Thus, it comes as no surprise Assembly Speaker Robert's October 1, 2008 press release unveils, what he describes, as a "broad economic agenda for unprecedented [October 6,2008] Assembly Committee sessions." It further comes as not surprise that, on October 3, 2008, Senate President Codey announced a hearing on similar legislation.
The question is whether either Senate President Codey or Assembly Speaker Robert's Agenda" will be effective in meaningfully addressing the current economic stress while not substantially increasing the structural deficit.
I. The Framework For Creating Counter Cyclical Fiscal Policy.
The primary task of counter cyclical policy, even at the State level, is to stop the downward spiral in economic activity. Government spending and fiscal policy, however, are not synonymous. Effective fiscal policy is based on three general principles.
It must (1) be timely: "In the worst case, poorly timed policies add instability to the economy, potentially exacerbating rather than damping businesses cycle." It must be (2) targeted: "tax cuts and spending increases should be directed sothat each dollar generates the largest possible increase in short-run GDP. Tax cuts and spending increases shouldbe directed so that they provide the greatest benefit to people who are affected most adversely by an economic slowdown." And, it (3) must be temporary: "tax and spending changes must be temporary and not increase the already large long-run budgetdeficit."
II. The Codey - Roberts Economic Agenda: The Good, The Bad, and The Ugly
The hodge-poge of Bills to be reviewed on October 6, 2008 by an assortment of Assembly and Senate Committees are summarized in theRoberts' October 1 and Codey October 3 press releases. What follows draws directing from and is a first impression based on them.
THE GOOD
1. BEST IN CLASS. The Commerce Committee will consider legislation to provide a corporation business tax and grossincome tax credit to employers who allow their employees to telecommute. The bill is sponsored by Assemblyman Michael Patrick Carroll (R-Morris).
The bill is timely as those effected immediately have more money in their pockets. Lowers demand for gas and thereby reduces inflationary cost pressures. Lessens road usage and is environmentally friendly because it reduces useof fossil fuel. Change is consistent with and supportive of ongoing structural changes in the way New Jerseyian's makea living. Facts to watch for (1) number of people it benefits and (2) whether dollar benefit of incentives is greater than cost to budget. In short, is it budget deficit neutral?
2. A-688 scheduled for Budget Committee would provide an annual cost-of-living increase in a program that helps low-income seniors and disabled persons pay gas and utility bills. The increase - proposed by Assembly members Grace Spencer (D-Essex), Anthony Chiappone (D-Hudson), and Elease Evans (D-Passaic) - would be proportional to the increases in the Social Security benefit for the year; the current level of assistance is only $225.
GOOD IDEA BUT BAD BILL. This Bill, like many of the others, is little more than a resubmission from a previous session. Cost index may not accurately reflect price changes. Timing requires enactment prior to onset of winter. Targeting may be narrow as it does not encompass all who are unable to afford heating costs. Maybe there is another bill or law that covers others, but it seems clear kids shouldn't be cold. Permanent nature adds to structural deficit as cost is projected to rise from estimated $2 million in 2009 to plus or minus $11 million in 2013. Danger of permanently increasing fuel prices for all taxpayers. Longer term emphasis may make better use of State resources by concentrating on individual unit conservation.
State may also find it helpful to monitor the spread between the wholesale price of fuel reflected in the futures market and local dealer's retail prices.
3. GOOD IDEA BUT BAD POLICY. The Assembly Health and Senior Services Committee and Assembly Human Services Committee will hold a joint hearing on the impact of the crisis on health care and social services such as food stamps, Medicaid and NJ FamilyCare.
State should assure people have food and medical care as needed. Now, however, is not the time for structural healthcare policy changes that fix uncertain budget costs. Increase spending for food and emergency care over the short term, but forget the rest until after the new President is inaugurated.
4. A-2997 would remove limitations and extend grants under the Business Employment Incentive (BEIP) program while a bill sponsored by Assemblyman Matt Milam (D-Cumberland/Atlantic/Cape May) would make it easierfor small and mid-size businesses to take advantage of the Business Retention and Relocation Assistance Grant Program BRRAG) program.
GOOD, GOOD AND BAD. Programs that expand resident employment has the potential to help stabilize. Keeeping Companies in NJ is also a priority. Attracting out of State business to uncertain and takes too long.
THE BAD5. Legislation A-2517 Assemblywoman Watson Coleman is sponsoring to create a fund to provide foreclosure preventioncounseling and make loans and grants available to nonprofits that help homeowners as well as require creditors seekingto foreclose on a subprime loan to offer a six-month hold to let borrowers negotiate refinancing.
Preventing foreclosure is in everyone's interest. That said, assuming for the moment 1)the structure of emergency loans realistically forestalls foreclosure, 2) the rental alternative is affordable, 3) the costs are not prohibitive, and 4) unintended consequences have been considered, then A-2517 is positive. There is no doubt the financial help is timely. Depending on the duration of any loans it can be temporary.
Keeping people in the homes, regardless of income levels, is good in both the short and long run for the families, the towns’ property values, and State revenues. The concern is given the deep and protracted nature of across the board demand destruction, it is not enough. The bias here is the owners, be it a family or a landlord, of pre-foreclosure as well as foreclosed properties can be aided via the use of free floating COAH requirements to bridge the difference between any particular ability to pay and the salvage value or replacement value collaterializing the loan.
The remainder of the bill seems to (1) duplicate and perhaps enhance current Federal and State programs and, (2) assuming lenders have not been chasten and as new practices are being quickly implemented, the other bills may correct the sins ofthe past.
6. The banking and housing panels also will take up A-2496 sponsored by Assemblyman James Holzapfel (R-Ocean) that would require debtors to receive two weeks notice prior to a sheriff's sale of foreclosed property. The bill also would require a sheriff's office to give a debtor notice when there has been a surplus in the sale offoreclosed property.
7. A joint meeting of the Assembly's Financial Institutions and Insurance and Housing and Local Government committees will review A-281. Assemblymen Gary Schaer (D-Passaic) and John Burzichelli (D-Gloucester) are sponsoring to impose tough new requirements on foreclosure consultants and others who contract with homeowners facing foreclosures.
8. Assemblywoman Nilsa Cruz-Perez (D-Camden) is sponsoring A-2272. It includes the sale of securities under the Consumer Fraud Act to protect consumers from deceptive sales and advertising in the marketing of securities.That measure will be heard in a joint meeting of the Assembly Law and Public Safety and Regulated Professions committees.
THE UGLY
The following Bills may or may not represent sound changes to the economy's structure. However, in this time of uncertainty, the obvious shift in structural demand, and the catastrophic condition of the State's finances, these Bills need to be considered in the larger, more measured context of unfolding events and unforeseen consequences. The reasons are straightforward.
Each of the Bills make long term permanent changes to the tax structure. Hence, by the very nature of the change the impact on the State's economic well being is not immediate, but rather it is incremental over the long term.
Second, such bills do not target the immediate cause of the problem. New Jersey's economy is slowing. More people will be unemployed and less goods and services will be purchased. The problem, therefore, is one of how to support faltering demand, how to stop the downward spiral. The proposed longer term changes increase supply at a time when production is being scaled back and the longer term outlook for the amount of sustainable production, and its mix, are uncertain,unknowable and thus immeasurable. With the structural changes in the financial industry, New Jersey's reliance on that industry as a source of revenue and the implication for both consumption, and the potential impact on unemployment and underemployment, the focus needs to remain sustaining people and demand.
Finally, permanent tax cuts and credits are generally counterproductive as they tend to wreck havoc on the structural budget deficit. Conversely, short term cuts and credits, whether immediate or rebatable, have a history of being equally as effective. Moreover, temporary cuts or credits have an immediate short term impact but since they are temporary, minimize the lasting impact on the structural deficit.
9. WORST IN CLASS. A-3124. Assemblymen Louis Greenwald (D-Camden) and John McKeon (D-Essex) are sponsoringto enable businesses to write-down net operating losses for up to 20 tax years. The Senate appears to be discussing the same legislation.
For the reasons set forth above such actions are generally seen as ineffective at best and counterproductive at worst.The impact is generally small and the cost is usually prohibitive because it results in a permanent increase to the deficit. Also, the time to impact is long. The argument the bill would put New Jersey in line with neighboring states that allow businesses such a time frame to recoup losses should not be assumed to more effective in attracting businesses given the unspoken differences between overall State tax structures. Moreover the sponsors’ contention the reform is especially needed by small businesses that might not otherwise be able to weather the current economic storm makes no sense. There is no apparent reason to believe increasing the time to write off net operating loses from seven to twenty years willprovide any immediate relief from current turmoil, yet it would seem to increase the structural deficit.
10. Measures to promote job creation through alternative energy initiatives will go before a joint meeting of the AssemblyTelecommunications and Utilities and Environment and Solid Waste committees. A-843 would provide equal opportunity for businesses to receive energy-related incentives and funding and A-2550 would permit wind and solar facilities within industrial zones. The first measure is being sponsored by Assembly members Upendra ChivukulaD-Somerset) and Marcia Karrow (R-Hunterdon/Warren); the second by Assemblywoman Pam Lampitt (D-Camden), Chivukula, and Assemblywoman Connie Wagner (D-Bergen).
11. The Assembly Commerce and Economic Development Committee will hear A-2722 which is sponsored by Joseph Vas (D-Middlesex), Greenwald and Assemblyman Albert Coutinho (D-Essex). Its purpose is to reshape how certain corporate sales made inother states are taxed, and eliminate a provision that increases the amount of a corporation's entire net income thatis taxable by New Jersey.
