Tom Byrne speech
Property tax reform symposium
November 15, 2002
Dick [zimmer] and i have been asked to discuss why previous reforms have failed and to discuss formulas for future political success.
Here is my basic premise:
People do understand the arguments for a more progressive tax system. But
they don't believe that when a progressive tax goes up, a regressive
tax will go down at all - much less by a commeasurate amount. They simply
don't believe the phrase "revenue-neutral". More precisely,
they don't believe that something will be revenue neutral for very long.
Both the laws of economics and our experience suggest that the people
have a point.
When you replace a less elastic tax with a more elastic tax in a growing economy, by definition it is not revenue neutral over time.
As to our experience, if property taxes had dropped as planned, we wouldn't be here talking about their inherent unfairness, and their contribution to both sprawl and urban decay. We've succeeded in slowing the rate of increase in pts for short periods, but that is all.
When my father took office, the fy 73 budget was $2.1 billion. Thirty years later, the state budget is $23.4 billion. That is a compound annual growth rate of 8.4 percent. When you adjust for population growth, the state budget has a compound annual growth rate of 7.6 percent. Over the same time, the consumer price index has risen at an average annual rate of just under 5 percent.
Now, gov. Mcgreevey has said that the state ought to budget the same way a family does. I agree. So let's take a hypothetical family in 1973, and say they had income of $50,000 and spent $50,000 - exactly balancing the family budget. Let's say that their income grew at exactly the same rate as inflation. They'd take in about $215,000 this year. But let's say their spending grew at the same rate as the state budget per capita, or 7.6%. They would now be consuming $450,000 per year - more than twice what they took in.
Incidentally, for those of you thinking that state spending went up so fast because state government took some of the spending burden away from local governmental units, it is worth noting that the gross statewide property tax levy has gone up almost as fast in percentage terms as the state budget.
Your average voter who is paying only casual attention to these issues has come across enough information to form an opinion of the overall situation. You don't need every piece of a jigsaw puzzle to form an impression.
Let's consider just a few pieces of this puzzle.
Cory booker wrote a thoughtful op-ed about newark's broken budget process and the resultant squandering of millions of dollars.
Working people in their 50s must wonder why part of their tax money goes to pay the pensions of people younger than they are. It's hard to sell more broad-based taxes to pay for that. This is especially true when a pension is based on the sum of several salaries.
In 2000, the star ledger reported that the sci looked at close to $40m of school roofing projects and estimated that $8m to $12m was wasted. .... stl, 5/21/00;10,2.. I had a major contractor tell me that he wouldn't be surprised to see the same proportion of waste in the overall school construction program. We're talking billions now.
I can recall four conversations I've had in recent years with senior people in state government. One told me that about a third of the people in his department did absolutely no work. Another such person told me the biggest mistake he made in government was trying to fire one do-nothing employee - it wound up eating up a quarter of his time. Yet another such person told me that some state employees sign up for sick days months in advance. When the average taxpayer hears stuff like this, it becomes tougher to persuade him that his marginal tax dollar is buying johnny a new textbook or a good breakfast so that he can more easily learn to read.
The fourth conversation was someone explaining to me that some people pay their pts in cash, and that there have been instances of two or more municipal employees co-operating to steal some of this cash and cover it up.
Then there is the issue of legal, engineering, and insurance fees.
Some of these bills are huge, and vary tremendously in comparable towns.
Occasionally, a good government mayor will cut these fees by hundreds
of thousands just through competitive bidding. Knowing that, it's hard
to make the case that the easiest way to meet these costs is through
more tax dollars.
And there are plenty of questions about simple cost / benefit decision-making. Recently, the state spent $40 million on a three year statewide consumer education program to inform residents of energy de-regulation.
Then there are questions of simple management efficiency. Bill gates has spoken at the national governors conference and explained how better use of computers could cut paperwork and greatly improve government productivity.
I can't help laughing when i read some of paul mulshine's columns. I clipped one about some professor of futurism who had spent several years in india while collecting about $100k in salary and benefits from jersey city university. He hadn't taught a class in eight years - a pretty long sabbatical.
There's been enough talk about consolidation that I'm not even going to go there. But i do think that alan karcher's book multiple municipal madness should be required reading for anyone involved in these discussions. The book's mere existence makes it clear that one doesn't have to be labeled a fiscal conservative to advocate fiscal responsibility.
Notice that i haven't gone near other big ticket items such as a certain $300m tunnel, or ez pass. But i know my county pt is higher than normal because I'm paying for an incinerator that never got built.
And in the interest of time, i'm going to stay away from the issue of corruption, other than to say it doesn't make it any easier to suggest allocating more funds in certain directions, tax fairness nothwithstanding.
What's the point of all this?
These examples, and many others like them, diminish the credibility of
the political community and by extension, progressive reformers - fairly
or unfairly. The average voter's attitude is: solve these problems before
you ask me to pay more in taxes.
It's not that people won't accept any such changes. Just look at the success of open space initiatives; people will pay more in taxes when they are confident that the money will be well spent.
I've had some people say to me: you sound like a republican. But notice: i haven't cut a single class size, cut a nickel from funding of envy protection, cut health coverage for anyone, cut back job training, or public safety, or money for transportation infrastructure, or anything of the sort.
There's an old saying that any patronage appointment produces 9 enemies and one ingrate. As applied to spending cuts, the psychology is more like one enemy and nine ingrates.
If you cut $8m, even of absolute waste, you have an $8 million enemy out
there somewhere. But you don't get 8m notes from the rest of the state's
citizens thanking you for saving them a dollar each.
So a politician's calculus is understandably that any spending cut is a
bad risk / reward decision: you lose the votes of the aggrieved group,
and gain little or nothing on the other side.
This is compounded when you take away money that has already been appropriated. Proof. Daniel Klansman of princeton recently won a nobel prize for proving that people tend to place a higher value on things they already have with some brilliantly simple experiments, such as the now famous coffee mug experiment.
We have built in cost structures in a lot of places that are very high relative to other states. Klansman's research provides great insight into why increasing revenue has traditionally been a path of less resistance than restructuring certain aspects of government.
How do we correct this?
There is no magic formula, but i can think of a few ideas. First, legislators
would take more risks if they felt as if they were part of a common enterprise
and were not so worried about partisan retribution or the killer sound
bite or mail piece.
Can we create a psychology of we're all in this together on certain issues? Perhaps so. Obviously, there is no substitute for political will. But let's look beyond that.
We might make some legislative sessions on back-to-back days, so that legislators stay in trenton and have more time in the evening to deal with each other as people.
we should cut contribution limits to leadership pacs and political parties, which would at least limit the ammunition for killer soundbites. Better yet, eliminate the leadership pacs altogether.
we might employ a strategy akin to what congress did with military base closings - in this case, an up or down vote on a package of spending cuts.
i can even imagine certain deferred compensation programs that might help assure lawmakers that there is indeed life after the legislature.
I'm not suggesting that i have any panaceas here. Even if we eliminate all truly wasteful spending, we are still left with complex financial problems necessitating difficult resource allocation decisions.
[ some have suggested that we solve our problems by "doing what michigan did". Well, for starters, michigan spends about 25% less per pupil on education than we do. That made it easy for them to replace the school portion of property taxes by raising the sales tax from 4 to 6 percent.
As gov. Whitman's pt commission pointed out, eliminating the school portion of the property tax here would require another $7 billion to be raised through broad-based taxes. They estimated that the top marginal rate on the state income tax would have to rise to 14.1 percent. Alternatively, the sales tax would have to rise to 14.5 percent. These numbers are so high mostly because we spend over 50% more than the national average on our schools. ]
I think there are a number of good tax reform ideas out there. But consensus around them will be difficult to achieve until voters start to feel that a reform that begins as revenue neutral will stay revenue neutral.
To say the least, we do not send that message when people read that we might have a constitutional convention that can't even consider the spending side of the ledger. What more do you need to say to convince average new jerseyans that pols can only talk about more money to do the same job?
There are steps we can take right now to increase both public confidence
and tax fairness.
As the slerp commission suggested, we should insure that no one pays more
than 5% of their income in pts. It should be a direct credit on the state
income tax. Part of the reason that pts have gone up is that we assume
that increased state aid necessarily translates directly into property
tax relief.
But the reality is that the mayor can spend that aid instead. A direct
credit would limit or end that. This sort of circuit-breaker could replace
the tangle of existing pt relief programs, and simplify things considerably.
We ought to re-write municipal aid formulas to penalize waste rather than subsidize it.
We should cap the equalized tax rate for every municipality in the state.
We should look seriously, as slerp did, at higher initial property taxes on building done in areas where the state plan discourages it. If we can give abatements where we want development, why can't we do the opposite where we don't want it?
[but we ought to set uniform limits on abatements, because urban residents who can least afford it often wind up absorbing both the opportunity cost of certain abatements and the cost of municipal services that support most of these projects. ]
We can cut pts by tightening up the state-mandate, state pay rules. And we ought to adopt the "fiscal note" notion proposed in the slerp report, to evaluate the budget consequences of new legislation.
We should put all school and municipal budgets on line. Some already are. It should be easier to compare key cost items from place to place. There are some local salaries that are way out of line. Rationalizing them over time will cut pts.
Finally, slerp suggested that the state take equity in farmland development rights in return for the lower farmland assessments. If you keep farming, you never have to share a dime with the state. If you sell to a developer, you do. That would spread the pt burden more equitably.
I could go on, but I'm as anxious as you are to hear what our panelists have to say, so I'll stop here - at least for now. But if we want to succeed politically, we need to put the same energy into making government efficient as we put into making our tax system fairer.
Thank you.