010 to 215,900 in FY 2017. For all

claimants combined, the Administration projects a further 8.2 percent contraction in FY 2018

to 592,800 participants. The department has conveyed that its own analysis suggests that

bracket creep is the primary driver of the erosion in program participation. Especially the

incomes of many former non-senior participants had grown beyond the $75,000 eligibility

threshold.

Under the program’s statutory structure, a homeowner’s credit amount is based on the

homeowner’s gross income and the homeowner’s property taxes paid in the last calendar year

up to $10,000. Credits equal 20 percent of allowable property taxes paid up to $10,000 for

incomes up to $100,000, 15 percent of allowable property taxes paid up to $10,000 for

incomes over $100,000 up to $150,000, and 10 percent of allowable property taxes paid up to

$10,000 for incomes over $150,000 up to $250,000. A homeowner who is disabled, blind or

65 years of age or older receives the higher of the payment to which the homeowner is entitled

under the above schedule or an amount equal to the amount by which property taxes paid in

a tax year exceed five percent of the claimant's gross income subject to the following ranges:

if the gross income is not over $70,000 the claimant receives a $1,000 to $1,200 benefit, if the

gross income over $70,000 but not over $125,000 the claimant receives a $600 to $800 benefit,

and if the gross income is over $125,000 but not over $200,000 the claimant receives a $500

benefit. Statutory tenant rebates in FY 2018 are $150 for all tenants with incomes up to

$100,000, with tenants who are blind, disabled or 65 years of age or older with incomes not

exceeding $70,000 receiving up to $850.

Relative to statutory provisions, the Governor’s FY 2018 Budget proposes to: a) eliminate

rebates for non-senior homeowners with incomes above $75,000 and senior homeowners with

incomes above $150,000; b) reduce rebates from 20 percent to 10 percent of property taxes



20

paid up to $10,000 for senior homeowners with incomes not exceeding $100,000 and for non-

senior homeowners with incomes not exceeding $50,000; c) reduce rebates from 20 percent

to 6.67 percent of property taxes paid up to $10,000 for non-senior homeowners with incomes

between $50,000 and $75,000; d) reduce rebates from 15 percent to 5 percent of property

taxes paid up to $10,000 for senior homeowners with incomes between $100,000 and

$150,000; e) eliminate the alternative benefit computation under which claimants who are

disabled, blind or 65 years of age or older receive the higher of the payment to which they are

entitled under the above schedule or an amount equal to the amount by which property taxes

paid in a tax year exceed five percent of the claimant's gross income subject to the ranges

indicated in the above paragraph; and f) maintain 2006 property taxes, as opposed to Tax

Year 2016 property taxes, as the basis for calculating homestead benefits. The Governor also

proposes continuing the elimination of the homestead property tax rebate program for

tenants.

• Questions: For FY 2017 Homestead Property Tax Credit distributions, please

provide the following data for the senior and non-senior homeowner

populations: 1) distribution of rebates by income brackets and 2) distribution of

rebates by rebate amounts.

Answer: Please see the attached charts, Treasury DP 10 2014 HR HOMEOWNER EXE

by income.xlsx X-1 (senior homeowners) and DP10 2014 HR HOMEOWNER NONEXE

by income.xlsx X-2 (non-senior homeowners), for these responses.

11. a. The Division of Taxation publishes an annual Statistics of Income report based on gross

income tax returns filed with the division. The personal income report includes a wealth of

information, such as the number of returns filed, the distribution and source of income, and

the total cost to the State of assorted exemptions, tax credits and deductions. In contrast, the

division does not disclose similar aggregate Corporation Business Tax (CBT) filing data. In

response to FY 2017 OLS Discussion Points, the division did, however, provide information on

Tax Year 2014 CBT filings, including an indication that 81.7 percent of CBT filers paid only the

statutory minimum tax amounts (92,787 out of 117,628 C corporation filers, or 78.9 percent,

and 89,057 out of 104,815 S corporation filers, or 85.0 percent, paid statutory minimum

amounts).

In response to those same discussion points, the division indicated that for Tax Year 2013 CBT

filings, 81.6 percent of CBT filers paid only the statutory minimum tax amounts (99,848 out of

126,430 C corporation filers, or 79.0 percent, and 91,927 out of 108,596 S corporation filers, or

84.7 percent, paid statutory minimum amounts). However, in response to FY 2016 OLS

Discussion Points, the division indicated that for Tax Year 2013 CBT filings, 90.4% of CBT filers

paid only the statutory minimum tax amounts (98,819 out of 120,401 C corporation filers, or

82.1 percent, and 106,234 out of 106,476 S corporation filers, or 99.8 percent, paid statutory

minimum amounts).



21

• Questions: For Tax Year 2014 and Tax Year 2015, please indicate: a) the

number of corporation business tax (CBT) return filers, segregated into at least

five net income brackets; b) the total net income that taxpayers in each bracket

declared; c) the total tax base; d) the total amount of tax they were charged;

and e) the effective tax rate for each bracket. What was the number and

percentage of CBT return filers paying the statutory minima? Please break out

the number of S corporations paying the statutory minima.

Answer: We strongly agree that a Statistics of Income report for the Corporation

Business Tax is in order and have made it a priority. We are in the process of

developing and creating a more proper Statistics of Income which will be provided

when completed. The attached file (Treasury DP 11a. CBT-SOI X-3) provides the

requested information. Please note that these charts represent the best information

currently available and may be subject to revision.

• Please explain the discrepancy in the data provided for Tax Year 2013 CBT filers

in response to FY 2016 OLS Discussion Points and FY 2017 OLS Discussion Points.

Specifically, what resulted in the reduction in the number of minimum filers from

90.4 percent (FY 2016 response) to 81.6 percent (FY 2017 response) of CBT filers?

Is this a regular occurrence?

Answer: We currently have this matter under review.

• Please provide data regarding the impact of tax credits, such as Grow New Jersey

Assistance Tax Credits, Economic Redevelopment and Growth Tax Credits, and

Business Employment Incentive Program Tax credits, specifically on CBT

collections.

Answer: A complete assessment of the impact of tax credits on Corporate Business

Tax is currently underway as an important aspect of producing a more robust and

detailed CBT SOI. See the response to question 17 for tax liability reductions

attributable to transferred tax credits.

11. b. The Corporation Business Tax on Banking and Financial Corporations (CBT B&F) is

imposed at a rate of 9 percent on net income or at the lesser rates provided under the CBT

for certain income thresholds. The CBT B&F generates a fraction of the “regular” CBT. The

division does not disclose aggregate CBT B&F filing data.

• Questions: For Tax Year 2014 and 2015, please indicate: a) the number of CBT

B&F return filers, segregated into at least five net income brackets; b) the total



22

net income that taxpayers in each bracket declared; c) the total tax base; d) the

total amount of tax they were charged; and e) the effective tax rate for each

bracket. Please display the data separately by banking corporations and by

financial corporations.

Answer: Please see the following chart.

Allocated Net Income Count Total Net Income Total Tax Base Total Amount Due Effective Tax Rate

<$100,000 21 681,291 681,291 67,100 9.8%

$100,000-$500,000 24 5,647,004 8,628,722 642,937 11.4%

$500,000-$1,000,000 8 6,362,533 6,362,533 572,628 9.0%

$1,000,000- $10,000,000 36 117,734,961 108,663,787 9,744,741 8.3%

$10,000,000-$100,000,000 9 383,925,703 395,021,244 27,456,321 7.2%

>$100,000,000 3 387,344,399 384,686,140 26,909,562 6.9%

Totals 101 901,695,891 904,043,717 65,393,289


<$100,000 31 1,033,565 944,380 109,109 10.6%

$100,000-$500,000 17 4,110,005 4,110,005 369,901 9.0%

$500,000-$1,000,000 9 7,070,700 6,363,734 552,012 7.8%

$1,000,000- $10,000,000 22 70,401,113 67,533,956 6,336,100 9.0%

$10,000,000-$100,000,000 8 156,389,494 138,480,264 12,338,224 7.9%

>$100,000,000 2 282,069,565 281,870,332 25,368,330 9.0%

Totals 89 521,074,442 499,302,671 45,073,676

CBT - Financial Institutions (TY 2014)

CBT - Banks (TY 2014)



23

Please note that these charts represent the best information currently

available and may be subject to revision.

12. The Realty Transfer Fee (RTF) has four components: the basic fee, the additional fee,

the general purpose fee, and the supplemental fee. Each component of the RTF imposes a fee

of a specified amount per $500, or fractional part thereof, of the property’s selling price. Both

the basic fee and the additional fee impose a flat fee consistently per each $500 increment of

the entire amount of the property’s selling price to which the fee applies. In contrast, the

general purpose fee and the supplemental fee have graduated structures in which the

applicable rate imposed per $500 segment increases at certain thresholds as the selling price

increases.

Moreover, not all of the fees are imposed on every sale or on every “dollar” of the selling price:

the additional fee is imposed only on that portion of the selling price, if any, that exceeds

$150,000, while the general purpose fee is only imposed if the selling price of the property

exceeds $350,000. In addition, there are several partial and full exemptions. Among them,

sellers who are 62 years of age or older, blind, or disabled at the time of selling a one- or two-

family residential property pay a reduced rate basic fee and no supplemental fee.

Further, P.L.2004, c.66 and P.L.2006, c.33 established and expanded a separate one-percent

assessment on certain residential and commercial properties selling for more than $1 million.


<$100,000 19 785,729 785,729 70,255 8.9%

$100,000-$500,000 26 6,511,295 6,511,295 586,015 9.0%

$500,000-$1,000,000 7 5,448,356 5,448,356 407,715 7.5%

$1,000,000- $10,000,000 43 144,812,472 144,690,633 12,897,161 8.9%

$10,000,000-$100,000,000 6 137,461,875 137,461,875 12,371,569 9.0%

>$100,000,000 8 1,249,418,314 1,249,045,012 87,918,184 7.0%

Totals 109 1,544,438,041 1,543,942,900 114,250,899


<$100,000 24 731,005 731,005 84,461 11.6%

$100,000-$500,000 17 4,860,138 4,830,753 434,767 8.9%

$500,000-$1,000,000 4 2,926,785 2,926,785 263,411 9.0%

$1,000,000- $10,000,000 25 79,131,645 79,131,645 7,121,846 9.0%

$10,000,000-$100,000,000 7 202,486,513 202,486,513 18,223,786 9.0%

>$100,000,000 1 136,221,692 136,088,128 12,247,932 9.0%

Totals 78 426,357,778 426,194,829 38,376,203

CBT - Financial Institutions (TY 2015)

CBT - Banks (TY 2015)



24

Revenues from the RTF fund both county and State government purposes, while revenues

from the one-percent assessment accrue exclusively to the State.

In regard to commercial properties, numerous nationwide retail companies have announced

a rash of brick-and-mortar retail store closing in recent months. Commercial real estate

market observers, for their part, are concerned about a bubble in the retail segment of the

commercial real estate market and a significant pending retrenchment.

• Questions: Please provide a table which displays the total amount of

properties sold with a total consideration below $350,000, between $350,000 and

$1,000,000, and $1,000,000 and above for FY 2016 and year-to-date FY 2017. In

each of those years, how many individuals received partial exemptions due to

age or disability?

Answer:

Realty Transfer Fee Request

Fiscal Year 2016

Sales under $350,000 158,515 Senior Exemptions Count 13,203

Sales between $350,000 and $1,000,000 45,577 Disabled Exemptions Count 684

Sales over $1,000,000 6,006 Total: 13,887

Total: 210,098

Fiscal Year 2017 YTD

Sales under $350,000 119,554 Senior Exemptions Count 10,004

Sales between $350,000 and $1,000,000 35,630 Disabled Exemptions Count 514

Sales over $1,000,000 4,488 Total: 10,518

Total: 159,672

• For FY 2016 and year-to-date FY 2017, please provide the amount of revenue

generated by the residential portion of the one-percent assessment on properties

over $1 million and a separate accounting for the commercial segment. For both

the residential and commercial segments, how many buyers were subject to the

one-percent assessment for those years?

Answer:

RTF Revenue from One-Percent Assessment on Properties over $1M



25

Actual RTF Revenue Fiscal Year 2016

Estimate Number of

Buyers FY16

Actual RTF Revenue Fiscal Year through March 2017

Estimate Number of Buyers FY17

$119,878,504.00 4,644 $111,835,111.00 3,426

78% Residential 3,605 80% Residential 2,732

22% Commercial 1,039 20% Commercial 694

Note: A breakdown of actual revenue totals by residential and commercial sales is not available.

• To what extent do transactions in the retail segment of the commercial real

estate market contribute to collections of the RTF and the one-percent

assessment on certain properties selling for more than $1 million? How does the

department assess the probability of a downturn in the retail real estate market

in the next two years? If the annual sales volume in that market segment were

to drop by ten percent, what would be the effect on collections of the RTF and

the one-percent assessment?

Answer: The retail market makes up approximately 20% of the total Grantor Fee. For

the Grantee Fee, or 1% fee, the retail market makes up approximately 22% of the total.

There is not a direct percentage reduction between the collections and the market

segment if sales decrease by 10%. However, if the annual sales volume falls, so do

collections. The Grantor Fee has too many monetary tiers for accurate predictions.

13. The Alcoholic Beverage Tax is applied to the first sale or delivery of alcoholic beverages

to retailers in New Jersey and is paid by manufacturers, wholesalers and State beverage

distributors. The tax is imposed at the following rates: beer - $0.12 per gallon; liquor - $5.50

per gallon; wines, vermouth and sparkling wines - $0.875 per gallon; and apple cider (cider

containing between 3.2 percent and 7.0 percent of alcohol by volume) - $0.15 per gallon.

• Questions: For the last five fiscal years, please provide a table which displays

the revenues collected for each type of alcoholic beverage listed above. Do the

data suggest a change in the alcoholic beverage preferences of consumers or are

the rates of change in revenue accruing from the different types of alcoholic

beverages roughly similar?

Answer: The table below indicates that overall revenue for the five-year period from

FY12-16 has increased at a fairly constant rate.

ALCOHOLIC BEVERAGE TAX REVENUE FY12-16

FY16 FY15 FY14 FY13 FY12



26

BEER $16,693,814.18 $16,408,514.36 $16,696,337.88 $16,751,577.39 $17,280,831.20

LIQUOR $91,907,062.87 $91,030,011.11 $90,280,380.85 $89,152,376.05 $88,609,096.16

STILL WINE $28,763,421.45 $28,855,510.17 $28,804,653.33 $28,913,794.76 $28,189,420.26

STILL WINE (LOCAL) $381,465.33 $332,909.71 $298,824.57 $277,884.46 $243,123.99

VERMOUTH $107,735.36 $112,196.64 $111,156.90 $122,988.45 $124,757.21

SPARKING WINE $1,263,688.23 $1,206,236.75 $1,146,156.61 $1,109,460.09 $1,061,291.12

APPLE CIDER $99,110.89 $99,320.35 $73,187.07 $42,257.86 $21,445.89

TOTAL $139,216,298.31 $138,044,699.09 $137,410,697.21 $136,370,339.06 $135,529,965.83

14. The Tobacco Products Wholesale Sales and Use Tax is imposed on the receipts from

every sale of tobacco products, other than cigarettes, by a distributor or a wholesaler to a

retail dealer or consumer. The tax is imposed at the rate of 30 percent on the invoice price

the distributor pays to buy the products from the manufacturer. Additionally, distributors and

wholesalers who sell tobacco products at retail or otherwise use the tobacco products must

pay a compensating use tax of 30 percent measured by the sales price of a similar tobacco

product to a distributor.

Separate from the 30 percent tax rate, the sale, use, or distribution of moist snuff within this

State by a distributor or wholesaler to a retail dealer or consumer is taxed at the rate of $0.75

per ounce on the net weight as listed by the manufacturer and a proportional rate on all

fractional parts of an ounce of the net weight of moist snuff.

• Questions: For the last five fiscal years, please provide a table which displays

the revenues collected for tobacco products subject to the tax and for moist

snuff. Do the data suggest a change in the tobacco product preferences of

consumers or are the rates of change in revenue accruing from the different types

of tobacco products roughly similar?

Answer: The table below indicates that overall revenue for the five-year period from

FY 2012-FY 2016 has increased at a fairly constant rate.

15. The Motor Fuel Tax (MFT) and the Petroleum Products Gross Receipts Tax (PPGRT)

both tax mainly fuel consumed in highway vehicles, but also fuels used for other purposes. It

would seem that the most important tax expenditure under the MFT, given New Jersey’s

TOBACCO PRODUCTS WHOLESALE SALES AND USE TAX REVENUE FY12-16

FY16 FY15 FY14 FY13 FY12

TPT Sales Excluding Moist Snuff $ 15,960,641.78 $ 15,839,665.79 $ 15,516,305.38 $ 14,923,798.88 $ 14,965,811.36

Tax Due on Moist Snuff $ 7,207,956.09 $ 6,772,896.05 $ 6,657,763.87 $ 6,314,271.64 $ 5,316,814.17

Total TPT Revenue $ 23,168,597.87 $ 22,612,561.84 $ 22,174,069.25 $ 21,238,070.52 $ 20,282,625.53



27

network of General Aviation Airports (GAAs) and its three international Jetports, is the

exemption of fuel used by interstate commercial carriers. The State Tax Expenditure Reports

for FY 2017 and FY 2018 report this amount as $0. Federal law imposes a 2 cents per gallon

tax on GAA aviation fuel sales. Federal regulations on the expenditure of state taxes collected

at airports require a meticulous accounting of these revenues. Also, the PPGRT on the

“burnout” portion should be available, under the same federal rules. This will lead into a

measure of the fuel used by common carriers not included in the PPGRT.

• Questions: For the last three fiscal years, please provide component data for

the MFT and the PPGRT. What revenues are derived from the MFT and PPGRT

on gasoline, and what is the gallonage involved? What revenues are derived from

the MFT and PPGRT on diesel, and what is the gallonage involved? Please

provide data for aviation fuel, the gallonage and revenue forgone as a result of

the exemption for aircraft, and the PPGRT burnout portion. Also, please provide

figures or reasonable estimates, for fuel use by maritime endeavors, farms, buses,

and non-highway equipment. Under the PPGRT, please provide information on

the relative weights of petroleum fractions that are not vehicle fuels, or cracking

distillate outputs involved.

Answer: Please note that the answers are indicated in the tables below along with

the four notes provided. Data for FY 2017 on all tables is for July 2016-February

2017.

PGRT

Gas & Diesel (1) Taxable Burnout of Avfuel (2)

FY Gallons Tax Gallons Tax

2014 4,904,342,211 $196,173,688 40,789,461 $1,631,578

2015 4,932,334,351 $197,293,374 39,668,416 $1,586,737

2016 4,706,310,623 $188,252,425 41,403,493 $1,656,140

2017 1,816,806,837 $220,633,154 22,319,131 $892,765

MFT Refund issued

FY Busses (3) Tractors/Farm Machinery (3) Non-Highway Equipment (3)

Motor Fuel Tax

Gas Diesel

FY Gallons Tax Gallons Tax

2014 4,085,541,685 $428,981,876.92 810,878,331 $109,468,574.63

2015 4,149,403,747 $435,687,393.47 836,723,499 $112,957,672.35

2016 4,236,352,131 $444,816,973.74 899,219,614 $121,394,647.84

2017 2,723,718,552 $285,990,447.99 559,763,281 $75,568,042.89



28

2014 $906,011.35 $15,881.49 $411,136.32

2015 $834,452.39 $13,328.99 $480,679.90

2016 $1,045,867.76 $13,754.73 $728,224.98

2017 $693,546.90 $9,628.26 $539,248.33

1. PGRT Data for Gasoline and Diesel is not available individually. Data provided includes both gasoline and diesel fuel.

2. PGRT Data for revenue foregone as a result of the exemption for aircraft is not available. Data provided indicates revenue generated from the burnout portion.

3. Estimates for Busses, Tractors/Farm Machinery and Non-Highway Equipment is based on refunds issued and only reflect claims submitted for motor fuels. PGRT data is not available. Data for fuel used by maritime endeavors is not available.

4. Data is not available on the relative weights of petroleum fractions that are not vehicle fuel, or cracking distillate outputs involved.

16. The Insurance Premiums Tax is imposed on net premiums collected by every stock,

mutual and assessment insurance company transacting business in New Jersey. With a few

exceptions, the tax rate is equal to 2 percent of the premiums collected on insurance risks in

this State. Some exceptions include group accident and health insurance premiums which are

taxed at a rate of 1 percent and 5 percent for surplus lines coverage. Another 0.05 percent is

imposed on group accident and health premiums; while another 0.1 percent is imposed on all

other insurance premiums (those revenues are dedicated to the Department of Banking and

Insurance). If for any insurance company, the ratio of New Jersey business to total business is

greater than 12.5 percent, the tax is imposed on only 12.5 percent of that company’s total

premiums.

Additionally, a retaliatory tax is imposed against foreign insurance companies doing business

in New Jersey where the foreign company’s state, country, or province imposes an overall tax

on New Jersey insurance companies doing business in that jurisdiction higher than the tax

New Jersey imposes on the foreign company doing business in New Jersey.

• Questions: Please provide component data for the Insurance Premiums Tax by

line of insurance for FY 2014, FY 2015, and FY 2016. Specifically, please provide

the number of taxpayers, total net premiums, and revenues generated by line of

insurance. Which lines of insurance during the past three fiscal years have been

most volatile in terms of gross and net contract premiums? How many taxpayers

exceed the 12.5 percent threshold and what is the estimated value of the 12.5

percent premium cap?

Answer: The attached tables show the requested information.

See attachments:



29

Treasury DP 16 FY2014 Component Summary



• Please provide data regarding the impact of tax credits, such as Grow New Jersey

Assistance Tax Credits, Economic Redevelopment and Growth Tax Credits, and

Business Employment Incentive Program Tax credits, on Insurance Premiums Tax

collections. To what extent are insurance companies purchasing tax credit

transfer certificates from other corporations?

Answer: A complete assessment of the impact of tax credits on Insurance Premium

Tax collections is underway. See response to Question 17 for tax liability reductions

attributable to transferred tax credits.

• What impact has the federal Affordable Care Act had on Insurance Premiums Tax

collections?

Answer: The Department of the Treasury does not have data to measure such an

impact.

17. Taxpayers awarded certain State tax credits may apply for a tax credit transfer

certificate with the Division of Taxation. Tax credit transfer certificates allow businesses in New

Jersey with unused tax credits to sell those tax credits for use by other CBT or insurance

premiums taxpayers. The tax credits may then be used against the CBT or insurance premiums

tax liabilities of the taxpayers who purchase the transferred tax credits.

• Questions: Please provide details regarding the approval process for tax credit

transfer certificates. For each of the past three tax years, how many tax credit

transfer certificates were approved? Please provide the value of approved tax

credit transfer certificates for taxpayers with CBT tax liabilities, and for taxpayers

with insurance premiums tax liabilities. For both the CBT and the insurance

premiums tax, over the last three tax years, what was the magnitude of tax

liability reductions attributable to the transferred tax credits? For which

incentive program are the most tax credit transfer certificates approved? By

incentive program, please provide the percentage of tax credits awarded through

the New Jersey Economic Development Authority that is being transferred.

Answer: The New Jersey Economic Development Authority processes approvals for

transfer certificates. Upon receipt of the approval, the Division of Taxation confirms

that the grantee/developer and transferee have tax clearance and are in compliance

pursuant to the enabling legislation, P.L. 2014, c. 63. In addition, staff reviews the



30

grantee/transferee’s agreement to determine the terms and percentage of the amount

of tax credits to issue. After submitting a certification letter to the director for approval

showing that the grantee and transferee are eligible to receive tax credits, the Division

prepares, seals and issues the transfer certificate(s).

The number of tax credit transfer certificates issued by the Division of Taxation for the

past three tax years for the Urban Transit Hub Tax Credit, Grow NJ, Residential

Economic Growth Grant and the Business Retention and Relocation Assistance Grant

(BRAGG), and the value of approved tax credit transfer certificates for taxpayers with

CBT tax liabilities, and for taxpayers with insurance premiums tax liabilities were:

Year Number of tax

credit

certificates

issued

Value of CBT

Credits issued

Value of CBT-

Banking Credits

Issued

Value of IPT

Credits issued

2013 8 $9,573,895.00 $2,712,190.00 $9,112,810.00

2014 26 $21,243,665.70 $5,712,190.00 $24,068,616.00

2015 48 $34,716,800.40 $5,026,437.00 $48,847,061.00

2016 55 $10,404,239.00 $11,362,437.00 $64,591,218.60

The tax liability reductions attributable to transferred tax credits for the past three years

is below. Please note that tax year 2016 information is not yet available.

Year Magnitude of Tax

Liability Reduction

for CBT

Magnitude of Tax

Liability Reduction

for CBT-Banking

Magnitude of Tax

Liability Reduction

for IPT

2013 $8,192,645.00 $2,712,190.00 $6,546,036.00

2014 $11,442,645.00 $5,712,190.00 $17,186,786.00

2015 $5,031,363.00 $5,026,437.00 $47,998,938.00

The Unused Technology Benefit Tax Credit, followed by the Urban Transit HUB Tax

Credit (UTHTC), have had the most tax credit transfer certificates issued. Over the past

three years, UTHTC and Grow New Jersey (Grow NJ) have had an equal amount of tax

credit transfer certificates issued. It is anticipated that going forward GROW NJ will

have the most tax credit transfer certificates issued.

DIVISION OF PROPERTY MANAGEMENT AND CONSTRUCTION

18. Last November, the Governor announced that the New Jersey State House would

undergo a four-year renovation totaling $300.0 million. The Governor’s Office provided a



31

preliminary outline for the State House renovations, which included a new heating ventilation

and air conditioning system (HVAC); electrical, mechanical, lighting, telephone and data

upgrades; bringing the State House in compliance with the federal Americans with Disabilities

Act; making security upgrades; and fixing water infiltration which is deteriorating the building.

According to a spokesman for the department, the State is planning to bond for the $300.0

million renovation and the department is said to be working with the New Jersey Economic

Development Authority (EDA) and stakeholders to plan the financing for the project. The

proposed four-year renovation follows a $37.9 million Executive State House Exterior Envelope

Renovation project begun in 2013, which was intended to eliminate water infiltration issues,

replace roofs, repair fire escapes, and replace window air conditioning units with an alternate

HVAC system.

The design team of Preservation Design Partnership (PDP) and Nelson was selected to provide

the architectural and engineering services for the 2013 Executive State House Exterior

Envelope Restoration project. According to PDP’s website, the team has since developed

concept planning and programming involving both the exterior and the interior scopes of the

current $300 million renovation project. PDP is serving as the design lead and historic

preservation expert while Nelson is the administrative lead and contract holder. PDP and

Nelson were retained after the Division of Property Management and Construction, in

collaboration with the New Jersey Building Authority, issued a Request for Proposal (RFP)

seeking a design company to evaluate the executive portion of the State House.

• Questions: Please provide a detailed project plan and timeline for the State

House renovation project.

Answer: A detailed project plan is not yet available. The project is anticipated to take

4-5 years to complete.

• Please provide a detailed finance plan, including the use of previously secured

bond funds from the Executive State House Exterior Envelope Restoration

project.

Answer: A detailed finance plan is not yet available.

• Please provide an accounting of previously secured bond funds for the Executive

State House Exterior Envelope Restoration project, such as the total initial project

budget, amounts expended and committed to date, and their specific purposes,

and amounts projected to be left over to support the $300 million renovation

project.

Answer: The 2012 Executive State House Exterior Project Bond issuance totaled

$37,900,000.00 and was generally intended to fund the exterior envelope restorations



32

and repairs including the assessment and design of the interim exterior repairs, interim

repairs to address safety and code compliance including removal and replacement of

fire escapes, removal of chimneys and urns from the Executive State House (ESH) roof

elevations, shoring of a collapsed walkway (ESH front left elevation), and shoring of

Governor’s wing to limit further damage.

As of April 2017, work related to the exterior that is completed or underway includes:

Removal of exterior fire escape Stair Towers 1 and 2 and replacement with a

temporary stair structure as well as work to secure portions of the foundation,

walkway lighting, repair of underground sprinkler main, and the structural shoring

of exterior fire escape Stairs 3 and 4 at a cost of $1,725,626.

Provide shoring of the area-way at the front of the Executive State House, as well

as deconstruction and removal of ten chimneys and urns at a cost of $740,162.

• Please provide a description of the division of labor as it relates to project

management responsibilities between the Division of Property Management and

Construction and the New Jersey Building Authority for the State House

renovation project.

Answer: DPMC will be the primary contracting authority and will rely on the NJBA’s

experience in the project to assure the project will be completed timely and in a cost

efficient manner. The NJBA will provide contract administration, contract compliance,

and project management for the State House project.

• Will the contract for architectural and engineering services for the expanded

$300 million renovation project be issued for public bid, or will the scope of work

of the initial Executive State House Exterior Envelope Restoration project be

expanded so as to retain PDP/Nelson as the contractor for architect and

engineering services for the expanded renovation project?

Answer: A quote has been requested from Nelson/PDP for design of the full

renovation. All remaining construction elements will be issued for public bid.

19. Among its total capital assets, the State has considerable land holdings, valued by the

FY 2016 Comprehensive Annual Financial Report at about $5.22 billion (Land and Easements,

page 26). Land and easements may be held for future use, restricted as to future uses, or not

needed for public purposes and available for sale, lease or other disposition. Knowledge about

the extent, location, condition and intended use of these properties and property rights does

not appear to be readily available. There could be potentially beneficial uses of some



33

properties, other than those intended by the state agency in control of the properties,

depending on the size, location and condition of those properties.

• Questions: (Please answer the following questions exclusively for properties

under the ownership and control of the department that are being used by the

department in furtherance of its mission. Please disregard all properties that are

owned by the department but that are used by other State agencies.) Please list

each property under ownership or control of the department comprising

unimproved or vacant land one acre or more in size, excluding land comprising

all or part of a State park, recreation or wildlife management area, identifying

each property by county and municipal location, street address, tax map block

and lot number and, if available, Global Positioning System coordinates. Please

provide the size of the property, its current use, intended future use within the

next five years, and any known or suspected environmental contamination that

would impede its future use. Please also describe any deed restrictions affecting

current and future use. What are the department’s policies and procedures for

determining future uses of its land holdings that further the department’s

mission, and for allowing beneficial uses of its land in ways that are outside the

department’s traditional mission?

Answer: Please see the “vacant land list” spreadsheet attachment for the listing of

each requested property which are all over one acre parcels that are under ownership

or control of the Department. All of the properties listed are unused vacant parcels

and the intended future use of each is unknown at this time, as are environmental

concerns. Each property is thoroughly researched once it has been declared surplus.

The deed is also then reviewed for any restriction or reverter clauses.

The Department of the Treasury, in accordance with Circular Letter 08-06-PMC/OMB

and N.J.S.A. 52:31-1.1, coordinates the sale of surplus state owned real property. Once

a property has been declared surplus to an agency or department’s needs, a Real

Property Review form is submitted to the Office of Real Property Acquisition and

Disposition, whereby it is determined if the property is sellable. If the property is

marketable, the proposed disposal is then circulated to various departments and

agencies for review and comment. In accordance with N.J.S.A. 52:31-1.1, the notice of

proposed disposal is also provided to the local municipality. If there are no conflicts

of interest in the proposed sale, a clearance letter is issued and the property can then

be sold, in accordance with the terms and conditions which are set by the State House

Commission.

UNCLAIMED PROPERTY ADMINISTRATION



34

20. The State Auditor issued a report on January 19, 2017 regarding unclaimed life

insurance benefits. According to the report, insurance companies are currently the subject of

several multi-state investigations for their use of the Social Security Administration’s Death

Master File or other similar databases to identify deceased policyholders to stop annuity

payments but not to identify unclaimed life insurance benefits. Also under scrutiny are certain

companies’ practices to terminate life insurance policies for non-payment once they stop

receiving premiums from the deceased policyholder or once the accumulated cash value of

the policy has been depleted without attempting to contact the beneficiary.

These investigations have resulted in dozens of multi-state Regulatory Settlement Agreements

(RSAs) with the industry. Under the agreements, insurance companies have committed

themselves to altering some of their practices regarding unclaimed life insurance benefits and

have paid out billions in previously unclaimed benefits to their lawful beneficiaries with

hundreds of millions in additional unclaimed life insurance benefits escheating to the

respective states’ Unclaimed Property Administrator (UPA).

Under current New Jersey law and regulations, insurance companies are only obligated to pay

life insurance death benefits after a claim has been submitted by a designated beneficiary

along with the policyholder’s proof of death.

• Questions: To what extent, if any, have the multi-state RSAs concerning the

treatment of unclaimed life insurance benefits by insurance companies changed

the escheatment process and requirements for unclaimed life insurance benefits

for signatory companies?

• To what extent, if any, have the RSAs increased the enforcement responsibilities

and general workload of the Unclaimed Property Administration?

• Has the Unclaimed Property Administration recorded an increase in escheated

life insurance benefits attributable to the RSAs? If so, what was the dollar

amount of the additional escheated benefits in each fiscal year since FY 2010?

What provisions of the agreements account for the growth in escheated life

insurance benefits?

• By what dollar amount does the Unclaimed Property Administration project will

annually escheating life insurance benefits increase in the next five fiscal years

because of the RSAs relating to unclaimed life insurance benefits?

• Please provide the dollar amount of unclaimed life insurance benefits that

escheated to the State in every year since 2005.



35

Answer: The Unclaimed Property Administration (“UPA”) does not participate in the

multi-state RSA’s.

Regarding dollar amounts for unclaimed life insurance, Treasury cannot provide those

figures. Under N.J.S.A. 46:30B-76.1, “any record or information other than name and

address is deemed confidential when revealed or delivered to the administrator and

shall not be considered a public record under section 2 of P.L.1963, c.73 (C.47:1A-2).”

DIVISION OF INVESTMENT

21. The State Investment Council (SIC) adopts investment policies and procedures for the

various State public employee retirement funds and functions like a board of directors in

overseeing the Division of Investment. The division, in turn, implements the council’s

investment policies and runs the day-to-day operations of the portfolio. For each fiscal year,

the SIC adopts within a regulatory framework an asset allocation plan that sets targets for

the percentage of the portfolio that ought to be invested in specific asset classes, such as fixed

income and domestic equities. As of December 31, 2016, the State retirement funds had a net

value of $71.2 billion.

The division continues to invest a gradually increasing share of the portfolio in alternative

assets (hedge funds, private equity, real estate, and commodities). As of June 30, 2016, the

value of the Alternative Investment Program was $24.0 billion, some 32.9 percent of the

portfolio. This figure falls under the 38 percent regulatory allocation ceiling for all alternative

assets combined (N.J.A.C.17:16-69.9). The maximum allocation for hedge funds is 15 percent

of the portfolio, for private equity firms 12 percent, for real estate nine percent, and for

commodities seven percent.

In terms of performance, in FY 2016, the division’s pension fund investment portfolio posted

a -0.9 percent rate of return, underperforming its benchmark by over 1.1 percent. The

division’s hedge fund portfolio returned -5.13 percent, while the benchmark returned -5.94

percent; the return on U.S. Equities was -1.58 percent compared to the benchmark return of

3.64 percent; and the real estate portfolio performed at 9.86 percent compared to the

benchmark return of 12.62 percent.

• Questions: What elements of the division’s stock selection for the U.S. Equities

portfolio contributed to the portfolio’s underperformance relative to the

benchmark? What adjustments has the division made in response to the FY 2016

underperformance of its U.S. Equities portfolio?



36

Answer: In managing the U.S. equity portfolio, the Division emphasizes valuations

and fundamentals. FY 2016 was a challenging investment environment, as investors

sought higher yields in the midst of accommodative global monetary policies,

historically low interest rates, and fears of a U.S. recession. As a result, high dividend

yielding stocks performed well despite trading at high multiples relative to historical

norms and having lower earnings growth expectations relative to the broader market.

Despite the short-term underperformance in FY 2016, the U.S equity portfolio

continues to outperform over longer periods of time.

The Division remains committed to an investment process that emphasizes traditional

valuations metrics and fundamentals. As recession fears faded, the market shifted its

focus from income to valuations and earnings growth expectations. The allocation to

Consumer Discretionary and Information Technology sectors was increased to position

the portfolio to benefit from improving U.S. economic growth prospects. Meanwhile,

the portfolio was underweight in the Utilities and Consumer Staples sectors due to

high valuations and low earnings growth projections. Performance of the U.S. equity

portfolio has been strong in FY 2017, returning 16.5% through March, compared to

14.7% for the benchmark.

• Please explain the loss-generating performance of the division’s hedge fund

portfolio. What actions, if any, does the division intend to take in regard to its

hedge fund portfolio?

Answer: The hedge fund portfolio is comprised of three main categories: Risk

Mitigating, Credit Oriented, and Equity Oriented. While Risk Mitigating and Credit

Oriented posted modestly negative returns during the fiscal year, the Equity Oriented

category impacted performance most significantly, with a -13% return during the

year. This weak performance was broad-based, with both diversified and sector-

specialist equity long/short and event-driven managers all posting negative

returns. While U.S. stocks had a gain over the year, non-US equities and emerging

market equities, which represent a substantial portion of external equity oriented

manager exposure, had sharp losses. Managers with overweight exposure in

technology, healthcare, and financials suffered as investors favored slower-growth

yield-oriented sectors, which typically are under-represented in hedge fund portfolios.

The Division is reducing the size of the hedge fund portfolio by over 50% by

eliminating beta-oriented equity strategies and reducing credit hedge fund

strategies. Going forward, the portfolio will be more focused on risk-mitigating

strategies designed to generate alpha in all market conditions and provide better

downside protection for the total pension fund. Additionally, the Division is working

to significantly reduce the costs associated with hedge fund investments to bolster net



37

returns, in part through the implementation of the Fund Alignment Incentive Reform

(FAIR) program.

• Please provide a list of foreign real estate investments.

Answer: The Division’s real estate investments are held in fund structures in which

New Jersey is a limited partner alongside other investors.

The following real estate funds, in which New Jersey is a limited partner, invest

exclusively in foreign real estate:

Fund Name

M&G Real Estate Debt Fund II, LP

M&G Real Estate Debt Fund III, LP

ARA Asia Dragon Limited

Blackstone Property Global – NJ

Blackstone Real Estate Partners Asia LP

Meyer Bergman Euro Retail Partners II-TE

Perella Weinberg Real Estate Fund II LP

Perella Weinberg Real Estate Fund III LP

Prologis European Properties Fund II

RE Capital Asia Partners III, L.P.

RE Capital Asia Partners IV, L.P.

Warburg Pincus Real Estate Fund I

The following real estate funds, in which New Jersey is a limited partner, invest in

both US and foreign real estate with varying amounts of foreign properties:

Fund Name

Lone Star Fund VII (U.S.) LP

Och-Ziff RE Credit Parallel Fund B, L.P.

Blackstone Real Estate V

Blackstone Real Estate VI

Blackstone Real Estate Partners VI, Sec

Blackstone Real Estate VII

Blackstone Real Estate VIII

Lone Star Real Estate Fund II (U.S.) LP

NJDOI/GMAM Opp RE Investment Program

Northwood Real Estate Co-Invest

Northwood RE Partners L.P. (Series III)



38

Northwood RE Partners L.P. (Series IV)

OZNJ Real Estate Opportunities, LP

Och-Ziff Real Estate Fund III, LP

TPG Real Estate Partners II, L.P.

Westbrook Real Estate Fund VIII

Westbrook VII

OFFICE OF THE PUBLIC DEFENDER

22. Pursuant to P.L.2014, c.31, and effective January 1, 2017, prosecutors are permitted to

make motions to preventatively detain defendants charged with disorderly persons offenses

in certain circumstances. Although indigent defendants charged with disorderly persons

offenses would traditionally be represented by municipal public defenders in municipal court,

all preventative detention hearings take place in the Superior Court of New Jersey. As a result,

there have been disagreements regarding whether the responsibility to represent these

defendants at the detention hearing falls to municipal public defenders or the Office of the

Public Defender (OPD).

The Governor’s FY 2018 Budget Recommendation includes a $1.05 million increase for OPD –

Salaries and Wages (page D-415). Budget information ascribes the increase to bail reform

effected under P.L.2014, c.31. Moreover, budget information indicates that the number of

funded full-time equivalent positions for OPD’s Trial Services to Indigents is recommended to

increase from 676 in FY 2017 to 699 in FY 2018.

• Questions: Please explain how the OPD intends to use the additional $1.05

million recommended for Trial Services to Indigents Salaries and Wages because

of bail reform. Will the additional $1.05 million allow the OPD to represent

indigent defendants charged with disorderly persons offenses at preventative

detention hearings? Please provide the number of preventative detention

motions made for defendants charged with disorderly persons offenses.

Answer: The OPD intends to use the $1.05 million increase for staff needed to provide

representation to its clients under the new system of pre-trial release and speedy trial.

The FY2017 Appropriations Act provided the OPD with funding for the period of

January 1 to June 30, 2017, and the additional FY2018 amount is required to annualize

the cost for 12 months. The Public Defender is in the process of hiring new attorneys

and investigators to meet these needs now that the law is in effect and he has had

three months to gauge the increased workload for OPD.



39

The additional funding will allow the OPD to provide representation at preventative

detention hearings for indigent defendants charged with disorderly persons offenses

in FY 2018.

Regarding motions, the Administrative Office of the Courts is maintaining the data.

The OPD is awaiting March 2017 data. Based on preliminary data, which is still in the

process of validation from January and February numbers, it appears that the

prosecutors moved for pre-trial detention in approximately 284 cases in which the

most serious offense charged against the defendant was a disorderly persons offense.

CBT-SOI X-3

Year and allocated net incomeNumber of

returns

Allocated

net income

(millions $)

Tax base

(millions $)

Tax due

(millions $)

Tax due as %

of ANI

Number

paying AMA

Percent

paying AMA

(1) (2) (3) (4) (5) (6) (7)

All returns ........................................ 95,434 19,268 18,720 1,572 8.2% 56,401 59.1%

Zero net income ............................... 52,955 - 2 59 N/A 37,949 71.7%

$1 under $100,000 ............................ 22,851 308 306 32 10.5% 13,376 58.5%

$100,000 under $500,000 ................... 6,023 357 357 34 9.4% 2,389 39.7%

$500,000 under $1,000,000 ................ 2,335 232 237 22 9.3% 765 32.8%

$1,000,000 under $3,000,000 ............. 3,669 654 646 55 8.4% 855 23.3%

$3,000,000 under $5,000,000 ............. 1,486 426 396 36 8.5% 283 19.0%

$5,000,000 under $10,000,000 ........... 1,725 730 723 62 8.6% 274 15.9%

$10,000,000 under $100,000,000 ........ 3,288 4,425 4,068 325 7.3% 383 11.6%

$100,000,000 under $1,000,000,000 ... 842 6,225 6,064 503 8.1% 90 10.7%

$1,000,000,000 or more ..................... 260 5,911 5,920 444 7.5% 37 14.2%

All returns ........................................ 112,353 33.3 4.3 0.4 1.3% 75 0.1%

Zero net income ............................... 111,742 - - 0.0 N/A 50 0.0%

$1 under $100,000 ............................ 347 3.5 0.0 0.0 0.0% - 0.0%

$100,000 under $500,000 ................... 68 3.1 0.1 0.0 0.4% 1 1.5%

$500,000 under $1,000,000 ................ 18 2.3 - - 0.0% - 0.0%

$1,000,000 under $3,000,000 ............. 24 5.8 0.1 0.0 0.1% - 0.0%

$3,000,000 under $5,000,000 ............. 9 0.4 - - 0.0% - 0.0%

$5,000,000 under $10,000,000 ........... 6 0.8 - 0.0 0.3% 1 16.7%

$10,000,000 under $100,000,000 ........ 8 11.4 - - 0.0% - 0.0%

$100,000,000 under $1,000,000,000 ... 2 1.9 - - 0.0% - 0.0%

$1,000,000,000 or more ..................... 129 4.1 4.1 0.4 9.1% 23 17.8%

All returns ........................................ 97,572 21,003 20,526 1,797 8.6% 57,953 59.4%

Zero net income ............................... 53,117 - 52 63 N/A 38,642 72.7%

$1 under $100,000 ............................ 23,036 325 329 33 10.2% 13,787 59.8%

$100,000 under $500,000 ................... 6,455 400 401 38 9.4% 2,468 38.2%

$500,000 under $1,000,000 ................ 2,662 261 260 24 9.0% 900 33.8%

$1,000,000 under $3,000,000 ............. 4,007 712 699 61 8.6% 914 22.8%

$3,000,000 under $5,000,000 ............. 1,598 400 396 34 8.6% 330 20.7%

$5,000,000 under $10,000,000 ........... 1,878 807 789 66 8.2% 325 17.3%

$10,000,000 under $100,000,000 ........ 3,650 4,416 4,275 360 8.1% 450 12.3%

$100,000,000 under $1,000,000,000 ... 905 6,997 6,919 583 8.3% 99 10.9%

$1,000,000,000 or more ..................... 264 6,685 6,406 534 8.0% 38 14.4%

All returns ........................................ 116,990 22.2 4.8 0.2 1.1% 62 0.1%

Zero net income ............................... 116,387 - 0.0 0.1 N/A 44 0.0%

$1 under $100,000 ............................ 328 3.1 0.0 0.0 0.1% 1 0.3%

$100,000 under $500,000 ................... 82 4.2 0.0 0.0 0.1% - 0.0%

$500,000 under $1,000,000 ................ 30 1.6 0.0 0.0 0.2% - 0.0%

$1,000,000 under $3,000,000 ............. 36 3.4 0.5 0.0 1.2% - 0.0%

$3,000,000 under $5,000,000 ............. 12 0.8 - 0.0 0.3% - 0.0%

$5,000,000 under $10,000,000 ........... 5 0.1 - - 0.0% - 0.0%

$10,000,000 under $100,000,000 ........ 9 1.0 - - 0.0% - 0.0%

$100,000,000 under $1,000,000,000 ... 4 3.8 - - 0.0% - 0.0%

$1,000,000,000 or more ..................... 97 4.3 4.3 0.1 3.2% 17 17.5%

2014, C-Corporations

2014, S-Corporations

2015, C-Corporations

2015, S-Corporations

FY2014 COMPONENT SUMMARY X-4

FY 14 COMPONENT DATA SUMMARY - FISCAL 14 GENTS FINAL IPT REPORT FY 14 TOTALS

DOMESTIC LIFE DOMESTIC NON-LIFE FOREIGN LIFE FOREIGN NON-LIFE TOTALS BY LINE OF INSURANCE

TOTAL TAX TAXABLE PREMIUMS TOTAL TAX TAXABLE PREMIUMS TOTAL TAX TAXABLE PREMIUMS TOTAL TAX TAXABLE PREMIUMS TAX PREMIUMS

AUTO $ - $ - $ 2,318,692.75 $ 110,413,940.00 $ - $ - $ 107,536,747.66 $ 5,120,797,503.00 $ 109,855,440.41 $ 5,231,211,443.00

LIFE $ 8,897,582.00 $ 423,694,381.00 $ - $ - $ 101,226,158.16 $ 4,820,293,252.00 $ - $ - $ 110,123,740.16 $ 5,243,987,633.00

INDIVIDUAL A&H $ 13,198,096.00 $ 628,480,761.00 $ - $ - $ 19,390,138.04 $ 923,339,905.00 $ 515,526.96 $ 24,548,902.00 $ 33,103,761.00 $ 1,576,369,568.00

GROUP A&H $ 37,078,631.00 $ 3,531,298,191.00 $ - $ - $ 40,832,370.43 $ 3,888,797,183.00 $ 1,679,795.24 $ 159,980,496.00 $ 79,590,796.67 $ 7,580,075,870.00

OTHER $ - $ - $ 1,233,064.43 $ 58,717,354.00 $ 7,816,194.86 $ 996,089.00 $ 134,584,818.05 $ 6,408,800,848.00 $ 143,634,077.34 $ 6,468,514,291.00

FIRE $ - $ - $ 524,217.73 $ 24,962,749.00 $ - $ - $ 30,842,593.93 $ 1,454,409,243.00 $ 31,366,811.66 $ 1,479,371,992.00

FIN'L & SERV CHRGS $ - $ - $ 27,087.98 $ 1,289,903.00 $ - $ - $ (681,469.35) $ (32,450,921.00) $ (654,381.37) $ (31,161,018.00)

TOTAL $ 59,174,309.00 $ 4,583,473,333.00 $ 4,103,062.89 $ 195,383,946.00 $ 169,264,861.49 $ 9,633,426,429.00 $ 274,478,012.49 $ 13,136,086,071.00 $ 507,020,245.87 $ 27,548,369,779.00

12.5% AUTO

$

-

$

-

$

53,149,869.06

$

2,530,946,144.00

$

-

$

-

$

-

$

-

$

53,149,869.06

$

2,530,946,144.00

12.5% LIFE $ 1,309,838.00 $ 62,373,238.00 $ - $ - $ - $ - $ - $ - $ 1,309,838.00 $ 62,373,238.00

12.5% IND A&H $ 319,952.00 $ 15,235,810.00 $ 866.00 $ 41,238.00 $ - $ - $ - $ - $ 320,818.00 $ 15,277,048.00

12.5% GRP A&H $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

12.5% OTHER $ - $ - $ 37,987,158.11 $ 1,808,912,291.00 $ - $ - $ - $ - $ 37,987,158.11 $ 1,808,912,291.00

12.5% FIRE $ - $ - $ 5,857,556.62 $ 278,931,268.00 $ - $ - $ - $ - $ 5,857,556.62 $ 278,931,268.00

12.5% FIN'L & SERV CHRGS $ - $ - $ 467,832.82 $ 22,277,752.00 $ - $ - $ - $ - $ 467,832.82 $ 22,277,752.00

12.5% TOTAL $ 1,629,790.00 $ 77,609,048.00 $ 97,463,282.61 $ 4,641,108,693.00 $ - $ - $ - $ - $ 99,093,072.61 $ 4,718,717,741.00

TOTAL TAX/ PREMIUMS $ 60,804,099.00 $ 4,661,082,381.00 $ 101,566,345.50 $ 4,836,492,639.00 $ 169,264,861.49 $ 9,633,426,429.00 $ 274,478,012.49 $ 13,136,086,071.00 $ 606,113,318.48 $ 32,267,087,520.00

12.5% ALL OTHER

$

-

$

-

$

13,368,821.76

$

636,610,563.00

$

-

$

-

$

-

$

-

$

13,368,821.76

$

636,610,563.00

WORK COMP .25%

$

-

$

-

$

1,441,556.84

$

576,622,736.00

$

-

$

-

$

3,904,795.50

$

1,561,918,200.00

$

5,346,352.34

$

2,138,540,936.00

RETALIATORY TAX

$

-

$

-

$

-

$

-

$

21,790,721.57

$

-

$

(12,441,786.39)

$

-

$

9,348,935.18

$

-

# OF TAXPAYERS

4

67

377

771

1219


FY 15 COMPONENT DATA SUMMARY - B3FISCAL 15 GENTS FINAL IPT REPORT FY 15



AUTO $ - $ - $ 2,136,946.27 $ 101,759,346.00 $ - $ - $ 111,883,099.12 $ 5,327,766,617.00 $ 114,020,045.39 $ 5,429,525,963.00

LIFE $ 11,192,062.00 $ 532,955,333.00 $ - $ - $ 105,009,903.58 $ 5,000,471,597.00 $ - $ - $ 116,201,965.58 $ 5,533,426,930.00

INDIVIDUAL A&H $ 20,177,557.00 $ 960,836,048.00 $ 400,061.54 $ 19,050,549.00 $ 19,517,406.89 $ 929,400,326.00 $ 719,913.22 $ 34,281,581.00 $ 40,814,938.65 $ 1,943,568,504.00

GROUP A&H $ 47,366,935.00 $ 4,511,136,667.00 $ 13,949.62 $ 1,328,535.00 $ 46,495,105.92 $ 4,428,105,314.00 $ 1,640,231.59 $ 156,212,533.00 $ 95,516,222.13 $ 9,096,783,049.00

OTHER $ - $ - $ 1,698,560.42 $ 80,883,830.00 $ 3,136,883.26 $ 781,584.00 $ 138,122,947.90 $ 6,577,283,227.00 $ 142,958,391.58 $ 6,658,948,641.00

FIRE $ - $ - $ 410,386.47 $ 19,542,214.00 $ - $ - $ 30,292,884.01 $ 1,442,518,280.00 $ 30,703,270.48 $ 1,462,060,494.00

FIN'L & SERV CHRGS $ - $ - $ 29,948.56 $ 1,426,123.00 $ - $ - $ (292,151.00) $ (13,911,952.00) $ (262,202.44) $ (12,485,829.00)

TOTAL $ 78,736,554.00 $ 6,004,928,048.00 $ 4,689,852.88 $ 223,990,597.00 $ 174,159,299.65 $ 10,358,758,821.00 $ 282,366,924.84 $ 13,524,150,286.00 $ 539,952,631.37 $ 30,111,827,752.00

12.5% AUTO

$

-

$

-

$

53,728,717.92

$

2,558,510,378.00

$

-

$

-

$

-

$

-

$

53,728,717.92

$

2,558,510,378.00

12.5% LIFE $ 1,495,812.00 $ 71,229,143.00 $ - $ - $ - $ - $ - $ - $ 1,495,812.00 $ 71,229,143.00

12.5% IND A&H $ 677,548.00 $ 32,264,190.00 $ 521,272.00 $ 24,822,476.00 $ - $ - $ - $ - $ 1,198,820.00 $ 57,086,666.00

12.5% GRP A&H $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

12.5% OTHER $ - $ - $ 40,728,868.22 $ 1,939,469,913.00 $ - $ - $ - $ - $ 40,728,868.22 $ 1,939,469,913.00

12.5% FIRE $ - $ - $ 6,716,474.41 $ 319,832,115.00 $ - $ - $ - $ - $ 6,716,474.41 $ 319,832,115.00

12.5% FIN'L & SERV CHRGS $ - $ - $ 423,652.52 $ 20,173,930.00 $ - $ - $ - $ - $ 423,652.52 $ 20,173,930.00

12.5% TOTAL $ 2,173,360.00 $ 103,493,333.00 $ 102,118,985.07 $ 4,862,808,812.00 $ - $ - $ - $ - $ 104,292,345.07 $ 4,966,302,145.00


12.5% ALL OTHER

$

-

$

-

$

13,074,445.99

$

622,592,669.00

$

-

$

-

$

-

$

-

$

13,074,445.99

$

622,592,669.00

WORK COMP .25%

$

-

$

-

$

1,583,140.37

$

633,256,148.00

$

-

$

-

$

4,242,339.79

$

1,696,935,916.00

$

5,825,480.16

$

2,330,192,064.00

RETALIATORY TAX

$

-

$

-

$

-

$

-

$

25,744,613.35

$

-

$

(13,972,438.43)

$

-

$

11,772,174.92

$

-

# OF TAXPAYERS

5

67

373

776

1221


FY 16 COMPONENT DATA SUMMARY - B35FISCAL 16 GENTS FINAL IPT REPORT FY 16



AUTO $ - $ - $ 1,847,994.49 $ 87,999,737.00 $ - $ - $ 115,780,215.48 $ 5,513,343,598.00 $ 117,628,209.97 $ 5,601,343,335.00

LIFE $ 10,361,218.00 $ 493,391,333.00 $ - $ - $ 110,071,966.13 $ 5,241,522,196.00 $ - $ - $ 120,433,184.13 $ 5,734,913,529.00

INDIVIDUAL A&H $ 19,025,074.00 $ 905,955,904.00 $ 4,558,078.00 $ 217,051,334.00 $ 20,507,458.54 $ 976,545,640.00 $ 787,110.85 $ 37,481,469.00 $ 44,877,721.39 $ 2,137,034,347.00

GROUP A&H $ 41,678,422.00 $ 3,969,373,524.00 $ 243,585.00 $ 23,198,571.00 $ 51,566,845.85 $ 4,911,128,180.00 $ 1,817,989.35 $ 173,141,843.00 $ 95,306,842.20 $ 9,076,842,118.00

OTHER $ - $ - $ 1,819,277.08 $ 86,632,240.00 $ 441,238.73 $ 963,749.00 $ 144,920,801.84 $ 6,900,990,561.00 $ 147,181,317.65 $ 6,988,586,550.00

FIRE $ - $ - $ 413,308.26 $ 19,681,346.00 $ - $ - $ 30,447,763.88 $ 1,449,893,514.00 $ 30,861,072.14 $ 1,469,574,860.00

FIN'L & SERV CHRGS $ - $ - $ 19,699.97 $ 938,094.00 $ - $ - $ (652,725.26) $ (31,082,154.00) $ (633,025.29) $ (30,144,060.00)

TOTAL $ 71,064,714.00 $ 5,368,720,761.00 $ 8,901,942.80 $ 435,501,322.00 $ 182,587,509.25 $ 11,130,159,765.00 $ 293,101,156.14 $ 14,043,768,831.00 $ 555,655,322.19 $ 30,978,150,679.00

12.5% AUTO

$

-

$

-

$

54,308,299.33

$

2,586,109,493.00

$

-

$

-

$

-

$

-

$

54,308,299.33

$

2,586,109,493.00

12.5% LIFE $ 1,709,145.00 $ 81,387,857.00 $ - $ - $ - $ - $ - $ - $ 1,709,145.00 $ 81,387,857.00

12.5% IND A&H $ 2,343,164.00 $ 111,579,239.00 $ - $ - $ - $ - $ - $ - $ 2,343,164.00 $ 111,579,239.00

12.5% GRP A&H $ 2,931,261.00 $ 279,167,714.00 $ - $ - $ - $ - $ - $ - $ 2,931,261.00 $ 279,167,714.00

12.5% OTHER $ - $ - $ 38,953,708.12 $ 1,854,938,481.00 $ - $ - $ - $ - $ 38,953,708.12 $ 1,854,938,481.00

12.5% FIRE $ - $ - $ 7,179,591.94 $ 341,885,332.00 $ - $ - $ - $ - $ 7,179,591.94 $ 341,885,332.00

12.5% FIN'L & SERV CHRGS $ - $ - $ 898,900.70 $ 42,804,796.00 $ - $ - $ - $ - $ 898,900.70 $ 42,804,796.00

12.5% TOTAL $ 6,983,570.00 $ 472,134,810.00 $ 101,340,500.09 $ 4,825,738,102.00 $ - $ - $ - $ - $ 108,324,070.09 $ 5,297,872,912.00


12.5% ALL OTHER

$

-

$

-

$

12,950,200.49

$

616,676,211.00

$

-

$

-

$

-

$

-

$

12,950,200.49

$

616,676,211.00

WORK COMP .25%

$

-

$

-

$

13,046,610.81

$

521,844,324.00

$

-

$

-

$

-

$

-

$

13,046,610.81

$

521,844,324.00

RETALIATORY TAX

$

-

$

-

$

-

$

-

$

31,186,107.83

$

-

$

(13,952,918.65)

$

-

$

17,233,189.18

$

-

# OF TAXPAYERS

6

68

374

778

1226

discussion - new jersey legislature€¦ · from unspecified “asset sales” as schedule 1...

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