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State House News for Finance Officers

September 20, 2019

 

Interest Arbitration

 

GFOA supports counties and municipalities adopting the following resolution, which urges Governor Phil Murphy and the New Jersey State Legislature to enact legislation that will permanently extend the 2.0% cap on binding interest arbitration awards; and, to further require the Public Employment Relations Commission (PERC) to include in all arbitration awards: a full financial impact statement. 

 

Whereas, the failure to permanently extend the 2.0% cap on binding interest arbitration awards has inequitably altered the collective bargaining process in favor of labor at the expense of property taxpayers as police and fire unions have been aggressively leveraging its expiration to win contracts that far exceed the 2.0% spending cap imposed on local governing bodies for nearly a decade; and,

Whereas, between 2011 and 2017, the 2.0% cap on binding interest arbitration awards allowed local governments to live within their limited means and kept public safety employee salaries and wages under control as parties were closer to an agreement from the onset of negotiations; and, 

Whereas, the 2.0% cap on binding interest arbitration awards established clear parameters for negotiating reasonable successor contracts that preserved the collective bargaining process and took into consideration the separate and permanent 2.0% spending cap; and,

Whereas, recent arbitration decisions, which do not readily disclose the total cost of the contract, underscore the vital need to restore the cap as at least one of the awards included annual salary increases that range from a minimum of 8.54% to a maximum of 20.54% when step increases are included with the widely reported annual raises of 2.0% to 2.25%; and,

Whereas, these substantial annual salary increases do not include longevity pay, employer pension contributions of which equal approximately 30.0% of the annual salary of a public safety sector employer, and an additional 20.0% to 35% in employer health benefit contributions; and,

Whereas, the equation is clear, failure to permanently extend the 2.0% cap on binding interest arbitration awards is unsustainable without increasing property taxes, reducing non-union staff, or eliminating essential services. 

Now, Therefore, Be it Resolved  that the “Board of Chosen Freeholders of …” does in fact, hereby urge Governor Phil Murphy and the New Jersey State Legislature to enact legislation that will permanently extend the 2.0% cap on binding interest arbitration awards that expired in 2017; and, to further require the Public Employment Relations Commission (PERC) to include in all arbitration awards: a full financial impact statement that summarizes the total cost of all awards in a clear, concise, and transparent manner. 

Be it Further Resolved that certified copies of this Resolution are forwarded to the Governor of the State of New Jersey Phil Murphy, the President of the New Jersey State Senate Stephen M. Sweeney, and the Speaker of the General Assembly Craig J. Coughlin. 

 

Path-to-Progress

GFOA, the New Jersey State League of Municipalities (NJLM), and the New Jersey Association of Counties (NJAC), recently met with leadership in the Senate Majority office to discuss the following  legislation contained in Senate President Steve Sweeney’s Path-to-Progress initiative.

 

  • Senate, No. 3760 (Ruiz D-29/Singleton D-7), which would require municipalities, counties, school districts, and local authorities to regularly meet to discuss shared service agreements.   Given our collective concerns that this legislation would force elected officials to meet multiple times each year to discuss shared services and would penalize municipalities by withholding 5% of their State aid for failing to comply, we recommended incorporating S-3760 into Senate, No. 3764 (Andrzejczak D-1/Bucco R-25), which would require counties to appoint a shared services coordinator and would appropriate $2.0 to fund the appointments. Instead of requiring multiple meetings subject to the Open Public Meetings Act, we recommended to require a county shared services coordinator, as part of their job description, to meet with municipal and school officials on a regular basis. We also recommended to  include in any grant funding, those counties with existing shared services coordinators. S-3760 is on Second Reading and S-3764 is currently in the Senate Budget and Appropriations Committee awaiting consideration. 
  •   Senate No. 3762  (Sweeney D-3/O’Scanlon R-13), which would concern the assessment of real property. This legislation would allow counties to adopt the provisions of the “Property Tax Assessment Reform Act” of 2009, which was previously limited to a pilot program in Gloucester County.  Although the measure is permissive and would allow counties to voluntarily make changes to the assessment of real property, the bill would appear to limit reform to a certain model that may not sense for all governing bodies. As such,  we recommended to authorize each county to establish a property tax assessment program that meets the needs of the respective county, municipalities within the county, and property taxpayers. We also recommended to include an appropriation to offset any costs associated with implementation.  S-3762 is currently in the Senate Budget and Appropriations Committee awaiting consideration.  
  • Senate, No. 3767 (Sarlo D-36/Thompson R-12), which would establish a pilot program to permit the use of generally accepted accounting principles in certain county and municipal annual financial statements.  Although the measure is permissive, finance officers across the State see no tangible benefit in making the transition that would require retraining and a system-wide change for the sake of change. GFOA submits that our concerns were duly noted; and, S-3767 is currently on Second Reading in the Senate.  
  • Senate, No. 3768 (Singleton D-7/Bateman R-16), which would require shared service agreements to include, in addition to what’s already required under current law: performance evaluation criteria, procedures for determining fee adjustments, alternative dispute resolution procedures, and exit procedures to govern dissolution agreements.  GFOA does not support this legislation as it would make entering into a shared services agreement more difficult as opposed to streamlining the already cumbersome process.  S-3768 is currently on Second Reading in the General Assembly.

 

Bonds for Arts and Cultural Activities  

 

On September 27th, the Senate amended Assembly, No. 3832 (Mukherji D-33/Caputo D-28), which would authorize a municipal tax levy through a public question for certain purposes and would further clarify the ability of local government entities to issue non-recourse bonds. 

In general, this legislation would eliminate the ability of a municipality to limit the use of an arts and culture trust fund to only subsets of arts and culture activities, and would further prohibit the municipality from specifying in a public question that an annual arts and culture levy would only support a subset of arts and culture activities.  The bill would also authorize a municipality to reallocate monies from an arts and culture trust fund into its general fund if the Director of the Division of Local Government Services in the Department of Community Affairs determines that the municipality is in fiscal distress. The legislation would further allow a local arts council to manage the distribution of arts and culture levy proceeds, in order to clarify that any local arts council would be subject to the restrictions that may be established by ordinance.  And, the measure would appropriate $100,000 from the general fund to the Division of Local Government Services to fund the expenses necessary for the implementation of the bill, which may include the funding necessary for the division to modify its Financial Automation Submission Tracking system to incorporate the additional levy. Finally, the legislation would  require that an arts and culture levy would become effective in the next budget year following the year in which the levy is approved by the voters.  The General Assembly passed A-3832 in January and must concur with the changes, which make it identical to Senate, No. 2459 (Cryan D-20/Stack D-33)  of which the Senate also passed on September 27th. 

 

Plug Pension Hole By Curbing Traditional Plan? It May Not Be Best Strategy

Samantha Marcus,  NJ Advanced Media, September 9, 2019

 

In the waning days of his administration, Gov. Chris Christie left his successor Phil Murphy a parting gift, of sorts. For years, New Jersey had assumed its public pension fund would make more money on its investments than it could realistically expect. So, Christie went ahead and changed it. Without notice, the outgoing governor cut how much the pension system should expect to earn on investments from 7.65 percent to 7 percent a year. Doesn’t seem like much, right? But Christie’s sudden move — and Murphy’s reaction to it — set into motion a complex and controversial budget quagmire that will soon become a ticking $1.2 billion time bomb for New Jersey. When it will explode: 2022 (the year after the next gubernatorial election). At stake: Benefits to nearly 800,000 active and retired state and local workers. A likely result: Your state taxes could go up. And how the state will manage to pay the bill when it comes due remains to be seen.

 

Midway through December 2017, about a month before Christie left office, the trustee boards overseeing the various state and local pension funds were summoned to adopt their annual audit reports, months earlier than they would typically meet. There, they learned Christie’s administration had tweaked what’s called the assumed rate of return — how much money the pension system expects to get from its investments — one final time. The change was praised by the pension fund actuaries, who say expecting a 7 percent return on investments is closer to what other large funds can reasonably figure they’ll get over the long term.  But there’s an impact to all of this, which means the decision sent ripples through the pension system. When you assume you’ll reap more from investments, it makes the pension funds look healthier than they really are, even if it isn’t realistic. When you expect less, the system looks less healthy.

 

That all figures into the calculations that determine how much money state and local governments will need to pay for benefits to nearly 800,000 active and retired workers. In short, expecting less in investments means governments would have to pay more to keep the pension system afloat. Christie’s move would have cost local governments, which by law have to pay the full contribution recommended by actuaries, an additional $422.5 million in Murphy’s first year, according to an NJ Advance Media analysis. And it would have increased the state’s actuarially recommended pension contribution by $390.3 million that year. Christie’s last-minute move would have had Murphy foot that bill in his first budget.

 

While Christie’s parting gift was a surprise, Murphy’s reaction was no shocker. Declaring that Christie’s fix placed an “undo stress” on the governments that would have to find more than $800 million in extra cash, Murphy reversed Christie’s order.

Christie’s move from 7.65 percent to 7 percent was done “precipitously,” state Treasurer Elizabeth Muoio said at the time. Instead, the Murphy administration announced it would embark on a more responsible path to 7 percent. A Treasury Department spokesman, William Skaggs, said in a statement that Murphy’s administration “has made it abundantly clear, when it comes to the state’s pension responsibilities, the days of ‘kicking the can down the road’ are over.” “Phasing down the assumed rate of return over several years will ease the impact on local government budgets as contribution requirements increase over time,” he said, adding that Murphy is sending a "clear signal that the old way of doing business is over.” The rate was cut to 7.5 percent for Murphy’s first budget year, and after a phase-in, won’t drop to Christie’s suggested 7 percent until the fiscal year 2023 budget that is passed in June 2022, the first one after the next governor’s election. From the state budget that will be enacted by July 2021 to the one that will take effect in July 2022, the rate will decrease from 7.3 percent to 7.0 percent. That’s considered a big dip for just one year.

 

And there’s a double-whammy that year. It’s also the same budget that is supposed to finally make the state’s first full recommended pension contribution after governors and lawmakers shortchanged the system for decades. All together, the payment will be about $6.6 billion, a year-over-year increase of more than $1.2 billion. The time bomb will detonate. State Sen. Declan O’Scanlon, R-Monmouth, said the state is in store for a “devastating fiscal hit.” He accused Murphy of “blatant political manipulation of our pension system that should outrage the very unions the governor continuously panders to and that continuously bow down to him.” Christie’s move, he said, “regardless of the political motivation ... was sound policy because that’s a more realistic rate of return.” Murphy’s solution "is a blatant way to kick the can down the road, the cost of which is the soundness of our pension,” he added.

 

Senate President Stephen Sweeney, D-Gloucester, says New Jersey can’t afford it. “Christie lowered it to 7 percent when he was walking out the door, which created an enormous liability,” Sweeney said. “So they said we’re going to restructure it to put it back to 7.5 and we’ll bring it down over a period of time. But they’re doing it at a time when we really can’t afford them to do that.” “Doing structural reforms to the pension would probably make it better, but you see how far we’re getting with that right now,” he added. So, how will the state pay that bill when it comes due? Sweeney, a Democrat who’s pushed for big changes to public workers’ retirement benefits, says Murphy’s action appears to set the stage for a tax increase. “I think it’s great to reduce the assumption rate, but by increasing the liability at the same time when you don’t have the ability to pay and you’re refusing to do structural reforms, you’re already ... putting yourself in another hole for a tax increase, and saying you have to because of the pension system,” he said.

 

In a statement, a spokeswoman for the state treasurer said Murphy’s administration also is “acutely aware of our growing fiscal needs, particularly our pension costs as we continue down the path to the full actuarially recommended contribution.” That’s one reason why the governor is pushing to grow the economy, find budget savings and increase such taxes as the millionaires tax, spokeswoman Jennifer Sciortino said.

What does she mean by economic growth? Each year, state finances benefit from some degree of growth in the economy. This year, Murphy’s administration is projecting 3.5 percent growth in tax revenues. That’s more money the state will take in from corporations, gross income taxes, sales taxes and other revenue sources.

 

So natural economic growth will do some of the work. But spending all of that new tax revenue on pensions would leave no cash for new initiatives or the normal year-to-year increases in the cost of doing business. And that’s if the economy keeps growing and tax revenues keep rising. Economists, however, are predicting the country could slip into a recession by 2020.  Wall Street rating agencies are already warning that a downturn will put New Jersey’s pension payment that year at risk. “We believe that the record national economic expansion has helped New Jersey achieve its current contribution percentage, but reaching full … funding might prove difficult if a recession intercedes between now and (fiscal year) 2023,” S&P Global said in a July report.

 

There’s a better way, Sweeney said. His proposals to reduce the cost of government in New Jersey — he calls it the Path to Progress — have gotten a lot of attention, mostly for the headline-grabbing reforms to public-worker retirement and health care benefits. But a much more technical and overlooked piece of his pension overhaul would change — again — the scheduled cuts to the assumed rate of return. He said a slower phase-in that would take an extra year to get to 7 percent can avoid the $1.2 billion cliff. “We could fix this without raising taxes if it was done in a better way,” he said. “But they’re looking at it just to put themselves in a position for tax increases because, I think, that’s all this administration talks about is raising taxes.”

 

NJ Public Worker Healthcare Costs to Decrease Next Year

John Reitmeyer,  NJ Spotlight, September 9, 2019

 

Health-insurance premium rates are on course to drop next year for many public workers in New Jersey, thanks to recent administrative changes that are now starting to impact the bottom line. But even with the lower rates — and anticipated savings for many taxpayers as a result — debate over the cost of employee benefits is expected to heat up in Trenton in the coming months. (State Department of Treasury officials did not provide any estimate on the projected taxpayer savings.) The new premium rates for 2020 were approved last week by the joint management and labor commissions that help administer health-insurance programs for employees of both local governments and school districts where the employees are insured through the state-level pools. Local governments and school districts also have the option of using private brokers to arrange employee insurance plans, and many choose to do so.

 

For active workers and retirees covered by the State Employees’ Health Benefits Program, the rates for medical and prescription coverage are set to drop by a combined 3.8 percent next year, according to information released late last week by the Treasury. For all workers and retirees covered by the state School Employees’ Health Benefits Program, rates will be dropping by a combined 2.3 percent.  Gov. Phil Murphy touted the lower rates as evidence that fiscal policies enacted since he took office early last year are generating savings for taxpayers. (In New Jersey, employee healthcare costs are shared by both workers and their government employers.) But lawmakers who’ve pressed for more efficiencies in employee health-insurance offerings in recent years also took credit for the savings, and said they underscore their own calls for more drastic reform.

 

Not all employees of local governments and school districts participate in the state-level health-insurance programs, but those that do see their annual rates set by the joint labor and management boards that meet in Trenton. Local government employees are eligible to enroll in the State Employees’ Health Benefits Program and school-district employees are eligible to enroll in the School Employees’ Health Benefits Program. (More than half of local government employees are enrolled in the State Employees’ Health Benefits Program, and roughly 30 percent of school-district employees are enrolled in the School Employees’ Health Benefits Program.) Under the latest rates approved by those commissions, the medical and prescription rates for active school-district employees enrolled in the State Employees’ Health Benefits Program are dropping by 4.3 percent. Rates are also remaining flat for local-government early retirees and Medicare retirees, yielding the combined 3.8 percent reduction.

 

Meanwhile, for active workers in the School Employees’ Health Benefits Program, rates are dropping by 4.5 percent next year. Early retiree rates are also dropping, by 4.8 percent. But Medicare retiree rates will rise by 8.4 percent, yielding the combined 2.3 percent overall reduction. (Officials blamed the increase for Medicare retirees on a new federal tax required under the Affordable Care Act.) Among the administrative reforms credited with helping to generate the lower rates are the new way the state manages both prescriptions drug contracts and out-of-network services. They include incentivizing vendors to find savings, Treasury officials said. Efforts have also been made to improve state oversight of medical billing and insurance-enrollment practices and conduct audits to identify ineligible enrollees, they said.

 

“The fiscally responsible path we’re putting New Jersey on — a dogged pursuit to lower the cost of healthcare, collaboration with our public-union partners, and bolstering our pension system — is the right one,” Murphy said in a statement. “This is certainly good news for property taxpayers who have become accustomed to shouldering cost increases year after year,” state Treasurer Elizabeth Maher Muoio. Senate President Steve Sweeney (D-Gloucester), in response to Treasury’s announcement, also heaped praise on lawmakers like Sen. Paul Sarlo (D-Bergen) for helping to bring attention to the need to make the administrative changes to find savings.

 

“The 4 percent average reductions in healthcare premiums for employees enrolled in the state health benefit plans in 2020 is just the first down payment on hundreds of millions of dollars in savings on prescription and medical payments that will be produced through the Pharmacy Benefits Manager and Third-Party Administrator programs’ claims monitoring,” Sweeney said. It’s no surprise that Murphy and Sweeney viewed the savings in different ways as the two Democratic leaders have been locked in an ongoing debate about the cost of public-worker benefits for well over a year.

 

At the heart of their conflict is a strain on the state budget caused by an ongoing ramp-up in state pension contributions, which was set in motion by former Republican Gov. Chris Christie. The ramp-up is intended to address an unfunded pension liability that totals more than $100 billion by some estimates. But unfunded healthcare costs for retirees are also a significant challenge for the state, and that liability is estimated at nearly $100 billion. (The annual state budget is $38.7 billion.) In the face of those fiscal challenges, Murphy, who took office in 2018, promised to re-establish a more cooperative relationship with public-worker unions after eight years of largely combative interactions between management and labor during Christie’s tenure. Murphy believes labor and management can work together to find ways to make savings without drastically cutting benefits.

 

But Sweeney, a veteran Senate leader, has taken the position that more drastic reform is needed to keep employee healthcare and pension costs from taking up too big a share of the annual budget; pension costs alone are expected to rise well above $4 billion when fiscal year 2021 begins next year.  To help reduce spending on employee benefits, Sweeney is backing a series of reforms that were put forward last year by a team of fiscal-policy experts he convened; these were included in a report called the “Path to Progress.” One of the proposals calls for the establishment of a new hybrid retirement system for many new workers and those with less than five years of service that would see teachers and other government workers — but not police officers, firefighters and judges — receive a defined-benefit pension on only up to $40,000 of salary.

 

Other reforms backed by Sweeney would impact public-worker healthcare coverage, including a call to move workers from what would be considered “platinum” level coverage under the federal Affordable Care Act to “gold” level coverage. The classifications generally relate to how much of the cost of coverage is picked up by the patient, with platinum-level coverage leaving 10 percent to the patient and gold level leaving 20 percent.  But Murphy has not embraced the benefits changes backed by Sweeney and has instead pointed to the ongoing savings that his administration has pursued by working cooperatively with unions like the Communications Workers of America and the New Jersey Education Association. The governor has also been pushing for higher taxes, including the establishment of a millionaires tax, to help the state afford a ramp-up to full funding of the annual pension contribution by fiscal 2023.

 

Just last week, Murphy threw his support behind a new healthcare proposal that’s gaining steam in the state Assembly that would ease healthcare costs for teachers, in part by linking their contributions to salaries instead of premiums. That plan, which would undo some changes that were championed by Christie in a controversial 2011 law known as Chapter 78, is opposed by Sweeney.

 

 

Municipalities Weigh Options for Future Labor Deals by David Cruz, Senior Correspondent of NJTV News

Please view the video here.

Back in the early days of the Christie administration, the Republican governor unveiled a tool kit intended to give municipalities a way to control property taxes. Included in that kit was a 2% cap on public employee salary increases, salary arbitration awards and on local tax increases. The new governor allowed the salaries and arbitration award limits to expire last year, though. The 2% limits on local tax increases, however, was permanent, and that has created the potential for budget imbalances, which brought together a hearing room full of municipal financial officers to figure out what the new landscape will look like for negotiations with public employee unions.

“Caps are really an insult to good county and local elected officials. If you’re doing your job, you don’t need a cap,” said keynoter Sen. Declan O’Scanlon. “They also punish folks that have run their governments efficiently before a cap is inflicted on you. If you’ve got a lot of fat in your budget and you were doing a crappy job, a cap doesn’t hurt you all that much. You can go years because you’ve got a lot of fat left in your budget. If you’ve been responsible at the time we place a cap on you, sorry, you’re being punished for your previous responsibility.”

The problem, according to this room full of the management side of labor relations, is that without the caps on salaries and arbitration awards, the unions will be emboldened, confident that their demands will more likely be met by an arbitrator than by municipal management.

“One of the topics that came up was about asking for substantial increases — as a matter of fact, going to the table and demanding substantial increases, and going to the table prepared by scrubbing municipal budgets, by looking for where there is money that is available so that it’s not necessarily burdening the taxpayers, but going in and demanding money from your budgets and from your balance sheets from places like reserves that have been built over time,” said the Town of Harrison’s CFO Gabriela Simoes Dos Santos.

The real wild card in labor relations going forward is the elimination of Chapter 78, which increased the amount union workers have to pay toward their health coverage. That number is now open to negotiation on the local level, much to the consternation of local management.

“We cannot predict. If I go to the CFO and say I settled a contract at 3% inclusive of increment, can you cost that out for the next three years, he can cost that out. He can budget for it; he can understand it,” explained Giacobbe. “But if I say ‘John, I just reduced the chapter 78 top tier from 35 to 26%, cost that out,’ how do you cost that out? You don’t know where health benefits are going to go. Every year they go up 10%, sometimes they go up zero. The next year they go up 20%.”

It won’t come as a shock to anyone, but the police union — the PBA — says that management is less interested in good labor relations and more interested in eliminating benefits and requiring more from workers.

“We’ve made such changes in our health benefits system and made so many concessions — not just chapter 78 payments, not that we’re paying a third as law enforcement — but just the lower level of benefit that our members are taking day to day,” countered New Jersey Police Benevolent Association Health Benefits Administrator Kevin Lyons.  In the end, all this stuff — interest arbitration caps, salaries, who wins, who loses –matters to you. Because, come tax time, the person who foots the bill for all this is you.

 

 
 
On a side notehere is the Contracts presentation provided by Town of Harrison’s CFO Gabriela Dos Santos as well as Various Financial Analyst and Contract Cost Out With Budgetary Impact presented by Borough of Wharton’s CFO Jon Rheinhardt.


 

State House News for Finance Officers

July 19, 2019

 

Interest Arbitration

 

GFOA, the New Jersey State League of Municipalities (NJLM), the New Jersey Municipal Managers Association (NJMMA), and the New Jersey Association of Counties (NJAC)  have joined forces to assemble an outstanding panel of finance officers, labor attorneys, and local governing body administrators that will provide management with effective strategies and recommended best practices on how to navigate the unlevel playing field created by the failure of State leaders to permanently extend the 2% cap on binding interest arbitration awards. 

 

Senator Declan O’Scanlon (R-11), an Interest Arbitration Task Force Member, will deliver the keynote remarks followed by leading labor attorneys Matthew Giacobbe and Joseph M. Hannon, who will address the current state of negotiations.  Town of Boonton Administrator Neil Henry will provide a comprehensive case study and highly regarded finance officers Jon Rheinhardt and Gabriela Simoes Dos Santos will discuss the significance of analyzing and preparing critical financial data. 

 

The workshop will also recommend new legislative strategies to address the continued inaction of State leaders that has inequitably altered the collective bargaining process in favor of labor at the expense of property taxpayers, and recommend best practices for management, some of which include: expecting aggressive and coordinated negotiating tactics from collective bargaining units;  making sure to use general counsel and an experienced labor attorney to negotiate directly with collective bargaining units; preparing comprehensive financial analysis that includes a complete and accurate picture of a governing body’s ability to pay; compiling salary, wage, and fringe benefits data, and all other relevant information, to address false claims and statements made by collective bargaining units; and, staying strong on health benefit concessions, particularly with retirees and rolling back Chapter 78 requirements. 

 

This important and timely workshop is scheduled for 10:00 a.m. – 12:00 p.m. on July 31st in Committee Room 4 of the State House Annex in Trenton. The event is free for public officials, but space is very limited, so please make sure to let us know at knolan@njac.org if you plan on attending as we expect to close registration shortly. 

 

Workers Compensation

 

On July 8th,  Governor Murphy signed into law Senate, No. 716 (Greenstein D-14/Bateman R-16)(Quijano D-20/Benson D-14), which would establish the “Thomas P. Canzanella Twenty First Century First Responders Act.”

 

In general, this new law establishes a presumption of workers’ compensation coverage for public safety workers and other employees under certain circumstances. More specifically, the law provides that if a public safety worker can demonstrate that in the course of his or her employment, the worker is exposed to a serious communicable disease or a biological warfare or epidemic-related pathogen or biological toxin, all care or treatment of the worker, including services needed to ascertain whether the worker contracted the disease, shall be compensable under workers' compensation, even if the worker is found not to have contracted the disease.  If the worker is found to have contracted a disease, there would be a rebuttable presumption that any injury, disability, chronic or corollary illness or death caused by the disease is compensable under workers' compensation.

 

The measure further provides workers’ compensation coverage for any injury, illness or death of any employee, including an employee who is not a public safety worker, arising from the administration of a vaccine related to threatened or potential bioterrorism or epidemic as part of an inoculation program in connection with the employee’s employment or in connection with any governmental program or recommendation for the inoculation of workers. The law also establishes a rebuttable presumption that any condition or impairment of health of a public safety worker which may be caused by exposure to cancer-causing radiation or radioactive substances is a compensable occupational disease under workers' compensation if the worker was exposed to a carcinogen, or the cancer-causing radiation or radioactive substance, in the course of employment.  Employers are required to maintain records of instances of the workers deployed where the presence of known carcinogens was indicated by documents provided to local fire or police departments under the “Worker and Community Right to Know Act,” and where events occurred which could result in exposure to  carcinogens.

 

In the case of any firefighter with seven or more years of service, the  law creates a rebuttable presumption that, if the firefighter suffers an injury, illness or death which may be caused by cancer, the cancer is a compensable occupational disease. The measure further provides that, with respect to all of the rebuttable presumptions of coverage, employers may require workers to undergo, at employer expense, reasonable testing, evaluation and monitoring of worker health conditions relevant to determining whether exposures or other presumed causes are actually linked to the deaths, illnesses or disabilities, and also requires that the presumptions of compensability are not adversely affected by failures of employers to require testing, evaluation or monitoring. The measure covers paid or volunteer emergency, correctional, fire, police, and medical personnel.  

GFOA remains concerned that this new law may increase annual expenditures by local governing bodies that employ  public safety workers as it  shifts the burden of proof from the worker to the employer in certain cases, which may produce increased claims for workers’ compensation benefits and the requirement for employers to maintain additional records.  GFOA is also concerned that the new law will result in increased premium costs to provide workers’ compensation coverage as the measure may increase the pool of individuals filing claims.

 

Job Applicant Wage and Salary Experience

 

On June 20th, both houses passed and sent to the Governor Assembly, No. 1094 (Downey D-11/Lampitt D-6)( (Gill D-34/Weinberg D-37), which would prohibit employer inquiries about a worker’s wage and salary experience under certain circumstances. 

 

In summary, this legislation would make it an unlawful employment practice for any employer:  to  screen a job applicant based on the applicant’s salary history, including, but not limited to, the applicant’s prior wages, salaries or benefits; or, to require that the applicant’s salary history satisfy any minimum or maximum criteria. Under the bill, an employer may consider salary history in determining salary, benefits, and other compensation for the applicant, and may verify the applicant’s salary history, if an applicant voluntarily, without employer prompting or coercion, provides the employer with that salary history.  An applicant’s refusal to volunteer compensation information would not be considered in any employment decisions.  An employer may also request that an applicant provide the employer with a written authorization to confirm salary history, including, but not limited to, the applicant’s compensation and benefits, after an offer of employment, which offer includes an explanation of the overall compensation package, has been made to the applicant.

 

The legislation would not apply to: applications for an internal transfer or a promotion with an employee’s current employer, or use by the employer of previous knowledge obtained because of prior employment with the employer; any actions taken by an employer pursuant to any federal law or regulation that expressly requires the disclosure or verification of salary history for employment purposes, or requires knowledge of salary history to determine an employee’s compensation; and, any attempt by an employer to obtain, or verify a job applicant’s disclosure of, non-salary related information when conducting a background check on the job applicant, provided that, when requesting information for the background check, the employer shall specify that salary history information is not to be disclosed.  If, notwithstanding that specification, salary history information is disclosed, the employer shall not retain that information or consider it when determining the salary, benefits, or other compensation of the applicant. 

 

The legislation would further provide that employer inquiries regarding an applicant’s previous experience with incentive and commission plans and the terms and conditions of the plans, provided that the employer shall not seek or require the applicant to report information about the amount of earnings of the applicant in connection with the plans, and that the employer shall not make any inquiry regarding the applicant’s previous experience with incentive and commission plans unless the employment opening with the employer includes an incentive or commission component as part of the total compensation program. Governor Murphy is expected to sign the bill into law. 

 

On-Site Lactation Rooms

 

On May 23rd, both houses passed and sent to the Governor Senate, No. 1735 (Weinberg D-37/Ruiz D-29)(Pintor-Marin D-29)(Mosquera D-4), which would require certain public facilities to provide an on-site lactation room. 

 

In summary, this legislation  would require every health care facility; federally qualified health center; county or municipal welfare office or agency; Medical Assistance Customer Center (MACC); One-Stop Career Center operated by, or under the authority of, the Department of Labor and Workforce Development; adoption agency or center operated by, or under the authority of, the Division of Child Protection and Permanency in the Department of Children and Families; foster care agency contracted by the Division of Child Protection and Permanency; or local office of the Division of Child Protection and Permanency, where practicable, to make at least one lactation room available, upon request, to any mother who is utilizing on-site services.  The presence of any such lactation room would not abrogate or otherwise limit the mother’s right to breast feed her baby in public, as provided by existing law.

     

The bill would  require the Department of Health (DOH) to create signage that:  contains information about breast feeding; affirms a mother’s right to nurse in public; and indicates that lactation rooms are being made available for the privacy and comfort of nursing mothers, pursuant to the bill’s provisions.  Such signage is to be distributed directly to the various facilities identified in the bill, and is also to be posted, in a printable format, on the department’s Internet website.  A facility that is required to provide a lactation room pursuant to the bill’s provisions would be  required to display the prepared signage in a clear and conspicuous manner in the facility’s public waiting room, as well as in any lactation room that is made available. The measure would further require that  no later than one year after the bill’s effective date, DOH would be required to establish, and post at a publicly accessible location on its Internet website, a list of all facilities that have made lactation rooms available pursuant to the bill’s provisions. 

 

The Office of Legislative Services (OLS) concluded in its Fiscal Estimate that the legislation may “increase State costs … in fulfilling certain administrative and reporting requirements,” so it’s unclear if Governor Murphy intends to sign the bill into law at this time.

 

Public Official Pension Forfeiture

 

On May 30th, both houses passed and sent to the Governor Assembly, No. 3766 (Armato D-2/Houghtaling D-11)(Corrado R-40), which would require a public officer or employee to forfeit their pension under certain circumstances 

 

More specifically, this legislation would require a public officer or employee to forfeit their pension if  convicted of sexual contact, lewdness, or sexual assault when the offense is related directly to the person's performance in, or circumstances flowing from, the specific public office or employment held by the person.    The bill would also require such forfeiture if the person is convicted of the crime of corruption of public resources in the first degree. The crime is of the first degree when a person knowingly uses or makes disposition of a public resource valued at $500,000 or more for an unauthorized purpose, when that public resource is subject to an obligation to be used for a specified governmental function or public service.

 

The measure would define “public resource” as any funds or property provided by the government, including (1) money paid by the government; (2) transfer by the government of an asset of value for less than fair market price; (3) fees, loans, or other obligations normally required for a contract, that are paid, reduced, or waived by the government; (4) money loaned by the government to be repaid on a contingent basis; (5) money loaned by an entity based upon a guarantee provided by the government; (6) grants awarded by the government; and (7) credits applied by the government against repayment obligations.  Governor Murphy is expected to sign this bill into law.

 

NJ Cops and Firefighters are asking for much Bigger Raises.  Here’s Why.

Samantha Marcus, NJ Advance Media for NJ.com, July 14, 2019 

 

After West Windsor’s police contract expired at the end of last year and negotiations with the township stalled, the union turned to an arbitrator to break the impasse. The local union’s demands? Four percent annual pay hikes for sergeants and for patrolmen at the top of the scale and 2 percent annual wage increases for everyone else, in addition to the standard wage increases officers receive for additional years of service. The township of course came in with a lower counter-offer. And, ultimately, the arbitrator awarded two years of 2-percent raises and two years of 2.25 percent raises for everyone.

 

Sound like business as usual to you? No, say local government lobbyists. They fear it could be a sign of bigger raises for police and firefighters who are emboldened to ask for more following the state’s controversial decision not to renew a law designed to help curb property taxes. That law set a 2-percent cap on wage increases public-sector unions could win in interest arbitration. The West Windsor arbitration award is one of just three to emerge since the cap expired in December 2017, opening the door for police and firefighters to get bigger raises when contract talks stall between their unions and municipalities.  The state’s League of Municipalities and Association of Counties continue to urge lawmakers to extend the cap, which they say helped slow the growth of the nation’s highest property taxes. Last year, the average residential property tax bill in New Jersey was $8,767.

 

Without the limits on arbitration, they said local government leaders would have to cut spending and reduce services to stay within the bounds of a separate 2 percent cap on increases in spending. While the three arbitration awards issued so far indicate arbitrators are sticking pretty close to spirit of the 2 percent cap, the West Windsor award demonstrates the kind of “creep” that concerns local government employers, said Mike Cerra, assistant executive director of the New Jersey League of Municipalities. In the decades before the cap was installed in 2011, arbitration awards ranged from 2 percent to nearly 6 percent. Interest arbitration awards aren’t going to jump to 6 percent overnight, experts said. Instead, Cerra said, “What we’re likely to see is over the course of time a creeping upwards. This community got 2.25 percent, for this reason this town should get 2.5 percent, and for that basis this town increases to 2.75 percent.” 

 

A 207 study, which was derided as one-sided by labor groups — determined the arbitration cap had saved taxpayers $530 million from police and firefighters salaries between 2010 and 2015. Employers and unions head to arbitration when they can’t agree on contract terms, such as wages, health care contributions, vacation time or other conditions of employment.  The vast majority of contracts are settled through voluntary negotiations. That’s where the real impact is being felt, Cerra said. “The level playing field we think the interest arbitration cap created has now been unleveled,” he said. “You are seeing these local bargaining units, who believe that they need to recapture what was lost, coming in with higher proposals across the board because they have the fallback option of interest arbitration.” Local government leaders engaged in collective bargaining are reporting back with opening offers from police and fire unions of 4 percent and 5 percent, Cerra said.

 

“The police and firefighters in collective bargaining units are coming in very aggressive,” said John Donnadio, executive director of the New Jersey Association of Counties. “You’re seeing in negotiations that the parties are starting further apart.” Michael Freeman, vice president of labor relations for the New Jersey State Policemen’s Benevolent Association, said the unions’ asks have been within the context of what the municipalities can afford and with the interests of taxpayers in mind. “We’re not asking for 6 percent. We understand the landscape. We understand there was a need to make some changes,” he said. “We’ve done our part, and we just want to recoup some of the losses that we’ve had.” “We’re never going to go in with anything unreasonable.”

 

Between required increases in the pension and health benefit contributions, “our buying power has been decreased considerably,” he said. “And that money going back to municipalities comes out of our paychecks.” Freeman said he expects most arbitration awards will be in line with the West Windsor award, more or less, as arbitrators are still required to weigh what the municipality can afford, employee morale, comparable pay and what the market will bear. In Bedminster, Policemen’s Benevolent Association Local 366’s final offer included 2-percent raises for all officers every six months — on Jan. 1 and July 1 of each year — for the term of the four-year contract. The union argued its members had suffered financially under the 2 percent cap and by a state law requiring them to pick up a larger share of their health care costs and they needed to make up lost ground, according to the arbitrator’s decision.

Armed with data on the township’s finances, the local PBA said the township had amassed a healthy surplus and it could absorb the higher payroll costs.

 

Meanwhile, the township offered raises between 1.6 percent and 1.8 percent each year — and only for sergeants and officers at the top of the salary guide. All others would continue to receive annual increases tied to years of service. The arbitrator’s final award, which has been appealed, would boost salaries for sergeants and officers at the top of the salary guide by 2 percent every year and granted one 2-percent across-the-board raise. This, the arbitrator said, would “allow the township to continue to maintain its fiscal responsibility to the taxpayers while providing the officers a fair and reasonable increase and as such is in the public interest.”

 

Donnadio said he’s concerned unions are calling out local governments’ reserves in assessing their ability to pay — and that arbitrators will take this into account. “I know that’s something that they believe they’re entitled to as well,” he argued. “The reserves are for rainy days and an emergency, not to pay general everyday operating expenses.” But, Freeman countered, local governments were able to amass those reserves by paying police and firefighters less. “They have more,” he said. “We’re making less.”

 

New Foreclosure Law Aims to Inhibit Loss of Affordable Homes in NJ

Colleen O’Dea, NJ Spotlight, July 15, 2019

 

A law signed recently by Gov. Phil Murphy requires that whenever a mortgage holder starts foreclosure proceedings on a home that is deed-restricted as affordable — meaning there is a cap on its sale price and it can only be purchased by those with low or moderate incomes — the mortgage holder must notify the municipality where the home is located. This will give municipal officials the option of purchasing the home if they think it makes sense.

 

The loss of a low-priced home in a state with some of the highest housing costs in the nation further exacerbates New Jersey’s affordability problem. It also could hurt municipalities that had already fulfilled prior housing obligations. Under several state Supreme Court decisions known as the Mount Laurel Doctrine, every community is required to provide for its fair share of needed low-cost housing. Some 300 municipalities have built or approved the construction of affordable homes dating back as early as the mid-1980s. A municipality must replace a lost affordable unit, according to Murphy’s conditional veto of an earlier version of the bill. The Housing and Community Development Network of New Jersey applauded the new law, signed late last month by Murphy.

 

“We feel it is critical New Jersey does not lose any affordable homes,” said Nina Rainiero, a spokeswoman for the network. “Public funds were invested into making these homes affordable and this bill ensures that public investment will not be lost because of foreclosure. Plus, it provides another family an opportunity to live in a home that’s affordable.” The new law does not go as far as its sponsors had hoped. As sent to Murphy last March, the measure would have required that the deed restriction on an affordable home remain in force even after a foreclosure and thus ensure that it could be re-sold at a below-market price and only to those whose incomes qualify.

 

Murphy had conditionally vetoed the measure, S-362, last May, saying that while the bill was well-intentioned, it could have made it difficult for most low-income families to buy an affordable home. That’s because Federal Housing Administration regulations expressly prohibit the use of FHA loans to purchase a property whose deed restriction will not expire with a foreclosure. “This bill may actually hurt the very low- and moderate-income families it is intended to benefit by making it more difficult for these families to obtain a mortgage,” Murphy wrote. “This bill would effectively preclude all prospective affordable unit homeowners from accessing any FHA loan or insurance products. This is problematic because many first-time low- and moderate-income homebuyers rely on FHA loan products to secure the financing necessary to purchase their homes ... Few low- and moderate-income applicants have the capital on hand to obtain a private loan and the universe of lenders providing loans for the purchase of homes with affordability controls is relatively small.”

 

Additionally, Murphy continued, it would “further disadvantage” prospective purchasers of affordable units because they would no longer qualify for a financial assistance program offered by the New Jersey Housing and Mortgage Finance Agency that includes a 3.5 percent down payment option and $10,000 to cover the down payment and closing costs. The HMFA is only allowed to provide this assistance to homebuyers getting FHA loans. Murphy retained the provisions in the legislation requiring creditors to inform municipal officials of their intent to foreclose on a home with an affordability restriction, saying that will put the question of trying to maintain a low-cost unit in the hands of local officials.

 

“This notice will ensure that municipalities do not miss an opportunity to intervene in foreclosure proceedings and, where appropriate, preserve a home’s affordability controls,” Murphy wrote in the conditional veto. In his veto message, Murphy said municipal officials may choose not to maintain as affordable some older foreclosed homes but might decide to replace them with newer units.  Currently, municipal officials are in the midst of establishing new affordable housing obligations through 2025 under a process that is taking place in the courts. The Fair Share Housing Center, which has been part of legal actions and negotiations as part of this process, says it has now reached settlements with 289 municipalities, more than half of those across the state. The number of new units that these settlements call for is unknown, but Kevin Walsh, Fair Share’s director, said they could result in the construction of 50,000 new affordable homes. In March 2018, a Superior Court judge estimated the need for new affordable units at close to 155,000 statewide. Municipalities do not have to build low-cost units, but they do have to put in place zoning that would allow for the construction of their obligated number of affordable units.

 

The new law also mandates that a mortgage holder provide a property owner with contact information for both the municipal housing official and NJHMFA so that the owner can consult with them and try to get help to retain the home. Sen. Ronald Rice (D-Essex), one of the primary sponsors of the law, said these efforts are necessary because the large number of foreclosures in the state has led to the loss of affordable units, given that a significant portion of properties in foreclosure are deed-restricted. He said that last year, New Jersey finalized close to 70,000 foreclosures and led the nation for those procedures. “It’s heartbreaking to know so many families are losing their homes,” Rice said. “But the situation is compounded when affordable housing properties go into foreclosure and are then stripped of the deed restriction that ensures their affordability. In times like this, when more and more New Jersey residents are faced with difficult economic conditions, we need more affordable housing protections, not less.”



Executive Order No. 73


     WHEREAS, on March 5, 2019, I fulfilled my duty as Governor by delivering my budget recommendations for Fiscal Year 2020 to a joint session of the New Jersey State Legislature, proposing a responsibly balanced budget plan, along with recommended supporting legislation, designed to make New Jersey stronger and fairer for all residents, not just a select few, and to continue the progress we made last year together with my respected partners in legislative leadership for the benefit of the State; and

     WHEREAS, in recognition of my constitutional obligations to faithfully execute New Jersey's laws and manage the fiscal affairs of our State in a prudent and responsible manner, my budget recommendations included a realistic proposal to fund our important, shared priorities in a comprehensive way while, at the same time, growing the State's inexcusably inadequate fiscal surplus, which under recent budgets had irresponsibly dwindled to as little as one percent of budgeted spending; and

     WHEREAS, in making my budget recommendations, I sought to improve New Jersey's notoriously poor and widely recognized national fiscal standing compared to other state governments in preparedness for a national economic downturn, a natural disaster, or other unexpected occurrence negatively affecting revenue collections during the fiscal year; and

     WHEREAS, throughout the spring, the State Treasurer repeatedly highlighted the need for a dramatically enhanced undesignated closing fund balance for New Jersey in Fiscal Year 2020, as well as a robust contribution to our Surplus Revenue Fund, first established in 1990 and more commonly known as our "Rainy Day Fund," which would be the first contribution in 11 years and would be made, as required by law, based on the higher than anticipated revenues collected near the end of Fiscal Year 2019; and

     WHEREAS, my recommendations included a limited number of commonsense recurring revenue-raising measures, including a modest increase on annual taxable income exceeding $1 million, a fee on the manufacturers and distributors of opioids to help offset the costs of crucial programs to battle the opioid epidemic in New Jersey, a fee on companies that irresponsibly deny health benefits to their employees, costing the State millions annually, a small fee increase for hunting and killing bears, and an increased fee for gun ownership that has not been increased since the 1960s, to help continue to pay for all of the spending initiatives included in the Fiscal Year 2019 budget, plus the costs of new programs, services, and benefit levels enacted into law throughout the fiscal year since July that were not included in the Fiscal Year 2019 budget, plus any new or additional spending included by the Legislature for Fiscal Year 2020, while appropriately growing the State's undesignated fund balance and our Rainy Day Fund; and

     WHEREAS, throughout the Fiscal Year 2020 budget process, legislative leadership continued to disregard the need to build and maintain a responsible surplus, instead declaring that a Rainy Day Fund contribution would not be appropriate this year, while at the same time proposing significantly increased spending for Fiscal Year 2020 and not taking any actions to amend or supplement the Rainy Day Fund law to eliminate the statutory requirement that a contribution be made for Fiscal Year 2019; and

     WHEREAS, in 1984, Governor Kean enacted P.L.1984, c.213 to establish a New Jersey State and Local Expenditure and Revenue Policy Commission ("Commission") for the purpose of conducting a systemic and comprehensive review of our State and local tax structure and recommending corrective actions to ameliorate imbalances in that structure, in particular by building upon the strength of New Jersey's economy and diverse workforce; and


     WHEREAS, among several budget reforms recommended by the Commission to improve fiscal planning and control in New Jersey was a recommendation that the State create a Rainy Day Fund, separate from other funds that support ordinary State spending, including the General Fund and the Property Tax Relief Fund, in order to accomplish three distinct, but related, goals: (1) create a responsible cushion to cover any cash flow problems that the State might experience during the course of a fiscal year; (2) maintain a reasonable reserve against unforeseen events, such as natural disasters; and (3) provide countercyclical assistance by setting aside unexpected surplus revenues during times of prosperity and statutorily restricting such revenues for use only during an unanticipated economic slowdown; and

     WHEREAS, on June 27, 1990, Governor Florio enacted Senate Bill No. 1 (1990) ("S1") into law, P.L.1990, c.44, creating the Rainy Day Fund in what the Governor described as "an historic moment for New Jersey;" and

     WHEREAS, Governor Florio's public remarks at the bill signing event for S1 included the following hopeful, but unfortunately rather prescient, observations: "The Rainy Day Fund gets us off the financial roller coaster. A ride that has left us breathless, unable to plan for our future. A ride that common sense tells us we can't continue . . . . The [Surplus Revenue] Fund sets aside excess revenues. They can't be touched by the Governor or the Legislature. They can only be used if an economic downturn leads to a budget deficit – as was the case this year, when I came into office facing a $600 million budget deficit. . . . It's mindboggling to consider how we became a fiscally precarious state. We had some good economic times in New Jersey. The sad thing is we spent every penny we made and then some. The State government was like a family that bought a Porsche before putting away for the kids' education. We spent money we shouldn't have; and then we spent money we didn't have;" and

     WHEREAS, in those same public remarks, Governor Florio questioned the wisdom and fairness displayed by certain contemporary legislators who "tried to stop progress because they like the status quo," more particularly because they opposed the establishment of a recurring revenue source; in that case they "like[d] a system where millionaires pay the same tax rates as a family of four trying to get by on $50,000 a year. I think that's unfair;" and

     WHEREAS, Governor Florio's wise sentiments from nearly three decades ago remain equally true today; and

     WHEREAS, at the time when the Rainy Day Fund was created, the State of New Jersey's bond rating was AAA, as compared with its current general obligation bond rating of A-, three levels above junk bond status, which among other detrimental effects makes it more costly to borrow money when necessary; and

     WHEREAS, a report, released by Moody's Investors Service ("Moody's") on May 20, 2019, noted that 48 states are either "strongly" or "moderately" prepared for a recession because of their healthy reserve levels and fiscal flexibility; unfortunately, New Jersey was one of only two states that Moody's identified as having "weak" recession preparedness due to its large future obligations, such as pensions and health benefits, inadequate recurring revenues, and insufficient surplus; and

     WHEREAS, New Jersey's regrettable experiences during the Great Recession of 2008-2009 starkly illustrate the wisdom displayed by Governor Florio and the responsible legislators of the early 1990s, who foresaw the dire financial circumstances that were likely to confront New Jersey in the event of a future recession: in the Great Recession, State revenues in Fiscal Year 2009 fell by $3.6 billion, or 11 percent, below forecasts and by nearly $1.8 billion, or 5.9 percent, in Fiscal Year 2010, prompting draconian cuts to services and threatening the benefits relied upon by the State's most vulnerable residents; and

     WHEREAS, prior to the outset of the Great Recession, in Fiscal Year 2007, the State enjoyed an undesignated fund balance (commonly referred to as the "surplus") of nearly $2.104 billion and a Rainy Day Fund balance of $484.6 million, which both were fortunately available to cushion the blow to taxpayers and vulnerable residents as the State spent the Rainy Day Fund down to zero in just two years' time; and


     WHEREAS, since the complete depletion of our Rainy Day Fund in Fiscal Year 2009, the Legislature has regrettably failed to enact an annual appropriations act with an undesignated fund balance above two and a half percent of spending, despite reducing several taxes including the Sales and Use Tax, which, for example, was lowered in 2016 in a manner unnoticeable to most taxpayers but which has cost the General Fund nearly a billion dollars, while at the same time constantly increasing expenditures; and

     WHEREAS, New Jersey's relatively meager undesignated fund balance lags far behind those of our peer states which, according to the National Association of State Budget Officers ("NASBO"), presently maintain an average state surplus of 10 percent of budgeted spending; and

     WHEREAS, the Legislature's dangerous policy of conflating true reserves, which thanks to the wisdom of Governor Florio and past legislators are statutorily required to be placed in the Rainy Day Fund and are capable of being used only in the event of a fiscal emergency like a recession, with undesignated fund balances, which lawmakers may freely appropriate as part of the annual State budget without regard for responsible fiscal management or future preparedness, has made New Jersey one of a small number of states in the nation with a Rainy Day Fund requirement that has absolutely no current balance in its Rainy Day Fund; and

     WHEREAS, during Fiscal Year 2023, the first fiscal year in which our current, temporary Corporation Business Tax ("CBT") surcharge will be completely phased out, the State also will reach the end of a ten-year plan to phase in our full, actuarially determined annual contribution to the State-administered pension funds, a payment from the State budget and from the Lottery that is expected to exceed $6.5 billion; and

     WHEREAS, like our multi-year pension phase-in plan, the statutory plan for increasing funding in support of public schools is likewise being phased in over the next half-decade, increasing annual State spending obligations by hundreds of millions of dollars each and every fiscal year for the foreseeable future; and

     WHEREAS, many credible sources have raised nearly identical concerns about the likelihood of the United States entering a pronounced recession in the foreseeable future, including, for example, a June 2019 report from Morgan Stanley to its clients warning that prudent investors should brace for market turmoil over the next 12 months as Morgan Stanley shifted its cyclical indicator, which aggregates economic and financial market data, from "expansion" to "downturn" in light of weakening credit issuance, consumer confidence, and manufacturing gauges over recent months, and a recent Duke University / CFO Global Business Outlook survey finding that over four-fifths of corporate chief financial officers believe that a recession will begin in the first quarter of calendar year 2021, meaning it is possible that the State will be in the midst of a recession at the exact time one of the State's primary revenue sources will be sunsetting and a State contribution of over $6.5 billion to the pension system will be expected; and

     WHEREAS, instead of enacting a reasonable budget that pays for current expenses with recurring revenues, maintains a responsible surplus, and contributes to the Rainy Day Fund, the Legislature has merely paid lip service to fiscal responsibility as it embraced a budget that relies on some of the grossest forms of exaggerations, assumptions, and other gimmicks to support increased spending in Fiscal Year 2020 while failing to acknowledge the statutory obligation to put hundreds of millions of dollars in the Rainy Day Fund; and WHEREAS, the budget crafted by the Legislature is regrettably lacking in new, sustainable, recurring revenues to support new spending, and instead relies in substantial part on unexplained overperformance by current revenue sources, including both a historically unpredictable tax, the CBT, and the temporary surcharge on net business income in excess of $1 million that, as noted, will decrease from 2.5 percent to 1.5 percent in 2020 and disappear entirely in 2022; and

     WHEREAS, during the May revenue update formally presented to the legislative budget committees, the State Treasurer testified that anticipated Fiscal Year 2020 CBT revenues are expected to be $3.164 billion, while the non-partisan Office of Legislative Services ("OLS") published a substantially more conservative estimate of $3.037 billion, or $126.8 million below the Executive Branch's estimate; and

     WHEREAS, between OLS's testimony on May 15, 2019 and the introduction of the appropriations act on June 17, 2019, the estimate for the CBT relied upon by the legislative majority increased by over $200 million above the Executive Branch's estimate, and by over $300 million above OLS's forecast, to $3.372 billion; and

     WHEREAS, following inquiries, the legislative majority indicated a belief, apparently not shared by OLS, that the State would receive an additional $100 million through the "delayed" taxation of repatriated dividends and would pay out $130 million less in CBT tax credits and $45 million less in Insurance Premium Tax credits during the upcoming fiscal year, all of which run counter to the estimates, methodology, and testimony of the legislative branch's own nonpartisan revenue forecast during the May update; and

     WHEREAS, although New Jersey has enjoyed unexpectedly strong CBT collections in recent weeks, that overperformance is unrelated to delayed taxation of repatriated dividends or unclaimed tax credits; and

     WHEREAS, in addition to unrealistic CBT revenue assumptions that far exceed the estimates published by OLS, the budget passed by the Legislature is also reliant on other exaggerated revenues, including an unexplained doubling of the revenue estimate associated with my Administration's recommended suspended business restoration initiative and an indiscriminate use of OLS revenue estimates only where they are higher than Treasury's, as well as multiple nebulous "savings" initiatives, several of which appear to be of dubious legality, see, e.g., Communications Workers of America v. Florio, 130 N.J. 439 (1992), and are not grounded in reality; and

     WHEREAS, in order to appear to pay for its spending plan, the Legislature also has effectuated ill-advised and needless cuts to important educational programs, some of which will inevitably have harmful impacts on individuals and communities, including cutting about half of the funding I proposed for the transformative Community College Opportunity Grant ("CCOG") program while, at the same time, affirming its value by significantly expanding program eligibility; and

     WHEREAS, in addition, the legislative budget plan includes a scheme to cut $25 million from the State's planned Fiscal Year 2020 pension contribution, replacing those dollars with "decoupled debit" legislation that creates a shortfall in the ten-year pension payment phase-in plan by failing to provide for the full planned pension payment in Fiscal Year 2020, and I conditionally vetoed this legislation to ensure the full planned payment is made; and

     WHEREAS, the cumulative effects of these and other irresponsible budgeting practices have resulted in a legislative budget that more closely resembles budgets approved during the prior administration, which resulted in 11 credit downgrades, than the responsible budget I recommended, setting the stage for continued chaos and fiscal uncertainty in future fiscal years; and

     WHEREAS, in order to continue the progress we have made in improving the State's economic footing and preparedness for inevitable contingencies or worse, including a major economic downturn as predicted by many prominent experts and economists, it is imperative that we build and maintain a robust surplus that includes a substantial contribution to our Rainy Day Fund; and

     WHEREAS, I am advised that, after appropriate mathematical and accounting treatment, the closing undesignated fund balance under the legislative majority's budget will be far less than the $1.41 billion they suggest; and

     WHEREAS, more specifically, I am advised that the current Rainy Day Fund statute, which has not been amended or supplemented to allow the Legislature to divert balances in the Rainy Day Fund for nonstatutory uses, requires a payment of approximately $401.4 million to the Rainy Day Fund, which payment is reflected in the revenue certification I signed today along with this Order, significantly lowering the legislative majority's projected undesignated fund balance; and

     WHEREAS, my revenue certification also reflects other changes, including correcting the legislative CBT estimates to restore greater consistency with the figures published by both OLS and my administration and adjusting for the Legislature's mixing and matching of OLS and Treasury numbers to achieve more realistic levels; and

     WHEREAS, while I do not have the legal authority to increase appropriations in those areas, such as unrealistic Corrections consolidation, exaggerated salary lapses, speculative procurement and audit savings, and other cuts like school aid and emergency 9-1-1 telecommunications upgrades, where the Legislature anticipated implausible savings, or simply underfunded its own spending additions such as personal care assistants, school choice, pretrial services, and Work First New Jersey benefits totaling as much as $235 million, failing to appropriate money to pay for these purposes does not eliminate the need to pay for them; and

     WHEREAS, the Legislature also passed a number of supplemental appropriations concurrently with the budget, violating both the letter and the spirit of the New Jersey Constitution which requires a single annual appropriations law that includes all foreseeable spending for the fiscal year rather than intentional piecemeal budgeting, totaling approximately $12.4 million not accounted for in calculating the overall legislative surplus; and

     WHEREAS, this is not the first time in recent years that the Legislature's penchant for including highly dubious "savings" initiatives in its budget, forcing the administration to attempt to achieve such savings even in the absence of a realistic or even articulable plan, and at the risk of depleting the surplus if the full amount of the savings fails to materialize, has generated a disagreement between the Legislature and the Governor; and

     WHEREAS, in June 2016, Governor Christie confronted a very similar situation involving $250 million in speculative "savings" embedded in the Fiscal Year 2017 legislative budget that were determined to be highly at risk of non-achievement and therefore threatened the maintenance of core government programs and the maintenance of a responsible undesignated closing balance; and

     WHEREAS, more specifically, in Executive Order No. 209 (2016) ("EO 209"), Governor Christie temporarily placed into reserve an equal amount of spending calculated to match the amount of savings that were realistically determined to be at risk of non-achievement based on the information available at the time the budget was enacted, pending the actual attainment of savings; and

     WHEREAS, I am advised that as much as $235 million contained in the Fiscal Year 2020 legislative budget is so questionable as to be designated by the Office of Management and Budget, after thorough review in consultation with the affected departments and agencies, as reasonably warranting "at risk" status; and

     WHEREAS, like Governor Christie, I would like to take my legislative partners at their word that these "at risk" items are realistically achievable during Fiscal Year 2020 as budgeted; and

     WHEREAS, while Governor Christie in EO 209 ordered the placement in reserve of "all legislative additions" to the Governor's recommended budget, as well as "half of the appropriation for Transitional Aid to Localities," which supports financially distressed cities throughout New Jersey including Trenton and Camden, I believe a more thoughtful and focused analysis should be undertaken in determining amounts to be temporarily reserved to effectuate the purposes of this Order; and

     WHEREAS, the facts and circumstances described above and more fully manifested in the legislative majority's budget documents unfortunately prevent me from accepting their spending plan or certifying their suggested revenues in their entirety, and while I cannot add spending to their plan, Treasury and I are authorized to take some necessary actions to ensure that our shared spending priorities are met while much-needed surplus funds are not diverted away from the Rainy Day Fund or misguidedly spent down in Fiscal Year 2020 in anticipation of savings that may never arrive; and

     WHEREAS, the New Jersey State Constitution requires the Governor to take care that the laws of this State be faithfully executed, N.J. Const. (1947) Article V, Section I, Paragraph 11, including ensuring compliance with the constitutional mandate that a balanced State budget be maintained, N.J. Const. (1947) Article VIII, Section II, Paragraph 2; and

     WHEREAS, additionally, the New Jersey Constitution assigns to the Governor alone the authority and responsibility to certify annual State revenues, as well as the ability to disapprove individual items of appropriation, subject to potential legislative override, under the line-item veto power; and

     WHEREAS, during the course of a fiscal year, the Director of the Division of Budget and Accounting ("Director") may take steps to freeze State spending by placing certain funds in reserve in order to ensure that the State's budget remains balanced and to protect against and meet emergencies that may arise during the fiscal year pursuant to N.J.S.A. 52:27B-26, and the Governor also may enjoin expenditures and prescribe the terms on which such expenditures may be made, if at all, pursuant to N.J.S.A. 52:27B-31 to ensure that appropriations are not used to support waste, mismanagement or extravagance in a time of potentially diminished fiscal resources; and

     WHEREAS, failure to exercise these powers now, at the outset of the fiscal year, risks the State potentially lacking resources necessary to maintain a responsible fund balance throughout the year, including sums in the Rainy Day Fund, while it must make statutorily required quarterly pension payments and provide for essential State services and basic operations of State government for Fiscal Year 2020, potentially causing immediate adverse impacts on the residents of the State;

     NOW, THEREFORE, I, PHILIP D. MURPHY, Governor of the State of New Jersey, by virtue of the authority vested in me by the Constitution and by the Statutes of this State, do hereby ORDER and DIRECT:

     1. In light of the facts and circumstances described above, the Director is hereby ordered immediately to identify and place into reserve items of appropriation, pursuant to N.J.S.A. 52:27B-26, in an amount sufficient to ensure that the State budget remains in balance while maintaining a responsible anticipated closing fund balance of $875 million in addition to making a deposit required by the Rainy Day Fund law of $401 million into the Rainy Day Fund attributable to Fiscal Year 2019. The amounts immediately reserved shall be determined by the Director in consideration of the factors and criteria set forth herein, based on information and materials available to the Department of the Treasury, in consultation with the affected departments and agencies, with respect to each such item. Items of appropriation that shall not be considered for reservation pursuant to this Order shall include items supporting current Stateadministered programs, services, and benefit levels, particularly items that relate to the health, safety, or welfare of State residents, all as determined by the Director. As to other items of appropriation, the Director shall consider relevant factors including, but not limited to, the amount of the item of appropriation, its intended purpose, recipients, and intended beneficiaries, the likely statewide or localized impact of the item, the history of State support for the item, the timing during the fiscal year of any payment(s) in support of the item, the ability to delay payment until later in the fiscal year while monitoring overall budget performance, and such other factors as the Director determines to be relevant in fairly and evenhandedly evaluating items of appropriation for reservation in order to effectuate the purposes of this Order while minimizing disruption to ongoing programs, services, and benefit levels. In determining the most appropriate items of appropriation for reservation pursuant to this Order, the Director shall not be limited to legislative additions to my recommended budget, but rather shall consider all items of appropriation. The Director shall notify the State Treasurer and the Governor immediately of the list of items placed into reserve. The State Treasurer shall monitor savings actually achieved with respect to each savings initiative identified as at risk of non-achievement and, in consideration of monthly revenue collections and other factors, including usage and enrollment trends, legislative activity, and other factors directly affecting fund balances, shall take such actions as are necessary to ensure that the estimated closing undesignated fund balance plus the balance for Fiscal Year 2020 in the Rainy Day Fund, when added together, total at least $1.276 billion. The State Treasurer and the Director of the Division of Budget and Accounting are hereby authorized and directed to supplement the list of items of appropriation reserved pursuant to this Order throughout the fiscal year so long as the conditions that necessitate this Order persist.

     2. The State Treasurer shall periodically notify the Governor as necessary with respect to the status of these surplus balances. Thereafter, upon receiving notification from the State Treasurer that amounts in excess of the targeted fund balance are anticipated to be available for expenditure, the Director may release from reserve, pursuant to N.J.S.A. 52:27B-26, items of appropriation in consideration of those circumstances.

     3. All State officials and agencies shall cooperate fully in the implementation of this Order.

     4. This Order shall take effect immediately and shall remain in full force and effect until rescinded, modified, or supplemented by me.

     GIVEN, under my hand and seal this 30th day of June, [seal] Two Thousand and Nineteen, and of the Independence of the United States the Two Hundred and Forty-Third.

      / s / Philip D. Murphy
     Governor

     Attest:

      / s / Matthew J. Platkin
     Chief Counsel to the Governor


 State House News for Finance Officers

June 28, 2019

 

Statute of Limitations

 

On May 13th, Governor Murphy signed into law Senate, No. 477 (Vitale D-19/Scutari D-22), which eliminates the statute of limitations in certain civil actions for sexual abuse and expands the categories of defendants liable in such actions effective December 1, 2019. 

 

Given the concerns expressed by local officials that this legislation would eliminate the safeguards provided local governing bodies under the New Jersey Tort Claims Act (TCA) as all lawsuits are defended with limited property taxpayer dollars, Governor Murphy including the following language at the bill signing.    “I am also signing the bill based on a commitment from the bill’s sponsors to introduce and swiftly pass a bill that will correct an error in the section of the bill relating to the liability of public entities.  This section inadvertently fails to establish a standard of proof for cases involving claims filed against public entities.  If unaddressed, the lack of clarity would create uncertainty and likely lead to additional litigation.  I have received assurances that the Legislature will correct this omission by clarifying that public entities should be held to the same standard of liability that is applied to religious and nonprofit organizations.  Applying a different standard would be unjustified. “

 

As such, Senators Joe Vitale (D-19) and Nicholas Scutari (D-22) and Assemblywomen Annette Quijano (D-22) and Assemblywoman Carol Murphy (D-7) introduced Senate, No. 3739, which would establish new liability standards in sexual abuse lawsuits filed against public entities and public employees. In general, the measure would establish standards that would be identical to the liability standards applied to non-profit organizations  under the Charitable Immunity Act.  As S-477 eliminated the protections under the Tort Claims Act, local officials have been advocating for the Legislature to pass S-3739  as it would re-establish some additional layers of protection for local governing bodies while preserving the intent of the new law. Governor Murphy is expected to sign the measure into law shortly.  Please note that S-477 and S-3739 present several complex legal challenges, and we recommend your general counsels to review both measures in their entirety as this summary provides an abridged version of the matter

 

Workers Compensation

 

On June 20th,  both houses passed Senate, No. 716 (Greenstein D-14/Bateman R-16)(Quijano D-20/Benson D-14), which would establish the “Thomas P. Canzanella Twenty First Century First Responders Act.”

 

In general, this legislation would establish a presumption of workers’ compensation coverage for public safety workers and other employees under certain circumstances. More specifically, the bill would provide that if a public safety worker can demonstrate that in the course of his or her employment, the worker is exposed to a serious communicable disease or a biological warfare or epidemic-related pathogen or biological toxin, all care or treatment of the worker, including services needed to ascertain whether the worker contracted the disease, shall be compensable under workers' compensation, even if the worker is found not to have contracted the disease.  If the worker is found to have contracted a disease, there would be a rebuttable presumption that any injury, disability, chronic or corollary illness or death caused by the disease is compensable under workers' compensation.

 

The bill would further provide workers’ compensation coverage for any injury, illness or death of any employee, including an employee who is not a public safety worker, arising from the administration of a vaccine related to threatened or potential bioterrorism or epidemic as part of an inoculation program in connection with the employee’s employment or in connection with any governmental program or recommendation for the inoculation of workers. The bill would also establish a rebuttable presumption that any condition or impairment of health of a public safety worker which may be caused by exposure to cancer-causing radiation or radioactive substances is a compensable occupational disease under workers' compensation if the worker was exposed to a carcinogen, or the cancer-causing radiation or radioactive substance, in the course of employment.  Employers are required to maintain records of instances of the workers deployed where the presence of known carcinogens was indicated by documents provided to local fire or police departments under the “Worker and Community Right to Know Act,” and where events occurred which could result in exposure to those carcinogens.

 

In the case of any firefighter with seven or more years of service, the bill would create a rebuttable presumption that, if the firefighter suffers an injury, illness or death which may be caused by cancer, the cancer is a compensable occupational disease. The measure would further provide that, with respect to all of the rebuttable presumptions of coverage, employers may require workers to undergo, at employer expense, reasonable testing, evaluation and monitoring of worker health conditions relevant to determining whether exposures or other presumed causes are actually linked to the deaths, illnesses or disabilities, and would also require  that the presumptions of compensability are not adversely affected by failures of employers to require testing, evaluation or monitoring. The measure would cover paid or volunteer emergency, correctional, fire, police, and medical personnel.   

 

GFOA is generally concerned that this legislation may increase annual expenditures by local governing bodies that employ the above public safety workers as it would shift the burden of proof from the worker to the employer in certain cases, which may produce increased claims for workers’ compensation benefits and the requirement for employers to maintain additional records.  GFOA is also concerned that the legislation may result in increased premium costs to provide workers’ compensation coverage as the measure may increase the pool of individuals filing claims.  For these reasons, it’s unclear if Governor Murphy will sign the bill into law as it could impact the State as an employer as well. 

 

Open Public Meetings and Records

 

On May 17th,  the Senate Budget and Appropriations Committee favorably reported Senate, Nos. 106 & 107 (Weinberg D-37/Pennacchio R-26), which would revise the Open Public Meetings Act (OPMA) and Open Public Records Act (OPRA) respectively.  Although Senator Weinberg should be commended for taking the time to work with stakeholders to address some of our longstanding concerns and for including changes in the legislation that would modernize the government records process and authorize local governing bodies to impose surcharges on commercial entities under certain circumstance, local officials  remain concerned with some of the provisions below and their impact on daily operations, staff time and resources, and exposure to liability. 

 

§  Agenda Matters: the Open Public Meetings Act OPMA legislation under S-106, would require providing adequate notice, which “shall include each individual time to be discussed or acted upon, and a brief description thereof, and shall identify the names of the parties to and approximate dollar amounts of any contracts, including employment contracts, to be discussed or acted upon.”  Does identifying the names of the parties to and approximate dollar amounts of any contracts, including employment contracts, include the total value of a collective bargaining agreement? This section needs additional clarification. 

 

  • Meeting Minutes: the OPMA legislation would require providing comprehensive meeting minutes that include “the time and place, the members present, the subjects considered, the actions taken, including all motions made, the identities of the moving and seconding parties members, the vote of each member, and each member’s stated reasons if any, for his or her action or vote, the identity of each member of the public who spoke and a summary of what was said….” The requirement to include the stated reasons, if any, for a member’s action on a vote would impact county operations and may force governing bodies to hire a transcribing service to make sure that accurate meeting minutes are taken.

 

  • Meeting Minutes:  The OPMA legislation would require that “minutes shall be made available to the public as soon as possible but not later than 15 days after the next meeting of the public body occurring after the meeting for which the minutes were prepared….”  Requiring meeting minutes to be made available to the public not later than 15 days after the next meeting of the public body occurring after the meeting for which the minutes were prepared would impact county operations and may force governing bodies to hire additional staff and reduce services elsewhere. 

 

  • Attorney’s Fees:  The OPMA legislation would require “any party, other than a public body, that prevails in an action brought pursuant to this section, shall be awarded the amount of reasonable attorney’s fees incurred in bringing the action.  The cost of any attorney’s fee awarded by the court shall be paid by the public body.” The courts and Government Records Council should retain the flexibility to award reasonable attorney’s fees as such fees are paid for by property taxpayer dollars. 

 

  • Redaction of Records:  The OPRA legislation under S-107 and as amended, would require the custodian of a government record whom redacts information from copy of the record to provide “the requestor with a redacted version of the document and one written statement for the entire request that states the date of the record, the originator or author of the record, the subject matter or title of the record, the number of pages with redactions, and the specific statutory provision or other lawful basis for each such redaction.  The custodian shall redact any such information by deleting or obstructing only that information and shall not alter in any manner the space in the government record formerly occupied by such redacted information….” Although the proposed amendments are an improvement, the new language would still impose an undue burden on county operations and force an administrator to assign an attorney to process requests at a significant expense. 

The Committee favorably reported the measure, but the Senate did not vote on the bills on June 20th as initially expected.  The companion versions Assembly, Nos. 1018 & 1019 (Johnson D-37/Benson D-14) are currently in the Assembly State and Local Government Committee awaiting consideration. 

 

Code Blue Alerts

 

On June 20th, the Senate passed by a vote of 34-2 Senate, No. 3422 (Singer R-30/Kean R-21), which would require counties to declare a Code Blue alert when the National Weather Service (NWS) predicts the temperature to be 32 degrees Fahrenheit or lower. 

 

Although the sponsors should be commended for their efforts to provide comfort for at-risk individuals during severe weather events, this legislation does not contain a funding mechanism or State appropriation to offset the costs associated with extending the 2017 law that counties, municipalities, social service agencies, and non-profit organizations have struggled to implement. As you may recall, in that year, Governor Christie signed into law legislation that requires county governing bodies, through their offices of emergency management or other appropriate offices, agencies or departments, to establish plans for issuing Code Blue alerts to municipalities, social service agencies, and non-profit organizations that provide services to at-risk individuals and are located within the county’s borders. 

 

In summary, the new law requires emergency management coordinators to declare a Code Blue alert after evaluating weather forecasts and advisories produced by the National Weather Service that predict the following weather conditions in the county within 24 to 48 hours: temperatures will reach 25 degrees Fahrenheit or lower without precipitation; or 32 degrees Fahrenheit or lower with precipitation; or, the National Weather Service wind chill temperature will be 0 degrees Fahrenheit or less for a period of 2  hours or more. Although certainly well intended, S-3422 would establish an even greater financial burden to the 2017 law that would make issuing a Code Blue alert more costly and difficult to implement, manage, and sustain.  In fact, setting the parameters for issuing a Code Blue alert at 32 degrees Fahrenheit or lower would double the amount of Code Blue nights and would lead to increased costs as noted above, depleted staff and resources, and fatigued volunteers. A companion version of the legislation does not currently exist in the General Assembly. 

 

Local Aid Allocations

 

On June 26th, Governor Murphy signed into law Senate, No. 2863 (Sarlo D36)(Sweeney D-3)(Benson D-14)(Jone D-%), which revises the requirements for receiving grant funding from the Local Aid program under the Transportation Trust Fund (TTF).  The final version of this new law addresses the  majority of GFOA’s initial concerns with the bill as introduced.

 

In summary, this new law now requires the New Jersey Department of Transportation (DOT) to execute agreements with a county receiving Local Aid funds 90 days from the date that the county applies for funding or by April 1st of the following year, whichever is later; and, with a municipality receiving Local Aid funds 90 days from the DOT distributes the award letter to the municipality or by March 1st of the following year, or whichever is later.  The law further requires a county to begin expending aid allotments within 3 years from the date that the county receives notification from DOT of that year’s allotment and a municipality to begin expending aid allotments within two years from the date that the municipality receives notification from DOT  that year’s allotment.  The new law also allows the DOT Commissioner to reallocate rescinded Local Aid awards to non-Local Aid projects; and, changes the circumstances under which a municipality may request an extension for up to 6 months.  Lastly, the measure  requires all bidders on Local Aid program funded construction contracts valued at more than $5,000,000 to be prequalified by DOT.  S-2863 took effect immediately. 

 

Property Tax Appeal Refunds

 

On June 20th, both passed and sent to the Governor Assembly, No. 2004 (Karabinchak D-18/Mazzeo D-2)(Diegnan D-18), which would require municipalities to pay certain nonresidential property tax appeal refunds in equal installments over a period of three years. 

 

More specifically, this legislation would  revise how  a taxing district must provide a refund to a taxpayer who is successful in a property tax appeal.  Under current law, a refund of excess taxes paid must be repaid with interest calculated at an annual rate of 5% and within 60 days of the final judgment for both residential and nonresidential property.  The measure would also  provide that for any property, the taxing district has to pay interest calculated at an annual rate of either 5% or 1% point above the prime rate, whichever rate is lesser.  The bill would also provide that for a nonresidential property, the municipality must refund excess taxes within 3 years, except that the Local Finance Board would be authorized to establish a dollar threshold below which a refund for nonresidential property would have to be paid within 60 days of the date of final judgment. It’s unclear at this time if Governor Murphy will sign the measure into law. 

 

Explainer: Where Governor, Lawmakers Differ on Budgeting for a Downturn

John Reitmeyer, June 26, 2019

 

A key area where Gov. Phil Murphy and lawmakers remain at odds in the final days before a new state budget must be enacted is over how the state should prepare for the next recession.  Two different funds — both part of the state budget — actually serve this purpose. But those reserve funds don’t operate in the same way and that difference is at the heart of the ongoing disagreement between Murphy and lawmakers.

 

What are the two funds? One is the Surplus Revenue Fund — more commonly referred to as the rainy-day fund. This account is supposed to be replenished during times of economic expansion to ensure the state has enough money socked away to help absorb the big swings in revenue that come during recessions. New Jersey’s rainy-day fund has been neglected for over a decade after it ran dry during the Great Recession, and Murphy, a Democrat, wants a $317 million deposit in it as part of his fiscal year 2020 spending plan. The other account at issue is the Fund Balance — more commonly referred to as simply the surplus. This account is used as a cushion to ensure the budget doesn’t run on too narrow a margin on a year-to-year basis. That helps the state absorb unforeseen expenses or drops in revenue that could derail a given year’s entire budget. The Legislature, which is controlled by Democrats, anticipates a surplus of $1.41 billion in the FY2020 spending bill it sent to Murphy last week. Meanwhile, Murphy budgeted for a surplus of $1.15 billion in the spending request he sent to lawmakers in March.

 

What’s the key difference between these funds? While both funds were set up to help keep the state prepared for fluctuations in revenues and projected spending, the surplus is generally an unrestricted account. That means the revenue that’s kept in it can be used to pay for pretty much anything, and at any time. By contrast, the monies deposited into the rainy-day fund can by law only be used when there is a significant drop-off in revenue or some other type of budget emergency. State law also calls for revenue to be automatically deposited into the rainy-day fund when certain conditions arise, including unforeseen surges in tax collections. But no such law exists to direct funding into the surplus.

 

Why is this disagreement important? Keeping money on the side gives governors and lawmakers vital peace of mind because there are always going to be ups and downs in spending and revenue as the 12-month fiscal year progresses. Maintaining robust reserves, including a rainy-day fund, is also a key issue for the Wall Street credit-rating firms that grade New Jersey’s debt every time the state wants to sell bonds to finance long-term investments in things likes roads and schools. Investors can charge the state higher interest rates when the ratings firms flag inadequate budget reserves, and those higher costs are typically passed along to taxpayers.

 

Another important factor relates to policy changes that lawmakers have passed in recent years as part of a push to get more funding into the public-worker pension system. Those changes, which include shifting to a quarterly pension-payment schedule and dedicating roughly $1 billion in annual state Lottery revenue to the retirement funds, have made it harder for lawmakers to raid money from the pension payment whenever there are revenue shortfalls. Such raids last occurred in 2014 and 2015 when former Republican Gov. Chris Christie was in office. While that’s been good for the pension system — which is another top concern for credit-rating firms — it means there’s no other big pot of money available to backstop the rainy-day fund and the surplus.

 

What do other states do? Whether it’s building up the rainy-day fund or the surplus, New Jersey has been a national outlier when it comes to budget reserves. A recent analysis by The Pew Charitable Trusts found that as of fiscal year 2018, New Jersey was keeping only enough funds aside in reserves to cover about eight days’ worth of state operating expenses. That was well below the 50-state median of 40.4 days. Another Pew analysis found that New Jersey also remains one of only three states that continue to have no money set aside in a rainy-day fund even as economists have been predicting another recession is right around the corner.

 

How can this disagreement be resolved? It’s hard to say but, at the end of the day, Murphy will likely have the final say thanks to routine language in the annual budget. That section of the budget supersedes the rainy-day fund law. And it allows for transfers from the rainy-day fund to the General Fund to occur, which is what lawmakers are seeking to do in FY2020 to boost the surplus. But any transfer is also “subject to the approval” of Treasury officials. It’s also worth noting that there really is only a comparatively small difference — less than $100 million — between the combined revenues that Murphy has booked for both the rainy-day fund and the surplus, and the amount that lawmakers want to put entirely into the surplus.

 


 State House News for Finance Officers

June 14, 2019

 

Binding Interest Arbitration

 

The failure of State leaders to permanently extend the 2% cap on binding interest arbitration awards in December of 2017 has inequitably altered the collective bargaining process in favor of labor and at the expense of property taxpayers.  As such, GFOA and our partners plan to hold strategy sessions and develop best practices for local governing bodies on how to effectively navigate the unlevel playing field.  Some initial recommendations include:

  1. Make sure to utilize general counsel and an experienced labor attorney to negotiate directly with a collective bargaining unit.
  2. Be prepared with a comprehensive financial analysis that includes a complete and accurate picture as an arbitrator must consider a local governing body’s ability to pay.
  3. Be prepared with data and all relevant information to address false claims and statements made by  a collective bargaining unit.     
  4. Stay strong on health benefit concessions, particularly with retirees and rolling back Chapter 78 requirements. 

In addition, GFOA will continue to urge State leaders to permanently extend the 2% cap on binding interest arbitration awards as police and fire unions have been aggressively leveraging its expiration to win contracts in excess of 50% of the 2% spending cap imposed on local governing bodies for nearly a decade.  As has been well documented, the 2% cap on binding interest arbitration awards allowed local governments to live within their limited means and kept public safety employee salaries and wages under control, simply because parties were closer to reaching an agreement from the onset of negotiations.  Moreover, the 2% cap on binding interest arbitration awards established clear parameters for negotiating reasonable successor contracts that preserved the collective bargaining process and took into consideration the separate and permanent 2% spending cap.  The equation is clear, failure to renew and permanently extend the 2% cap on binding interest arbitration awards is unsustainable without increasing property taxes or eliminating essential services

 

Separate, but related, counties and municipalities are facing litigation concerning health benefits for certain retirees under Chapter 78.  In summary, N.J.S.A. 40A:10-21.1 provides that a retiree must contribute to the cost of health  benefits coverage as determined by N.J.S.A. 52:14-17.28c, which for example, provides that for family coverage “an employee who earns $110,000 or more shall pay 35 percent of the cost of coverage.  However, N.J.S.A. 40A:10-21.1b.(3) provides for an exemption from the retiree health benefit contribution payment levels as follows:    “(3)   Employees described in paragraph (2) of this subsection who have 20 or more years of creditable service in one or more State or locally-administered retirement systems on the effective date of P.L.2011, c.78 shall not be subject to the provisions of this subsection.”

 

Chapter 78 took effect on June 28, 2011; and, local officials have long understood this section of the law to mean that a retiree must have accrued 20 years of creditable pension service before June 28, 2011 to qualify for the exemption.  Despite a clear reading of the statutory law, several lawsuits allege that retirees are only obligated to pay no more than 1.5 percent of the monthly retirement allowance for health benefits as the exemption under N.J.S.A. 40A:10-21b.(3) was intended to take effect on either June 28, 2011 or after the expiration of an applicable collective binding negotiations agreement in force on that effective date.  In other words, these complaints contend that if an employee is subject to the health benefit contributions under  N.J.S.A. 40A:10-21.1 and is covered under a binding negotiations agreement on the date that Chapter 78 took effect, then the Chapter 78 health benefit contribution requirements would not take effect until the expiration of the collective binding negotiations agreement.  In this case, the retiree was covered under such an agreement from January 1, 2007 through December 31, 2014.   As noted above, several administrators, county counsels, labor attorneys, the New Jersey State League of Municipalities (NJLM), the New Jersey School Boards Association (NJSBA), the New Jersey Association of Counties (NJAC), and the Division of Local Government Services (DLGS) concur that a retiree must attain 20 years of creditable pension service before June 28, 2011 to qualify for the exemption under N.J.S.A. 40A:10-21.1b(3). 

 

Local Exchange Personal Property Tax

 

On June 13th, the Assembly Appropriations Committee favorably reported Assembly, No. 5450 (Burzichelli D-3/Schaer D-36), which would clarify the application of the business personal property tax on local exchange telephone companies that were subject to the tax as of April 1, 1997. 

 

In summary, this legislation would clarify the changes made in 1997 to the business personal property tax that defined local exchange telephone companies subject to that tax on April 1, 1997.  More specifically, the measure would restore the local property tax status quo intended to be determined in 1997 by revising the definition of "local exchange telephone company" to mean a telecommunications carrier which held the regional monopoly on landline service before the market was opened to competitive local exchange carriers by the federal Telecommunications Act of 1996, or the corporate successors of such a local exchange telephone company.   The bill would also require that if a municipality is the prevailing party in a court proceeding between it and a local exchange telephone company concerning the taxation of business personal property following a court decision, settlement, or other resolution of that proceeding, the municipality, and any related amicus entities, shall be awarded attorney’s fees as costs to the local exchange telephone company.

 

The sponsors introduced this legislation in response to the Tax Court’s decision in Verizon New Jersey Inc. v. Borough of Hopewell, which was decided on June 26, 2012 and incorrectly construed the plain meaning of the language of the statutory change made in 1997 in a manner inconsistent with Legislative intent.  The sponsors submit that the statutory change was intended to permanently make part of a municipality’s property tax base the business personal property of all incumbent local exchange companies that were then subject to that tax and were a telecommunications carrier then meeting the definition of providing dial tone and access to 51 percent of a local telephone exchange.  The sponsors further contend that local exchange telephone companies have taken advantage of the tax court’s interpretation of the statute and informed municipalities in which their business personal property is located that will no longer pay tax on that business personal property, such as equipment, utility poles, cables and more in any given municipality where it claims on an annual basis that it does not provide 51 percent or more of landline service to its residents.  This unintended erosion of the local property tax base in the affected municipalities impacts all other local property taxpayers in these municipalities.

    

Local officials support this legislation as it would require the dominant telecommunications carrier in each region pay the business personal property tax on its business personal property regardless of the percentage of a local telephone exchange that it serves and would permanently enshrine that business personal property into the tax base of the municipalities in which it is located.  A-5450 is on Second Reading in the General Assembly and the companion version Senate, No. 3827 (Turner D-15/Andrzejcak D-1) is currently in the Senate Community and Urban Affairs Committee awaiting consideration.

 

Defibrillators

 

On June 3rd, the Senate Health, Human Services, and Senior Citizens Committee second referenced to the Senate Budget and Appropriations Committee Senate, No. 2424 (Andrzejczak D-1), which would require local recreation departments and youth serving organizations to have automated external defibrillators (AED) at youth athletic events.

 

In summary, this legislation would require county and municipal recreation departments and youth serving organizations that organize, sponsor, or are otherwise affiliated with youth athletic events and of which are played on county, municipal, school, or other publicly-owned fields, to provide an onsite AED at all youth athletic events and practices.  As such, the measure would mandate the purchase, maintenance, and secure storage of defibrillators by local governing bodies and non-profit organizations across the State that host youth athletic events on facilities owned and operated by counties, municipalities, and school districts at an estimated initial investment of approximately $40.0 million with additional monies needed annually for equipment maintenance, upgrade, and security.    

 

Although Senator Andrzejczak should be commended for his efforts to improve the potential life-saving precautions taken at youth sporting events and practices, local officials are concerned that the measure does not contain the necessary appropriation to address its broad scope and impact.  Unfortunately, the bill would force local governing bodies and non-profit organizations to either increase registration fees, which could prove cost prohibitive for families struggling to make ends meet from participating in certain activities and events or result in the reduction or elimination of recreation services and programs.  As noted above, S-2424 is currently in the Senate Budget and Appropriations Committee awaiting consideration but a companion version does not exist in the General.

 

Subcontracting Agreements

 

On May 24th, the General Assembly passed by a vote of 76-6  Assembly, No. 3395 (McGuckin R-10/Dancer R-12), which would prohibit public school districts and institutions of higher education from using subcontracting agreements that may affect employees in a collective bargaining unit under certain circumstances. 

 

Local officials are primarily concerned with the long-term ramifications of this legislation as it would effectively prohibit the use of subcontracting agreements used by public school districts and institutions of higher education.  Although the measure may not directly impact municipalities, it would essentially prevent the use of subcontracting agreements by county special services school districts and county colleges. County governments provide substantial funding for county colleges and transportation services for county special services school districts. As has been well documented, local governments across the State save valuable property taxpayer dollars, without impacting the level of service provided, by using subcontracting or privatization agreements for the delivery of food services, custodial services, transportation services, and much more.  As counties, municipalities, and school districts continue struggling to make ends meet under a restrictive 2% cap on spending, the use of such agreements must remain a viable option for the delivery of services in a cost effective and efficient manner. A-3395 is currently in the Senate Education Committee awaiting consideration. 

 

Raft of Bills Advance to Ease Way for State Health Insurance Exchange

Lilo H. Stainton, June 10, 2019

 

New Jersey lawmakers have advanced a dozen bills to create the infrastructure for a state-based health insurance marketplace. The bills are part of a Democratic-led effort to better control the cost and quality of these policies and protect against attacks at the federal level by the Trump administration.  But, while supporting the legislation in concept, insurance and business representatives have raised questions about some of the details, including language that would enable New Jersey to hike the tax on certain insurance plans to 5 percent — from the current 3.5 percent — which critics said would add to consumer costs. Some Republican lawmakers also have flagged this as a concern.

 

Versions of the bills were approved by the Senate Commerce Committee last Monday and the Assembly Financial Institutions and Insurance Committee Thursday, some along party lines. They would empower the state Department of Banking and Insurance to establish its own system to craft, market and sell federally subsidized health plans to lower-income workers who do not get insurance through work and earn too much to qualify for Medicaid. Currently in New Jersey, these “individual market” plans are sold through the federal health insurance exchange website, healthcare.gov. “With the federal government in turmoil, I’m glad the state Legislature is doing everything we can to ensure that the people who benefit from the Affordable Care Act will continue to be protected,” said Senator Joseph Vitale Jr., the health committee chair and a lead sponsor of several of the measures. “We cannot leave the health and safety of New Jerseyans up to the whims of the Oval Office.”  “This legislation, particularly the state-based exchange for health benefits plans, will go a long way in ensuring our state can offer affordable healthcare to all of our residents,” Vitale (D-Middlesex) said.

 

The proposals were endorsed by healthcare advocates, including hospitals, clinical professionals and NJ For Health Care — a coalition of community, labor and social justice groups that have long pushed for expanded insurance coverage through the ACA and other mechanisms. However, several people who testified Monday said they favored a state-based exchange but worried establishing this system might cost consumers more than it would to continue to use the federal governments. “One of our goals is to make sure this is run efficiently and outperforms the federal exchange. That’s the reason to do this,” Ward Sanders, head of the New Jersey Association of Health Plans, testified Monday.To tax insurance to make insurance cheaper doesn’t really work.”

 

Lawmakers amended the Senate version of the bill related to the fee on exchange plans, which is estimated would raise $55 million a year to support its operation, to cap this tax at 5 percent. But Sanders said that still would allow the state to impose a burden far beyond the 3.5 percent now charged to support the federal system. (The federal fee is slated to go down to 3 percent next year. In March, Gov. Phil Murphy, a Democrat, announced his intention to take control of the exchange — a transition he said would enable the state to create higher-quality plans, better protect against cost increases, and control how plans were marketed and sold. Under Republican President Donald Trump, the federal government has drastically reduced funding for outreach and marketing of these policies and cut in half the amount of time people have to enroll each fall.

 

Democratic lawmakers introduced drafts of enabling legislation in late May, which would allow DOBI to collect a tax — that now goes to the federal government — to fund the creation of a website and sales platform for plans tailored to individuals; the system covered nearly 290,000 people at the end of 2018, according to state statistics. (More than two-thirds of these consumers obtain federal subsidies to help offset the costs; others benefit from the lower prices and comprehensive benefits built into these products but purchase them directly from insurance companies without any subsidy.) The proposals also call for DOBI to integrate the small-business insurance market into this same system, although there are few details of how this would happen. Small-business policies covered nearly 330,000 people in companies with fewer than 50 employees, at the end of last year, in New Jersey with plans sold through the state and the exchange.

 

Sanders, with AHP, is concerned that if small-business plans are rolled into the same exchange as plans for individuals they could be subject to the same tax of up to 5 percent, adding significantly to the costs of these products. And business representatives are concerned what that would mean for employers already struggling to provide coverage for their workers. “We support an exchange, but we are concerned about the costs that go along with that,” said New Jersey Business & Industry Association vice president Tony Bawidamann. “Healthcare is one of the top issues for (our members) — one of the top costs,” he said.  As of 2018, some 28 states — including New Jersey — made use of the federal system for the sale of individual and small-business health insurance plans and 12 jurisdictions, with Washington, D.C., operated these markets themselves. Nevada is now in the process of shifting from a federal to state system, scheduled to start this fall; lawmakers there anticipate it can be run for a fee of 1.5 percent on the plans sold, saving the state half of the $12 million the federal government now spends on the operation, according to Healthinsurance.org, an industry publication. New Mexico is planning a similar shift in 2021 and Oregon is also considering taking control of its system.

 

While healthcare advocates in New Jersey have long pushed for a state-run exchange, dating back to 2012 at least, former Gov. Chris Christie, a Republican, declined to embrace the process and left it in the hands of the federal government. But, as the Trump administration ratcheted back support for the exchange — and attacked other elements of the ACA, or Obamacare — Democrats in the Garden State have vowed to protect the once-controversial, now highly popular program. (Federal lawmakers, including several from New Jersey, are also seeking to expand these protections. “The ACA was monumental legislation and expanded coverage for thousands of New Jerseyans,” said Sen. Nellie Pou (D-Passaic), a lead sponsor of several of the bills and chair of the commerce committee. “Everyone deserves the right to affordable healthcare and codifying this federal law into state law will help give New Jerseyans more options and greater coverage for years to come, regardless of who is in charge of the Oval Office.”

Most of the attention in the hearings was focused on the legislation to create the exchange and impose the controversial fee (S-49/A-5499), sponsored by Pou, Vitale, and Sen. Nia Gill (D-Essex), and Assembly members Herb Conaway (D-Burlington), John McKeon (D-Union) and Nancy Pinkin (D-Middlesex). Other bills approved last week would ensure key ACA protections are also enshrined in New Jersey law if the state creates its own exchange; many of these received bipartisan support.  Among other things, these other proposals would enable adult children to remain on their parents’ plans until age 27; ensure breastfeeding, contraceptives and other essential benefits are covered; and guarantee patients with pre-existing conditions could obtain insurance.  Most of these elements are already codified in Garden State statute in some form. While some of the bills will go straight to the floor for a full vote in the Assembly and Senate, many were referred to the appropriations committees in both houses for further review.

Governor and Lawmakers Diverge over Medical Marijuana Expansion

Carly Sitrin,  June 6, 2019

 

Gov. Phil Murphy this week made good on his promise to rapidly expand the medical marijuana program in New Jersey, but his unilateral move may put the Legislature’s own expansion plan in jeopardy. As part of the governor’s expansion, the state Department of Health announced on Monday it is seeking new applicants to operate up to 108 additional Alternative Treatment Centers in the Garden State for cultivating, manufacturing and dispensing medical marijuana. This represents a major increase. Currently, there are six ATCs in operation; another six permits have been granted but those facilities are not yet up and running.

Meanwhile, state lawmakers are attempting to move their own bill that would expand the program — and it contains elements that Murphy’s plan does not. The bill (S-10) would remove medical marijuana from the Department of Health’s jurisdiction and give it to a new five-member Cannabis Regulatory Commission in the Department of Treasury. It would also cap cultivator licenses at 23: Murphy’s request for applications (known as an RFA) calls for 24. “Patients cannot continue to wait for access to life-changing medical treatment, and this week’s announcement is an important step toward ensuring sustainable and affordable access,” Murphy’s spokesperson Alyana Alfaro said in a statement. “The Department of Health is overseeing the expansion of the Medicinal Marijuana Program to ensure that it is done responsibly and in a way that puts the needs of patients first. There was no agreement on the bill as currently written.”

The governor and his administration have said expanding the program was urgent as the demand in the state for medical marijuana has skyrocketed. Indeed, since Murphy took office, the number of patients in New Jersey’s medical marijuana program has swelled, from less than 17,000 to more than 47,500 as of June 3, 2019.v“We are at a point where patients just cannot wait any longer for easily accessible, affordable therapy. This request for applications allows for specialization of businesses to increase medical product in our state,” said New Jersey Health Commissioner Dr. Shereef Elnahal in a statement.

Three types of licenses will be available under the new expansion — for growing, manufacturing and selling. This is the first time the state is issuing separate permits for these categories as the six ATCs already in operation — and the additional six license holders selected last year — were required to be vertically integrated, meaning they must all grow, process and sell marijuana on their own. The Department now will seek to issue up to 24 cultivation licenses (or endorsements, as the department terms them), up to 30 manufacturing licenses and up to 54 dispensary licenses.  These ATCs would be throughout the state, with up to 38 in the northern region of the state (in Bergen, Essex, Hudson, Morris, Passaic, Sussex and Warren counties), up to 38 in the central region (Hunterdon, Middlesex, Mercer, Monmouth, Ocean, Somerset and Union counties), and up to 32 in the southern region (Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester and Salem counties).

According to the DOH, these regional specifications are based on an assessment it conducted of patient need. Applications will be accepted from both for-profit and nonprofit groups now that the current law’s mandatory threshold for two nonprofit alternative treatment centers in each region has been met. To avoid conflict with national law, because cannabis is still federally categorized as a Schedule I drug, applicants from a nonprofit entity will not be required to be recognized as a 501(c)3 organization by the Internal Revenue Service.

Permits (or licenses) would be granted according to a scoring system which takes into account factors like ties to the local community (20 points), ability to provide appropriate research data (10 points), experience in cultivating, manufacturing, or dispensing marijuana (100 points) and a workforce and job creation plan that would involve women, minorities and military veterans (100 points). There will also be a $20,000 application fee separated in two payments to the state Treasurer, one $18,000 payment and one $2,000 payment. For unsuccessful applicants, the $18,000 will be returned, but the Department of Health gets to keep the $2,000 fee. This new request for applications was not wholly unexpected. Murphy campaigned on adult-use cannabis legalization and once that plan stalled in the Legislature, he turned his attention to medical expansion.

The state Senate passed its expansion bill just last week, and the Assembly approved its measure two weeks prior. Because the Senate added a requirement for labor peace agreements, that has sent the bill back to the Assembly before it can go to the governor for his signature. Initially, the medical expansion bill was to be packaged with legalization language and expungement reform, allowing those convicted of low-level cannabis crimes to clear their records. At the time, Murphy deferred to lawmakers to pass their bills but noted if they couldn’t get it done, he would step in. “I’m prepared to hold off for a short amount of time, and I would say the month of May would be the edge of that,” Murphy said in March.

When the Legislature failed to secure the votes to pass all three bills, Murphy went ahead in early May with his own new rules that would extend the program’s reach, widen the list of qualifying conditions, reduce patient costs, and allow doctors to participate without being named publicly.  And when the Senate sent its bill back to the Assembly again last week, Murphy pulled the trigger on further medical expansion, earning the ire of Senate President Steve Sweeney (D-Gloucester).Once again, the governor is ignoring the hard work of the Legislature and the agreement between the Senate, the Assembly and the administration on this issue,” Sweeney (D-Gloucester), said in a statement. “The legislation that is in the process of being approved by both houses is a direct reflection of that agreement — and now the governor wants to preempt what is a thoughtful plan to expand medical marijuana in an effective and responsible way.” The Legislature’s plan differs slightly from Murphy’s as it would install a Cannabis Regulatory Commission to oversee the industry and set rules and regulations for how permits would be granted, and businesses run. The proposal for a commission was copied directly from the adult-use bill and had been an ongoing point of contention between Sweeney and Murphy, as both wanted power to appoint members to it.

In addition, the lawmakers’ bills would cap cultivator licenses at 23 whereas Murphy’s plan would grant 24.  All of this could mean Murphy is squaring up to conditionally veto the bill once it makes it to his desk. Another option on the table could be amending the request for applications to align with the Legislature’s cap but that still would not address the conflict over the commission. The medical expansion bill — with the Senate’s small labor agreement changes — will be put to a vote in the Assembly again on June 10.

 

State House News for Finance Officers

May 17, 2019


Binding Interest Arbitration

 

As predicted, the failure to permanently extend the 2% cap on binding interest arbitration awards in December of 2017 has inequitably altered the collective bargaining process in favor of labor and at the expense of property taxpayers. 

 

]In fact, county and municipal officials from across the State, and on both sides of the aisle, are once again urging State leaders to permanently extend the 2% cap on binding interest arbitration awards as police and fire unions have been aggressively leveraging its expiration to win contracts in excess of 50% of the 2% spending cap imposed on local governing bodies for nearly a decade.  As has been well documented, the 2% cap on binding interest arbitration awards allowed local governments to live within their limited means and kept public safety employee salaries and wages under control, simply because parties were closer to reaching an agreement from the onset of negotiations.  Moreover, the 2% cap on binding interest arbitration awards established clear parameters for negotiating reasonable successor contracts that preserved the collective bargaining process and took into consideration the separate and permanent 2% spending cap.  The equation is clear, failure to renew and permanently extend the 2% cap on binding interest arbitration awards is unsustainable without increasing property taxes or eliminating essential services.

 

Moody’s Investors Services, Fitch Ratings, and Standard and Poor’s all agree and have issued stern warnings about allowing the cap’s expiration.  Of note, Moody’s submitted “that salary costs are among the largest of municipal expenditures, the cost implications are obvious and considerable,” and that “the effect of this is, in most cases, unlikely to be rapid, but ultimately, the loss of the arbitration cap is likely to cause the public sector’s credit quality to deteriorate.”  Fitch Ratings concluded that “the arbitration cap is beneficial to local government credit quality as it helps to align revenue and spending measures and supports structural balance in the context of statutory caps on property tax growth.” Additionally, a broad-based coalition of public and private sector organizations support efforts to permanently extend the cap of which you may review at  https://nj-njslom.civicplus.com/DocumentCenter/View/6276/2017-Final-IA Coalition-Letter-PDF.  In the meantime, GFOA and our partners plan to hold strategy sessions for local governing bodies on how to effectively navigate the unlevel playing field created by the failure of State leaders to act accordingly.  Stay tuned for additional details. 


Energy Tax Receipts

 

On May 13th, the Senate Community and Urban Affairs Committee favorably reported and Second Reference to the Senate Budget and Appropriation Committee for consideration, Senate, No. 51 (Singleton D-7/O’Scanlon R-13), which would require the distribution of additional State aid to municipalities under the “Energy Tax Receipts Property Tax Relief Act.” 

 

In general, this legislation would require that beginning in fiscal year 2021, municipalities would receive an aid increase equal to 20% of the difference between the distribution of Consolidated Municipal Property Tax Relief Aid (CMPTRA) and Energy Tax Receipts Property Tax Relief Aid (ETR Aid)  they received in fiscal Year 2008 and fiscal Year 2012.  Municipalities would receive equal increases in each of the following four fiscal years.  The fully restored amount would be distributed beginning in fiscal year 2025 and in each fiscal year thereafter.  The total amount of aid to be restored to each municipality would be in addition to the total amount of CMPTRA and ETR Aid distributed to each municipality in Fiscal Year 2012.  This legislation would also extend the existing ETR Aid  protection to ensure that each municipality would receive an aid amount not less than the combined payment of CMPTRA and ETR Aid to municipalities in Fiscal Year 2012 and the additional aid distributed under the bill.

 

This bill would also amend current law to require a municipality to subtract any additional amount of ETR aid it receives, pursuant to the bill, from its adjusted tax levy when computing that amount for its next fiscal year.  By deducting the additional amount of ETR Aid from the previous year’s levy, municipalities would be permitted to raise a lower amount of taxes through the levy for municipal purposes. Although we may need an abacus to keep track of the formulas, GFOA generally supports the measure as it would restore, over time, approximately $331.0 million in diversions in CMPTRA and ETR Aid by the State since fiscal year 2009.  The companion version Assembly, No. 274 (Weber R-26/Conaway D-7) is currently in the Assembly State and Local Government Committee awaiting consideration. 

 

Statute of Limitations

 

On May 13th, Governor Murphy signed into law No. 477 (Vitale D-19/Scutari D-22), which eliminates the statute of limitations in certain civil actions for sexual abuse and expands the categories of defendants liable in such actions, In light of the concerns expressed by local officials that this legislation would eliminate the safeguards provided local governing bodies under the New Jersey Tort Claims Act (TCA) as all lawsuits are defended with limited property taxpayer dollars, GFOA appreciates the fact that the Governor included the language below at the bill signing.

 

“I am also signing the bill based on a commitment from the bill’s sponsors to introduce and swiftly pass a bill that will correct an error in the section of the bill relating to the liability of public entities.  This section inadvertently fails to establish a standard of proof for cases involving claims filed against public entities.  If unaddressed, the lack of clarity would create uncertainty and likely lead to additional litigation.  I have received assurances that the Legislature will correct this omission by clarifying that public entities should be held to the same standard of liability that is applied to religious and nonprofit organizations.  Applying a different standard would be unjustified. “

 

As such, Senators Joe Vitale (D-1) and Nicholas Scutari (D-22) and Assemblywoman Annette Quijano (D-22) introduced Senate, No. 3739/Assembly, No. 5392, which would establish new liability standards in sexual abuse lawsuits filed against public entities and public employees.  In general, the measure would establish standards that would be identical to the liability standards applied to non-profit organizations, and their officers, employees and other agents, based on the immunity granted to such organizations and agents under the Charitable Immunity Act.  Under the bill,  a public entity or public employee could be held liable for the willful, wanton or grossly negligent acts resulting in a sexual assault, any other crime of a sexual nature, a prohibited sexual act or sexual abuse being committed against a person.  Additionally, a public entity could be held liable for a claim that its negligent hiring, supervision or retention of any public employee resulted in any such form of sexual abuse being committed against a minor under the age of 18 years.

 

The bill would take effect on December 1, 2019, the same effective date as S-477, which  creates new, extended statute of limitations periods for civil actions by child and adult victims of sexual abuse and establishes a two-year window during which actions may be commenced even though they would otherwise be time-barred, even after using the appropriate new, extended statute of limitations period. S-3739/A-5392 would require that that once lawsuits commence against public entities and public employers beginning on December 1, 2019, these suits, and any suits previously filed that have not yet been finally adjudicated or dismissed, would be subject to the new, extended statute of limitations, and lawsuits could, if otherwise time-barred, be brought during the two-year window. The Assembly Judiciary Committee will consider A-5392 on May 20th, and S-3739 is currently in the Senate Judiciary Committee awaiting consideration.  Please note that S-477 and S-3739/A-5392 present several complex legal challenges, and we recommend  general counsel to review both measures in their entirety as this summary provides a condensed version of the matter.

 

Property Tax Appeal Refunds

 

On May 13th, the Senate Community and Urban Affairs Committee favorable reported Assembly, No. 2004 (Karabinchak D-18/Mazzeo D-2), which would require municipalities to pay certain nonresidential property tax appeal refunds in equal installments over a period of three years. 

 

More specifically, this legislation would  revise how  a taxing district must provide a refund to a taxpayer who is successful in a property tax appeal.  Under current law, a refund of excess taxes paid must be repaid with interest calculated at an annual rate of 5% and within 60 days of the final judgment for both residential and nonresidential property.  The measure would also  provide that for any property, the taxing district has to pay interest calculated at an annual rate of either 5% or 1% point above the prime rate, whichever rate is lesser.  The bill would also provide that for a nonresidential property, the municipality must refund excess taxes within 3 years, except that the Local Finance Board would be authorized to establish a dollar threshold below which a refund for nonresidential property would have to be paid within 60 days of the date of final judgment. The General Assembly passed A-2004 by a vote of 51-22 on June 7, 2018 and is currently in the Senate Budget and Appropriations Committee awaiting consideration.

 

Payments in Lieu of Property Taxes

 

Also on May 13th, the Senate Community and Urban Affairs Committee favorably reported and Second Reference to the Senate Budget and Appropriations Committee for consideration Senate, No. 59 (Singleton D-7/O’Scanlon R-13), which would provide counties and school districts with notice that municipality is considering granting long term tax exemptions  and would further require municipalities to share amounts received from urban renewal entities in lieu of property taxes with school districts. 

 

Under the bill, urban renewal entities would be required to provide counties and school districts with copies of applications for long term tax exemptions.  The bill would require an urban renewal entity to certify, in its annual audit to the mayor and the governing body of the municipality, the number of school-age children attending public school who are residing in the approved project.  Mayors would be required to provide counties and school districts with copies of the recommendations mayors submit to municipal governing bodies with regard to applications from urban renewal entities.  Municipal governing bodies would afford counties and school districts a 10-day period to review mayoral recommendations, within which period counties and school districts could submit their own recommendations.  When determining whether to approve an application, a municipal governing body would give due consideration to the concerns of counties and school districts.

 

The bill would also require municipalities to provide a portion of the amounts received in lieu of property taxation from urban renewal entities to the school district or districts that serves the municipality, including a regional school district.  A municipality that receives a payment in lieu of taxation from an urban renewal entity would be required to distribute a portion of the amount received immediately upon receipt.  For a residential project, this portion would equal the amount derived by multiplying the number of school-age children, who are attending public school in the municipality or at a school in a regional school district that serves the municipality and who are residing in the project, by the school district’s budgetary cost per pupil.  For a nonresidential project and for a mixed-use project with residential and nonresidential components, the portion would be five percent of the annual service charge collected by the municipality or an in-kind contribution equal in value to five percent of the annual service charge.  Lastly, the measure would require a school district to reduce its property tax levy by any amount received from a municipality out of a payment in lieu of property taxation made by an urban renewal entity. The companion version Assembly, No. 1544 (Carroll R-25/Bucco R0-25) is currently in the Assembly State and Local Government Committee awaiting consideration.

 

Politicians Could Punt to Voters on How to Put NJ’s Fiscal House in Order

John Reitmeyer, NJ Spotlight, May 17, 2019

 

Locked in a bitter dispute with the governor over the budget, the senate president proposes a referendum on cuts in public-worker benefits and New Jersey voters could soon be dragged into an ongoing and increasingly bitter dispute over how best to address the biggest fiscal challenges that continue to dominate the latest state budget discussions in Trenton.

 

Under a plan unveiled yesterday by Senate President Steve Sweeney (D-Gloucester), a series of proposed public-worker benefits cuts that are designed to free up cash for other items and also ease the burden on local property-tax bills would be put before voters in the form of proposed constitutional amendments, as early as this year. Sweeney said he’s introducing the ballot questions — which would change both healthcare and pension benefits for thousands of workers — sometime today.  And to add another wrinkle, the same proposals were introduced as legislation yesterday. That sets the stage for a potential compromise with Gov. Phil Murphy, a fellow Democrat who has strongly opposed making any public-worker benefits cuts. But it also puts on the table the direct threat of using the ballot questions to simply go around the governor.  “The time to act really is now, and we’re not going to be stonewalled by an administration either,” Sweeney said during a news conference yesterday in Trenton.

 

All of the proposals were originally part of the “Path to Progress” report issued by a nonpartisan group of fiscal-policy experts that Sweeney assembled last year in the wake of a series of federal tax-policy changes enacted in 2017.  Murphy says he’ll look for ‘common ground’ Murphy issued a statement yesterday in response to Sweeney’s announcement stressing the need for a balance of spending cuts and tax increases to address the state’s fiscal challenges, including an unfunded pension liability that tops $100 billion by some calculations.  “I will carefully review the bills introduced today to see where we can find common ground, but the bottom line is that savings alone will not help us meet the entirety of our obligations,” Murphy said.

 

Meanwhile, the formal introduction of the new proposals drew praise yesterday from business-lobbying groups who’ve long supported benefits reform. And they were loudly opposed by unions representing the public workers who would be directly impacted. While Sweeney has been touting the pension and healthcare cuts for nearly a year, Murphy has favored a proposed millionaire’s tax to help cover the rising cost of worker benefits. Though popular with voters and embedded into his $38.9 billion budget proposal for the coming fiscal year, the governor’s tax on the wealthy has been a nonstarter for both Sweeney and Assembly Speaker Craig Coughlin (D-Middlesex).   Time is running out for legislative action. With a little over a month left before June 30, when the next state budget must be enacted, there’s little time to advance all of the proposals unveiled by Sweeney yesterday. The broader package of reform bills also includes measures seeking to encourage consolidation among local school districts and municipal governments.

 

Among the most complicated elements of Sweeney’s benefits-reform proposal is a plan to radically alter retirement benefits for thousands of new workers and those with less than five years on the job. While police officers, firefighters and judges wouldn’t be impacted, teachers and other government workers would receive a traditional, “defined-benefits” pension on only up to $40,000 of salary.  For any additional earnings, the affected workers would be enrolled in a hybrid “cash-balance” savings plan that would not require a matching contribution from the state. That savings plan would guarantee a 4-percent annual return for workers and offer a chance to do better based on how general pension-fund investments perform. The same proposal would also move back the retirement age for the same group of workers from 65 to 67, and change investment-return assumptions and the amortization schedule for the broader pension system, one of the worst-funded state-retirement plans in the country.

 

Based on actuarial estimates distributed yesterday, Sweeney assumes his plan would save the state $17.1 billion over 30 years, and local governments another $7.5 billion over the same period.  “A new pension plan is just common sense,” said Sweeney.  But union leader Hetty Rosenstein, state director of the Communications Workers of America, called the proposal “shameful” while speaking to reporters yesterday moments after Sweeney’s announcement.  She said the pension reforms target worker groups that are predominantly “women and people of color” while sparing those dominated by white men.  “I think it is designed to (pit) the public versus public-sector workers, and that is shameful,” she said.  The proposed healthcare changes could save another $1 billion or more annually, in part by moving workers at all levels of government in New Jersey from what would be considered “platinum” level coverage under the federal Affordable Care Act to “gold” coverage. The precious-metal classifications generally connote how much of the cost of coverage is picked up by the patient, with platinum-level coverage leaving 10 percent or less to the patient and gold level leaving 20 percent.

 

The change would be made either through legislation or constitutional amendment, and Sweeney said any ballot question would also require healthcare savings at the local level to be returned to property taxpayers.  “We’ll be in line with many states that have gold healthcare plans now,” Sweeney said.  Meanwhile, to achieve more savings, Sweeney is also backing legislation that would disband the School Employees Health Benefits Program and move those currently enrolled in that benefits system into the generally cheaper State Health Benefits Program. Other education-spending proposals would require consolidation of non-K-12 school districts and shift some the cost of funding what’s known as “extraordinary” special education onto the state. A statement issued by Marie Blistan, head of the state’s largest teachers’ union, said New Jersey Education Association officials were still reviewing the bills introduced yesterday. But she also said teachers should not be “scapegoated” as the state struggles with fiscal challenges largely created by its long history of underfunding the pension system.  “It is time for New Jersey to prioritize the interests of middle-class families over millionaires,” Blistan said.

Among other bills unveiled yesterday as part of the same reform package are those that would generate municipal and county government savings by capping payments for unused sick time and by establishing a permanent commission to review savings opportunities and make regular recommendations to the Legislature.  Murphy has been backing an approach that involves negotiating cost-savings measures directly with unions such as the CWA and NJEA while also relying on revenue from the millionaire’s tax and other tax-policy changes to boost state revenues. Murphy’s FY2020 budget proposal counts on $1.1 billion in spending cuts. And the latest revenue projections from the Department of Treasury assumes $536 million would be generated by applying the top-end rate of 10.75 percent on earnings between $1 million and $5 million, now only in place for incomes of more than $5 million. That added-revenue projection is nearly the same figure as the annual savings estimate from Sweeney’s hybrid pension proposal.

 

“My budget is about putting New Jersey on a new trajectory for the long term, and I am committed to working with the Legislature to do just that,” Murphy said.

The last time the Democratic-controlled Legislature enacted major public-worker benefits changes was 2011, when Republican Chris Christie was in office. Those changes, which likewise curbed healthcare and pension benefits, created a rift in the Democratic Party, especially in the Assembly.   Asked whether he’s concerned about the new proposals upsetting party unity just as the Assembly is up for re-election this year, Sweeney — who was flanked by two Republican lawmakers yesterday but none from his own party — responded by talking about the appeal that potential cost savings could have with voters. “Everyone’s weary of property taxes,” Sweeney said. “This is an opportunity to run for election (saying) we’re cutting property taxes — cutting them for real.”


State House News for Finance Officers

April 12, 2019

 

Unfunded Mandates

 

On March 4th, the Senate Community and Urban Affairs Committee Second Referenced to the Senate Budge and Appropriations Committee for consideration Senate No. 1332 (Gopal D-11/Singleton D-7), which would require the Commissioner of the Department of Community Affairs (DCA) to compile and annually update a list of all unfunded State and federal mandates on municipalities and counties. 

 

More specifically, the measure would require the Commissioner to prepare a list, and to annually update that list not later than July 1st of each calendar year, of all ongoing mandates required by the State and by the federal government on municipalities and counties for which funding to pay the entire cost thereof has not been provided by the State or by the federal government.  The list would also have to contain a good faith estimate of the cost to municipalities or counties of compliance with the mandate.  The bill would further require that the list, and the annual update of the list, be posted on the Department’s web page.

 

In general,  the New Jersey Constitution prohibits State government from requiring units of local government to implement additional or expanded activities without providing funding for those activities pursuant Article VIII, Section II, Paragraph 5 and N.J.S.A. 52:13H-1(1)(b).   Additionally, the New Jersey Council on Local Mandates is responsible for resolving disputes on whether a law, rule, or regulation adopted after 1996 constitutes an unfunded mandate.  In general, an unfunded mandate upon boards of education, municipalities, and counties is a law, rule, or regulation that does not authorize resources, other than the property tax, to offset additional direct expenditures required to implement said law, rule, or regulation. Please note that the following categories of laws, rules, or regulations are not considered unfunded mandates:  (1) those which are required to comply with federal laws or rules or to meet eligibility standards for federal entitlements; (2) those which are imposed on both government and non-government entities in the same or substantially similar circumstance; (3) those which repeal, revise, or ease an existing requirement or mandate or which reapportion the costs of activities between boards of education, counties, and municipalities; (4) those which stem from failing to comply with previously enacted laws or rules or regulations issued pursuant to a law; and, (5) those which implement provisions of the Constitution.  The companion version Assembly, No. 277 (Webber R-26/Zwicker D-16) is currently in the Assembly State and Local Government Committee awaiting consideration.


Naloxone

 

On March 14th, the Senate passed Senate Resolution, No. 98 (Lagana D38/Greenstein D14), which urges county prosecutors to require all law enforcement officers in their respective counties to be equipped with naloxone, also known as Narcan. 

     

In summary, the resolution notes that the number of people struggling with heroin and opioid addiction across this State continues to grow.  In 2014, there were 781 heroin-related overdose deaths in New Jersey, marking the fourth consecutive year that the total has increased.  Moreover, emergency officials have deployed naloxone, which halts the effects of an opioid overdose.  The use of naloxone helps reduce the number of deaths from drug overdoses each year and the earlier the drug is administered, the better chance there is for success.  In 2016, the life-saving drug had been deployed an average of 21.8 times per day as of September, putting it on pace to be utilized nearly 8,000 times by the end of the year.  Based upon these figures, emergency officials are responding to heroin and opioid overdoses every day throughout the State.  Equipping all law enforcement officers with naloxone would allow them to quickly administer this life-saving drug, thereby reducing the number of tragic heroin and opioid-related deaths in this State. The General Assembly passed the companion version Assembly Resolution, No. 110 (Armato D-2/Mazzeo D-2) on April 12, 2018. 

 

Please note that a resolution is generally defined as an action of the Legislature that expresses the policies, sentiment, opinions or direction of one or both houses. Types of resolutions include joint, concurrent, ceremonial, and one-house.  The resolutions adopted by both houses here, were one-house resolutions that expressed the opinions of both houses respectively, but do not carry require any further action other than being filed with the Secretary State.

 

Job Applicant Wage and Salary Experience

 

On March 26th, the General Assembly passed by a vote of 53-24-2 Assembly, No. 1094 (Downey D-11/Lampitt D-6), which would prohibit employer inquiries about a worker’s wage and salary experience under certain circumstances. 

 

In summary, this legislation would make it an unlawful employment practice for any employer to:  to screen a job applicant based on the applicant’s salary history, including, but not limited to, the applicant’s prior wages, salaries or benefits; or, to require that the applicant’s salary history satisfy any minimum or maximum criteria. Under the bill, an employer may consider salary history in determining salary, benefits, and other compensation for the applicant, and may verify the applicant’s salary history, if an applicant voluntarily, without employer prompting or coercion, provides the employer with that salary history.  An applicant’s refusal to volunteer compensation information would not be considered in any employment decisions.  An employer may also request that an applicant provide the employer with a written authorization to confirm salary history, including, but not limited to, the applicant’s compensation and benefits, after an offer of employment, which offer includes an explanation of the overall compensation package, has been made to the applicant.

 

The legislation would not apply to: applications for an internal transfer or a promotion with an employee’s current employer, or use by the employer of previous knowledge obtained because of prior employment with the employer; any actions taken by an employer pursuant to any federal law or regulation that expressly requires the disclosure or verification of salary history for employment purposes, or requires knowledge of salary history to determine an employee’s compensation; and, any attempt by an employer to obtain, or verify a job applicant’s disclosure of, non-salary related information when conducting a background check on the job applicant, provided that, when requesting information for the background check, the employer shall specify that salary history information is not to be disclosed.  If, notwithstanding that specification, salary history information is disclosed, the employer shall not retain that information or consider it when determining the salary, benefits, or other compensation of the applicant. 

 

The legislation would further provide that employer inquiries regarding an applicant’s previous experience with incentive and commission plans and the terms and conditions of the plans, provided that the employer shall not seek or require the applicant to report information about the amount of earnings of the applicant in connection with the plans, and that the employer shall not make any inquiry regarding the applicant’s previous experience with incentive and commission plans unless the employment opening with the employer includes an incentive or commission component as part of the total compensation program. The Senate passed the companion version Senate, No. 559 (Gill D-34/Weinberg D-37) on March 22, 2018 but must take further action to make the measure identical to the changes made by the General Assembly before the legislation heads to the Governor’s Desk. 

 

Pedestrian Access Parking Tax  

 

On February 22nd, the General Assembly passed by a vote of 41-33 Assembly, No. 5070 (Speight D-29/Tucker D-28), which would allow certain municipalities to impose a parking tax of 3.5% to fund projects that improve pedestrian access to mass transit stations. 

 

Under the bill, any municipality with a population of 100,000 or greater, according to the most recent American Community Survey five-year estimate by the United States Census Bureau, would be authorized to impose the mass transit pedestrian access parking tax. These towns would include: Newark, Jersey City, Paterson, Elizabeth, Edison, and Woodbridge.  This mass transit pedestrian access parking tax may be imposed in addition to parking taxes already authorized by current law in some of those municipalities, except that the mass transit pedestrian access parking tax may not be imposed whenever a special event parking tax surcharge is charged.

 

The bill would also allow these municipalities to establish discounts for municipal residents of up to 8.0% against existing parking taxes.  The parking tax discounts authorized by the bill would apply to parking taxes that are already authorized for certain municipalities.  The municipalities that may impose these parking taxes and provide discounts would include: those with a population over 200,000; those with a population between 100,000 and 125,000 and of which are contiguous with a municipality already imposing the general parking tax; and, those with a population density greater than 10,000 persons per square mile and of which are located within a county of the first class. The companion version Senate, No. 3507 (Ruiz D-29/Rice D-28) is currently in the Senate Community and Urban Affairs Committee awaiting consideration.  

 

Prevailing Wage

 

On March 23rd, the General Assembly passed by a vote of 73-6 Assembly, No. 4291 (Houghtaling D-11/DeAngelo D-14), which would expand the circumstances under which the prevailing wage must be paid on property that is or will be leased by a public body. 

 

In summary, this legislation would lower the threshold for leased property being subject to the prevailing wage.  Under the bill, the prevailing wage would apply to work if the property is or will be leased by a public body and the portion of the property that is or will be leased measures more than 10,000 square feet. The bill would also lower the threshold for being subject to the prevailing wage so that all properties leased by public bodies that receive funds from the Economic Development Authority are subject to the prevailing wage.  Under current law, the prevailing wage must be paid on most construction that is considered public work.  Public work is construction done on any property if the work is paid for from public funds, if, at the time of the entering into of the contract the property is owned by a public body or  not less than 55%  of the property is or will be leased by a public body; and, the portion of the property that is or will be leased measures more than 20,000 square feet. A companion version does not exist in the General Assembly at this time.

     

Murphy to meet with top Dems about legalizing weed in NJ as his deadline looms

Brent Johnson, NJ Advance Media for NJ.com, April 11, 2019

 

EDITOR’S NOTE: Entrepreneurs everywhere are eyeing the billion-dollar legal weed industry, an economic opportunity unrivaled in modern N.J. history. NJ Cannabis Insider features exclusive weekly content geared toward those interested in the marijuana industry. View a sample issue.

 

Thursday could be an important day in the seemingly never-ending saga to legalize marijuana in New Jersey.  Eyeing a possible vote by the end of next month, the Garden State’s top three elected state officials are scheduled to strategize about their latest push to gather enough support in the state Legislature to pass a bill that would legalize weed here.  Gov. Phil Murphy confirmed Wednesday night during his radio show that he will meet and talk pot with his fellow Democrats who lead the Legislature — state Senate President Stephen Sweeney and state Assembly Speaker Craig Coughlin.

 

The sit-down comes a few weeks after Sweeney, D-Gloucester, and Coughlin, D-Middlesex, canceled a planned vote on the bill when it became clear it would not have enough votes to pass the Senate.  Leaders have now been considering holding the vote in May — that is, if they can muster the 21 votes that are needed for the Senate to approve the measure, which would legalize recreational weed for people 21 and older in New Jersey. Murphy was asked Wednesday during his regular call-in radio show what the chances were of the bill passing by the end of May. He declined to put odds on it. But Murphy said he’s “cautiously optimistic.”

 

“We came very close,” he said during “Ask Governor Murphy," which was broadcast on public radio stations. "We came within a vote or two. I hope we can print this sooner than later.” A legislative source confirmed Wednesday’s meeting to NJ Advance Media but said a time was not certain.  Depending on whom you talk to, leaders have secured anywhere from 18 to 20 votes in the Senate, according to sources.  One issue casting a cloud over the gathering: The Legislature has packaged the bill with two other measures — one that would greatly expand the state’s medical marijuana program and another that would expunge the records of thousands of people with pot convictions in the state. The hope is to garner more support for the legalization bill if all three are put up for a vote at the same time.

 

But Murphy has said if lawmakers don’t pass the measures by the end of May, he will use his executive authority to expand the medical weed program because patients have waited too long.  Sources have told NJ Advance Media that lawmakers are worried that gives some legislators reason not to vote for legal pot because medical marijuana will be expanded either way.  But Murphy defended his plans Wednesday, saying he’d have “no choice” because the “demand to open (the program) up further is overwhelming.” “Next month is a reasonable amount of time,” the governor said. “There’s too much at stake here,” he added. “We must continue to open it up.”

 

A Look under the Hood of NJ’s Income Tax and its Special Quirks

John Reitmeyer, NJ Spotlight April 9, 2019

 

Rules that hew to the state constitution limit the uses of the state’s biggest source of revenue to items that lower property taxes.  Residents across New Jersey are sending their state income-tax returns to Trenton this month, helping provide the revenue for what’s by far the largest single source of tax dollars for the state budget

 

But even as state spending has become increasingly reliant on the income tax — more than 40 percent is now supported by just that one source of revenue — it’s not widely known exactly how those dollars can and can’t be spent under a constitutional restriction on income-tax proceeds that was enacted decades ago.  The income tax is also a particularly hot issue this year as Gov. Phil Murphy has projected an increase in tax collections that had yet to fully materialize heading into the crucial April tax-filing season, meaning last-minute cuts or other spending adjustments could be looming in a matter of weeks. The governor has also made the establishment of a true millionaire’s tax a key element of his overall $38.6 billion budget plan for fiscal year 2020, but that proposal is getting very little support so far in the Legislature.

 

How it works: The state collects income taxes in a number of ways, including by regularly withholding funds that are deducted from individual worker paychecks. Estimated payments are also collected every few months from those who are self-employed or have large amounts of non-wage income — things like capital gains and stock dividends. Year-end payments are also collected in April from residents who did not fully fund their income-tax liabilities throughout the course of the tax year and must submit a check with their return.

 

The rates: In New Jersey, income taxes are paid under a “progressive” system of marginal tax rates that generally increase as more income is earned by an individual taxpayer. For example, residents who face the state’s highest marginal rate of 10.75 percent don’t pay that rate on all of their earnings, just on the portion that surpasses the $5 million income threshold set under current state law. The result is most taxpayers pay what’s known as an “effective rate” — a blend of the various rates that can be applied to their income as it moves up the scale.

 

The history: Believe it or not, there was a time when New Jersey didn’t levy any income tax at all. But that changed in the 1970s, after a court ruling said the state had to play a bigger role in paying for education. After a few tries, an income tax was eventually established in 1976, and it originally functioned with only two tax rates: 2 percent levied on income under $20,000, and 2.5 percent on income over $20,000. Several new marginal rates were added in the 1990s during former Gov. James Florio’s tenure, and a then-top-end rate of 8.97 percent was set for earnings over $500,000 by former Gov. Jim McGreevey in 2004.  The current rates range from 1.4 percent up to the 10.75 percent rate, which was just added last year. If Murphy eventually can get lawmakers to go along with his true millionaire’s tax proposal, the 10.75 percent rate would be applied to all earnings over $1 million, generating an estimated $447 million in new revenue.

 

The catch: Unlike the state’s other big revenue sources, like the general sales tax and the corporate-business tax, New Jersey’s income-tax revenues are wholly dedicated under the state constitution to providing property-tax relief. To ensure those rules are followed, the constitution requires income-tax dollars to flow directly into a fund that’s separate from the budget’s General Fund. That fund is called the Property Tax Relief Fund.

 

What is and isn’t property-tax relief? The most obvious items for which officials can tap the Property Tax Relief Fund are the state’s direct-relief programs, such as Homestead and Senior Freeze reimbursements. But other items also qualify for income-tax funding, like state aid to K-12 education, county colleges and even teacher pensions, because those things would otherwise have to be paid for using revenue from local property taxes.  Many categories fall completely outside the property-tax relief designation, such as the subsidy for New Jersey Transit and aid provided to four-year colleges, even though those are sometimes falsely identified as items that would benefit from the millionaire’s tax by its proponents.  It’s also no longer the case that revenue from the income tax can readily be used to ease pressure on the General Fund. Years ago, General Fund revenue helped cover state spending on property-tax relief. But in more recent years, newly enacted tax cuts like the 2016 reduction of the sales tax have eaten into the General Fund’s revenue stream, making it more difficult to simply “move money around.” Just last year, the Murphy administration needed to use a creative accounting maneuver to ensure the General Fund had enough money in it even as the Property Tax Relief Fund was flush.

 

The latest: The Department of Treasury has been keeping a close eye on the income tax this year as officials wait to see how taxpayer behavior is being influenced by a new cap on a federal income-tax write-off for state and local taxes that was enacted in late 2017 by President Donald Trump and Congressional Republicans.  The federal deduction, known as SALT, used to be unlimited, and the highest earners would usually pay their state and federal income-taxes well before April to take advantage of the federal tax benefit. But with the federal SALT deduction now capped at $10,000 annually, Treasury officials believe there’s no longer an incentive for many taxpayers to pay ahead of time.

Income-tax collections were running behind the Murphy administration’s year-end growth target heading into April, but Treasury officials have remained confident that taxpayers are just waiting until the last minute to pay up this year. In fact, they expect a full $3 billion to come in just this month to keep spending in line with revenues and obviate the need for cuts.

 


State House News for Finance Officers

March 15, 2019

 

Statute of Limitations

On March 11th, the Senate passed by a vote of 31-1 Senate, No. 477 (Vitale D-19/Scutari D-22), which would eliminate the statute of limitations in certain civil actions for sexual abuse, expand the categories of defendants liable in such actions, and remove the safeguards provided local governing bodies under the New Jersey Tort Claims Act (TCA). 

 

Although the sponsors should be commended for their efforts to provide the victims of sexual abuse with additional remedies against the perpetrators and entities guilty of committing such heinous crime, local officials should be concerned that the most recent changes to this legislation would eliminate the safeguards provided local governing bodies under the TCA as all lawsuits are defended with limited property taxpayer dollars.  During the March 11th hearing of the Assembly Judiciary Committee on the companion version Assembly, No. 3648 (Quijano D-20/Vainieri-Huttle D-37), local officials submitted that the TCA does prohibit the filing of lawsuits against the State, counties, municipalities, and school district.  Instead, the law simply provides important procedural protections that make the litigation process more deliberate.  The Assembly Judiciary Committee favorably reported the measure and the General Assembly is expected to vote on the bill on March 25th. Governor Murphy is also expected to sign the bill into law.

 

In general, this legislation would establish an extended statute of limitations period for sexual abuse, one of which would apply to persons who were abused when minors under the age of 18 years, and one of which would apply to persons who were abused after reaching 18 years of age.  For abuse that occurred prior to, on or after the bill’s effective date, a lawsuit would need to be filed within 37 years after the child victim turns 18 years of age (filed by the victim’s 55th birthday), or within seven years of discovering the injury and its cause if the end date of the seven-year period would occur after the victim turns 55 years of age.  Since the extended statute of limitations is retroactive to cover past acts of abuse, any child victim of past abuse who is under the age of 55 years when the bill takes effect, or who will reach 55 years of age sometime after the bill takes effect, and who is aware of the injury and its cause could file a suit; the “reasonable discovery” requirement would only apply if the victim filed suit after turning 55 years of age due to a delayed discovery of the injury and its cause. 

 

As noted above, this legislation would provide that the TCA or any other law, that may provide some form of governmental immunity from lawsuits based on injuries resulting from acts of sexual abuse are inapplicable, so that any public entity, as defined in the TCA, may be held liable in any such suit in the same manner as a private organization. The bill would also eliminate the  two-year statute of limitations period, set forth in N.J.S.A. 59:8-8, for bringing a sexual abuse lawsuit against a public entity, as well as any of the act’s procedural requirements, such as the 90-day period for filing notice of a claim of liability against a public entity for such lawsuits; the process of filing a lawsuit with service upon the liable public entity or entities would thus be the same as when suing a private organization.  Public entities would also be subject, just like a private organization, to the new, extended statute of limitations periods for child and adult victims of abuse summarized above.  Please note that this legislation presents several complex legal challenges and we recommend your general counsels to review in its entirety as this summary provides an abbreviated version of the measure’s scope.

 

Local Aid Allocations

 

On March 18th, the Senate Budget and Appropriations Committee will consider  Senate, No. 2863 (Sarlo D36)(Sweeney D-3), which would revise the requirements for receiving grant funding from the Local Aid program under the Transportation Trust Fund (TTF). 

 

The Senate Transportation Committee previously amended the bill to award construction or other approved contracts for 100 percent of a county’s allotment within three years of notification by the Department of Transportation (DOT) of that year’s allotment, or failure to award construction or other approved contracts for any percentage of a county’s allotment within one year following the date the county receives the first payment of the allotment, would result in the allotment being immediately rescinded, returned, or deducted by DOT from future allotments.  With respect to municipalities, the legislation would require that failure to award construction or other approved contracts for 100 percent of a municipality's allotment within two years of notification by the department of that year's allotment, or failure to award construction or other approved contracts for any percentage of a municipality’s allotment within one year following the date the municipality receives the first payment of the allotment would result in shall result in that year's allocation being immediately rescinded. 

 

The measure would also authorize the Commissioner of DOT to reallocate funds on a grant basis for counties or cost reimbursement basis for municipalities.  The bill would further provide that the new one year requirement may be extended if a designated chief financial officer of the county or municipality certifies to the DOT that the project would not begin construction because:  (1) the allotment is aggregated with future funds for a specific project; (2) a permit needed for completion of the project has not been issued due to a delay in the permitting process; (3) the acquisition of an interest in State-owned land needed to complete the project is delayed due to the divestment of a deed restriction; (4) the project requires a utility to be relocated; or (5) a catastrophic event occurs and results in the declaration of a state of emergency. 

 

The bill would further prohibit a local government entity from using Local Aid program funds to support the work of a local government entity’s employees on Local Aid construction projects funded from Local Aid funds; would require construction contracts for projects funded out of funds from the local aid program to be bid in accordance with local public contracts law; would require all bidders on Local Aid program funded construction contracts valued at more than $500,000 to be prequalified by the department; and, would permit Local aid Program grant recipients to use 10 percent of their awards on design costs in fiscal year 2019, and five percent of their awards on design costs in fiscal years 2020 and beyond.

 

Retroactive Salary Increases

 

On March 13th, the Senate passed by a vote of 31-1 Senate, No. 3369 (Scutari D-22), which would prohibit all locally elected officials from receiving retroactive salary increases.  In general, this bill would prohibit all local elected officials from receiving retroactive salary increases as of December 1, 2018.  This bill would apply to elected officials in counties, municipalities, school districts, and all other political subdivisions of the State.  The companion version Assembly, No. 5090 (Munoz R-21) is currently in the Assembly State and Local Government Committee awaiting consideration. 

 

Electronic Bidding Construction act

 

On March 13th, the Senate passed by a vote of 31-0, Senate, No. 3137 (Sweeney D-3/Oroho R-24), which would require public contracting agencies that contract for the construction of public works to use electronic procurement technologies for public works construction projects when a project’s value exceeds $5,000,000.  These entities include those governed by the “Public School Contracts Law,” the “State College Contracts Law,” the “County College Contracts Law,” the “Local Public Contracts Law,” and the State and its agencies and instrumentalities.

 

In summary, the bill would require the State Treasurer to promulgate regulations to effectuate the electronic procurement of public works as required by the bill.  The regulations must set forth each of the steps the treasurer deems appropriate to be taken by each public contracting unit when a public works project project’s value exceeds $5,000,000.  The regulations must also create a procedure to be followed by a public contracting unit for the awarding of a contract for the administration of the electronic procurement process, and all aspects of electronic procurement.  The regulations must also require that a contractor or vendor seeking a contract for public works under the bill be classified with the Division of Property Management and Construction in the Department of the Treasury, or be prequalified by the Department of Transportation, New Jersey Transit, or the New Jersey Turnpike Authority, prior to submitting a bid. The companion version Assembly, No. 1308 (Greenwald D-6/Milam D-1) is currently in the Assembly State and Local Government Committee awaiting consideration. 

 

911 Fee Diversion

 

On March 5th, Governor Phil Murphy unveiled his $38.6 billion spending plan for State Fiscal Year 2020.  Although we’re still in the process of reviewing the annual budget, it unfortunately does not include any new funding for county and municipal 911 centers as recommended by the Federal Communications Commission (FCC). 

 

The State plans to once again divert an estimated 89.0% of the $120.0 million in surcharges it expects to collect this year as 911 System and Emergency Response Fees.  As has been well documented, the State of New Jersey is the worst offender of diverting 911 fees in the nation and has collected an estimated $1.4 billion since 2006 with only 11% of Fund monies being spent on eligible expenses for the three State operated 911 centers. Moreover, the State has failed to provide any funding to local 911 centers operated by counties and municipalities; and, has instead diverted the balance of Fund dollars to cover general operating expenses in the Department of Law and Public Safety. As a direct result of the State’s decade long practice, and the similar diversion of 911 funds by several other states, the FCC recently adopted rules that now prohibits New Jersey and its local governing bodies from applying for up to $115.0 million in grant program funding to upgrade 911 centers with Next Generation 911 (NG911) capabilities. 

 

Murphy, Dem Leaders Now Must Round Up Votes for Marijuana Legislation

Carly Sitrin, NJ Spotlight, March 13, 2019

 

Have they the support of enough Democrats to legalize adult use in New Jersey? That’s just one question arising out of this week’s agreement on legislation.  Although Gov. Phil Murphy and Democratic legislative leaders have finally reached an agreement to legalize marijuana for recreational adult use in New Jersey, the smoke hasn’t yet cleared enough to see whether they have the votes to pass a bill. On the heels of what looks to be a more amicable beginning to the annual budget process, the Democratic governor and Senate President Steve Sweeney have settled on the outlines of a bill to legalize cannabis for those aged 21 and older. (Specific wording of the bill has not been released.) The Murphy administration is hoping for a committee vote on March 18 and final passage by March 25.  It will take at least 21 votes to pass the legislation in the upper house and as of last November before they cut this deal, there were only 20 votes in favor, at best.

 

“We have a deal,” Murphy said Tuesday. “This was not easy. We’re standing up an entire new industry so not surprisingly it took time.” The proposal includes a $42 per-ounce flat tax to be levied on cultivators, 2 percent tax revenue for municipalities, an expedited expungement process for people convicted of low-level marijuana offenses in the past, and a five-member Cannabis Regulatory Commission to oversee the industry, among other provisions. The speculation is they are taxing by weight to avoid an additional sales tax, and the $42 per-ounce tax on growers would be passed on to consumers.  Murphy is anticipating that legalization will deliver “thousands of jobs and billions of dollars of economic activity” for the state, given the experiences of states like Colorado and Massachusetts that already have legalized. Indeed, according to data compiled by Whitney Economics and the online cannabis website Leafly.com, the state-licensed cannabis industry gained over 64,000 new employees in 2018, and now employs more than 200,000 full-time workers nationally. Data compiled by the Institute on Taxation and Economic Policy show that tax revenues in 2018 derived from state-sanctioned recreational sales surpassed $1 billion, a 57 percent increase over 2017 levels.

 

Murphy’s fiscal year 2020 budget proposal counts on $60 million in new revenue from a tax the state would apply to the sale of recreational marijuana. The governor called that number “modest” and said there would also be a cost to the state of $21 million expense: $9 million in a one-time startup cost and $12 million in ongoing “implementation fees,” although he did not clarify what those fees would be.

It's not clear when, if passed, the new law would take effect, but Murphy has targeted early 2020. Legalizing adult-use cannabis has been a priority for Democrats since Murphy’s election as they were unable to make any progress under former Gov. Chris Christie, a Republican. Supporters of legalization cite data showing cannabis arrests cause extensive harm to communities of color and take up significant law-enforcement time and resources. Murphy has repeatedly said that his priority at the deal-making table was administering “social justice” for those incarcerated or otherwise harmed by the nation’s longtime war on drugs.

 

“I got there via the notion [of] the yawning gaps of social injustice in our state,” Murphy said. He added that there’s a “big expungement piece” to this deal, including a “very robust lookback provision” that will handle clearing the records of individuals convicted of low-level marijuana offenses. “Without it there wouldn’t be a deal,” he said.  At the same time, some lawmakers opposed to full-fledged legalization are pushing to put the issue on the ballot for voters to decide. Assemblywoman Holly Schepisi (R-Bergen) has proposed a referendum on the matter and is in talks with Sen. Ronald Rice (D-Essex) for him to be a potential co-sponsor in the upper house.

 

“I do not support the legalization of recreational marijuana in New Jersey. I have spoken with Assemblywoman Holly Schepisi on pushing for the measure to be put on the ballot this year because I believe the voters should decide whether recreational marijuana is legalized in this state,” Rice said in a statement. How many lawmakers will oppose? Still, it is unknown how many legislators may oppose this attempt at legalization, and legislative leaders are hoping to sell their deal to enough lawmakers to get it passed in both chambers.  “This plan will allow for the adult use of cannabis in a responsible way,” said Senate President Sweeney (D-Gloucester) in a statement. “It will create a strictly regulated system that permits adults to purchase limited amounts of marijuana for personal use. It will bring marijuana out of the underground market so that it can be controlled, regulated and taxed.”

 

One of the major sticking points for legislators and local leaders alike has been the rate at which marijuana would be taxed. Murphy spent months pushing for a tax as high as 25 percent while Sweeney emphasized he would not go higher than 12 percent. In the agreement reached on Tuesday, adult-use marijuana will be subject to an excise tax of $42 per ounce imposed on cultivators.  Municipalities that have retail shops would be able to impose a 3-percent tax on items sold within their borders, while towns that host marijuana growers would be able to impose a 2-percent tax, and towns with wholesalers could charge a 1 percent tax. Mayors and municipal officials however have long asserted that 2 percent or 3 percent is not nearly enough for them to offset the potential costs of policing and other aspects of implementing legalization.

 

When the bill language is released, many will be looking to see if there’s provision for the Police Training Commission in the Department of Law and Public Safety to reimburse county and municipal expenses for training costs, as was the case in the bill’s previous version.  So why a tax on weight? Politically, it protects Murphy and Sweeney from the insinuation that either gave in on their tax demands. Economically, taxing by weight takes into account the dips in marijuana pricing that states like Colorado and Oregon have experienced since legalizing. That $42 excise tax would remain static whether the ounce cost $300, $150, or less.

 

Another major factor in the legalization debate has been how to handle expungements for those whose crimes will no longer be crimes, overnight. This disproportionately affects black New Jerseyans who are currently three times more likely to be arrested for marijuana possession than whites, despite similar cannabis use rates.  ACLU data shows that hundreds of thousands of New Jerseyans could be eligible to have their records cleared if this agreement passes, but the process is lengthy and difficult to navigate.  The agreement reached by Murphy and legislative leaders would establish an expedited expungement process for those convicted of low-level marijuana offenses, and it would put into place an electronic expungement process they say will “automatically prevent certain marijuana offenses from being taken into account in certain areas such as education, housing, and occupational licensing.” Further details will be released sometime this week, but advocates already have flagged a potential problem with the way arrest and conviction data is stored, collected, and entered into computer systems (or left in boxes in basements) that could put a wrinkle in the ease promised by an automated “virtual” expungement rollout.

 

“In as much as we would want this to be automatic it is functionally not possible,” Murphy said of expungement. He noted that many of the issues with processing people through the system will be for the regulatory commission to tease out. “All of us would have preferred an automatic, just one minute after midnight everybody’s expunged [solution] and that is not possible … how that is going to evolve, if you could bear with us, I would appreciate that.”  Although the state will be relying heavily on the newly created commission to work out many details of the legalization and to oversee all license applications for dispensaries, the regulatory body itself has been a point of contention for Sweeney and Murphy. To gain the governor’s blessing, Sweeney and Assembly Speaker Craig Coughlin agreed to grant the governor full authority to appoint a majority — three of the five commission members with the Senate’s consent. The other two members will be appointed by the governor, by recommendations of the Speaker and Senate President.

 

Additionally, there are provisions in the agreement aimed at creating space in the industry for those who have been impacted by marijuana prohibition, including minority and women-owned businesses, low- and middle-income individuals, and disadvantaged communities.  As the final text of the bill is being edited, stakeholders will be watching to see how their concerns will be addressed including further details on the expungement process: Will small-time dealers be included or just those convicted of possession? How will the Administrative Office of the Courts be directed to handle expungements?  Will those applying to have their records cleared incur a cost?  How will marijuana be handled in the workplace?  What provision will there be for handling intoxicated driving and cannabis-use disorder or addiction?

 

Indeed, upon the announcement of the agreement, longtime legalization opponent Sen. Gerald Cardinale (R-Bergen) noted the serious concerns of his constituents and many others across the state. The principal duty of government “is to safeguard public health and safety. Legalizing marijuana for recreational use is a shameful abdication of that responsibility,” Cardinale said. “In November, New Jersey’s law enforcement community testified that we don’t have the funds, personnel, or technology to identify drugged drivers. There is no breathalyzer for marijuana.” While New Jersey could see a vote on legalization within a couple of weeks, the issue is also gaining ground on the federal level. U.S. Sen. Cory Booker (D-NJ), who announced his candidacy for president earlier this year, reintroduced his Marijuana Justice Act, which he first introduced in 2017. It would decriminalize cannabis at the national level and leverage federal funds to encourage states to legalize it. Several other presidential hopefuls have signed on to support Booker’s bill.

 

But even if the New Jersey legalization bill gets passed by both houses in Trenton, implementation could still be a year away. “Assuming there is not any meaningful amount of recreational sale out of the current medical dispensaries and for a lot of reasons we don’t expect that,” Murphy said, “early next year would be my best guess.”  He added the next step is for himself, Sweeney, Coughlin, and sponsors of the bill in the Assembly and Senate to work to convince others that their plan is worth signing on to.  “We have to get the votes now,” Murphy said. “I’m all in to help them get this over the goal line.”

 

With Aid from Trenton Flat, Municipal Officials Foresee Problems

Coleen O’Dea, NJ Spotlight, March 8, 2019


While inflation has risen 21 percent since mid-2007, total state aid to towns is down almost 11 percent over that time State aid to New Jersey municipalities would remain essentially flat under Gov. Phil Murphy’s budget proposal, with the total amount of financial assistance from Trenton to towns coming in lower than it was a dozen years ago.

 

The budget would allocate $1.55 billion to help municipalities cover costs in the 2020 fiscal year — a bump of just $4.1 million, or less than 1 percent, over the current spending plan. All of that increase would go for transitional aid, available only to cities and towns in dire financial straits. The most current data available from the state Division of Local Government Services shows 11 municipalities got $90.4 million in transitional aid during the 2018 fiscal year, with Paterson getting the most — $27 million.

 

That leaves all but a handful of communities with no aid increase from the state to help cover inflationary increases and a new higher minimum wage for towns’ lowest paid workers, such as summer recreation help.

 

In his budget address, Murphy promised $400 million in savings to schools, counties and municipalities from lower healthcare spending. But lawmakers from both parties want to see that money used exclusively for property-tax relief. And municipal officials say they are not counting on the savings because they have received no details about it, nor how much any individual town might receive.  “It is not yet apparent to us exactly what these savings entail and how much will be realized for municipalities, for counties and for school districts,” said Michael Cerra, assistant executive director of the New Jersey State League of Municipalities. “It is premature to suggest such savings should be used to offset property taxes when property tax relief funding has been flat for over a decade … and with all local governments operating under a 2 percent levy cap.”  In other words, municipalities may be stretching to provide services given that they’ve had flat aid for more than 10 years.

 

Cerra said towns are also grappling with the expiration of a 2-percent cap on raises that an arbitrator could award police officers and paid firefighters to end a contract dispute, as well as the higher minimum wage, which will increase to $10 on July 1 and then continue to rise until reaching $15 in 2024.  These concerns have not stopped lawmakers, including Senate President Steve Sweeney (D-Gloucester) from calling for any savings to be used to reduce property taxes. Although the average local tax bill increased by the smallest amount in decades last year — less than 1 percent — New Jersey’s property taxes are still the highest in the nation, on average. “One of my suggestions is if towns and counties can save up to $400 million in healthcare costs that we legislate that they have to cut their property taxes by those dollars saved,” Sweeney said Thursday in an interview with NJ Spotlight. “What happens is, when you get savings, there’s always a pressing need, there’s always a project that someone wanted to do. ‘Guess what? (Revenue) just fell out of the sky, now I can build my playground.’ So restricting dollars I think is critically important.“

 

Colleen Mahr, president of the League of Municipalities and mayor of Fanwood, said local officials are eager to learn “how the proposed $400 million in savings from collective bargaining translates to property tax relief at the local level.” And while the league is grateful for the slight increase in transitional aid, what officials really want is for Trenton to pass along all the energy and other tax money they say is rightfully theirs. As early as 1900, the state collected taxes on public utilities and transferred them to municipalities. Over time, some of the taxes, and how they were collected, changed. But ultimately they are all supposed to be municipal revenues, according to the league.  For decades, though, the state has collected and distributed the money, while skimming some for the state budget. That skim reached new heights during the Great Recession and continues.

 

Mahr called it “unfortunate” that Murphy proposes to continue diverting Energy Tax Receipts collected by the state for use in the state budget. She said the governor’s proposal of level funding for ETR and Consolidated Municipal Property Tax Relief Assistance (CMPTRA), the second-biggest category of municipal aid, is “better than a cut,” but still a disappointment.  If lawmakers agree with Murphy’s proposal, FY2020 funding for ETR and CMPTRA will total $190 million less than before the recession. “The League continues to call on the administration and Legislature to begin the long-overdue full restoration of this property-tax relief,” she said.

 

Municipal services account for about $3 of every $10 paid in property taxes. (The rest goes for schools and counties.) And while the Consumer Price Index has risen by 21 percent from mid-2007, total municipal aid is almost 11 percent less than 12 years ago.

There could be some unknown amount of future savings to municipalities teased by the Budget in Brief document from shared services. Last year, Murphy named “Shared Services Czars” to encourage more municipalities to pursue shared services. The budget proposal would create a Local Assistance Bureau within the Division of Local Government Services to “facilitate shared services and consolidation assistance,” according to the document. It also put forward the possibility of municipal savings from counties assuming certain local services, although that would raise county costs by at least some unknown amount.

 

“Local Government Services (LGS) has also provided the Governor with its first suggestions for services that should be offered at the county level, including recommendations that counties assume the responsibility for 9-1-1 dispatch, public health, and road maintenance (e.g., snow removal) for municipalities,” the Budget in Brief states. “The State’s largest cities may need to continue operating their own programs.” No other details about when or even whether counties would take over road maintenance and other services, or about potential cost savings, were available. Murphy’s office referred questions to the Department of Community Affairs, which houses LGS, but officials there did not respond to a request for comment. “We were unaware of these recommendations and still don’t know the details and what is the basis for them,” said the league’s Cerra. “We have no problem with the counties ‘offering’ any services, providing any such service agreement is entered into voluntarily by all parties.”



State House News for Finance Officers

February 22, 2019

 

 

Paid Family Leave

 

On February 19th, Governor Phil Murphy signed into law Assembly, No. 3957 (Quijano D-20/Giblin D-34)(Sweeney D-3/Diegnan D-18), which broadens the State’s paid family leave law.  In summary, the new law expands Temporary Disability Insurance (TDI) and Family Leave Insurance (FLI) benefits, establishes new administrative requirements for the TDI and FLI programs, and increases TDI and FLI payroll taxes.

 

In summary, the new law requires that for leave periods beginning on or after July 1, 2020, the amount of weekly FLI and TDI benefits will increase from 2/3 of a claimant’s average weekly wage to 85% of that wage, subject to a maximum amount.  The maximum will rise from 53% to 70% percent of the Statewide average weekly wage (SAWW) for all workers.  Additionally, the maximum FLI benefit period will increase from 6 to 12 weeks during any 1-year period and the maximum intermittent FLI leave from 42 to 56 days.  Moreover, the new law expands the family members for whose care individuals may receive FLI benefits during periods of leave from employment to siblings, grandparents, grandchildren, parents-in-law, and others related by blood or relationship equivalent to a family relationship; and, extends FLI benefits to individuals who take time off from work to assist a family member who is a victim of domestic or sexual violence.

 

The new law also facilitates access to FLI and TDI benefits by: 1) eliminating the 1-week waiting period before the payment of FLI benefits; 2) effective as of June 30, 2019, lowering from 50 to 30 employees the threshold at and above which employers must grant unpaid family leave to employees for up to 12 weeks in a 24-month period without terminating employment because of the leave; 3) no longer allowing employers to require that employees use all their paid leave, up to 2 weeks, before the payment of FLI benefits; and, 4) limiting to 2 weeks the amount of sick leave State and certain local government employees must use before receiving TDI benefits.  Current law requires them to exhaust their entire sick leave first. The new law further increases the amount of payroll taxes that will be raised to pay for the benefit expansion and additional program administration expenditures; and, expands the wage base on which the taxes are imposed from 28 times to 107 times the SAWW.  Employees will pay for the entire cost of the new law through increases in employee FLI and TDI wage tax assessments.

 

Water and Sewer Bills

 

On February 7th, the Senate Budget and Appropriations Committee reported favorably Assembly Bill No. 109 (DeAngelo D-14/Wimberly D-35)(Bucco R-25),which would require a 30-day grace period to the accrual of interest on late water and sewer bill payments. 

 

In summary, this legislation would provide for the deferral of interest accrual on balances owed, but not promptly paid by consumers, for water and sewer services.  The bill would affect the accrual of interest on late payments made to governmental entities that sell and supply water, or that provide sewerage services to consumers in the State.  These entities include municipal and county sewerage and utility authorities, municipally-operated utilities, utility authorities, and municipally-owned waterworks.  The bill would further provide that when a payment for water or sewer services is owed by a consumer and is not paid when due, interest would  accrue on only that part of the amount that is due and payable and that remains unpaid for 30 days following the established payment due date, as identified on the consumer’s bill or other statement of water or sewer service usage.  The bill would not apply to water and sewer services provided by public utilities while operating under the regulatory authority of the Board of Public Utilities. 

 

GFOA of NJ is generally concerned that this legislation could result in a potential decrease in revenue for local water and sewerage authorities and certain municipalities as  affected entities would likely experience revenue decreases equal to the difference between the amount of interest that would have accrued on the total balances of overdue water and sewer bills immediately following the payment due date, and  the amount of interest that would accrue on the total balances of water and sewer bills that remain unpaid for 30 days following the payment due date. Current law generally requires sewerage and water authorities to impose interest of 1.5% on unpaid water or sewer bills immediately following the due date.  A-109 is on Second Reading in the Senate and passed the Senate by a vote of 75-0 on March 26, 2018. 

 

Property Tax Assessment Study Commission

 

On February 14th, the Assembly State and Local Government favorably reported and second referenced the Assembly Appropriations Committee Assembly, No. 4826 (Mazzeo D-2), which would establish the “Property Tax Assessment Study Commission.”

 

In summary, the Commission would examine the State’s current real property tax assessment practices, which include the Gloucester County model under the “Property Tax Assessment Reform Act” and the Monmouth County model under “Real Property Assessment Demonstration Program.” The Commission would study, analyze, and consider all issues related to real property assessment in the State, which would include:  the role of the county government in the real property assessment process; the use of technology in the assessment of real property and in the assessment appeal process, with the goal of developing Statewide standards and practices for the use of technology to set and maintain real property assessments; the means by which to improve the accuracy and reliability of real property assessments and the assessment appeal process, which would include whether to statutorily require that all real property assessments be maintained at no less than 100% of assessed to true value in every year; and,  an analysis of the assessment practices in Gloucester and Monmouth counties, which would include an analysis of the efficacy of the real property assessment calendar currently in use in Gloucester and Monmouth counties, and whether either calendar should be implemented statewide.

 

The Commission would be required to issue a report of its findings and recommendations to the Governor and the Legislature no later than 12  months after the Commission organizes and would include the following 9 members: the Director of the Division of Taxation in the Department of the Treasury; 4 members appointed by the Governor, which would a representative of NJAC, a representative of NJLM, a representative of the Gloucester County Board of Taxation, and a representative of the Monmouth County Board of Taxation; 2 public members appointed by the President of the Senate, one of whom shall have experience in the assessment of residential real property, either as a municipal assessor or as an employee of a revaluation company operating in the State; and 2  public members appointed by the Speaker of the General Assembly, one of whom shall have experience in the assessment of commercial real property, either as a municipal assessor or as an employee of a revaluation company operating in the State. The companion version Senate, No. 3345 (Cryan D-20) is currently in the Senate Community and Urban Affairs Committee awaiting consideration. 

 

Employee Wage Information

 

On February 14th, the Assembly Labor Committee favorably reported Assembly, No. 3413/Senate, No. 1791 (Johnson D-37)(Weinberg D-37), which would require employers to disclose certain wage information to employees.  In summary, this legislation would require employees to provide employees with a statement of earnings and the following information:  the employee’s gross earnings; the employee’s net earnings; the employee’s rate of pay; and, the number of hours worked by the employee during the pay period if relevant to the employee’s wage calculation.  A-3413/S-1791 is on Second Reading in the General Assembly and passed the Senate by a vote of 37-0 on September 27, 2018. 

 

Set Aside of Public Works Funds

 

On February 14th, the Assembly Labor Committee favorably reported Assembly, No. 4817/Senate, No. 368 (Verrrelli D-15/Reynolds D-15)(Rice D-28/Turner D-15), which would authorize political subdivisions to set aside .5% of public works funds to recruit and train women and minorities and promote local hiring. In summary, this legislation would provide that any political subdivision of the State may elect to retain or transfer to the Department of Labor and Workforce Development an amount equal to .5% of the portion of any public works contract of the political subdivision for the: recruitment and training of women and minorities in the construction industry; or, for the purpose of providing incentives or otherwise facilitating a local hiring and employment program. A-4817/S-368 is on Second Reading in the General Assembly and passed the Senate by a vote of 37-0 on September 27, 2018. 

 

NJ Court’s Major Ruling on Disability Payments for Volunteer Firefighters

Colleen O’Dea, NJ Spotlight, February 20, 2019

 

Volunteer firefighters who are injured are entitled to disability payments in New Jersey even if they do not have a full-time, paying job when they are hurt, a unanimous state Supreme Court decided in a case that could have implications for 30,000 emergency service volunteers and that could increase municipal costs.  In a case involving 17-year Bridgewater volunteer firefighter Jennifer Kocanowski, the court ruled on Tuesday that the lack of regular, paid employment does not preclude an emergency services member from collecting temporary disability, overruling a workers’ compensation judge and the Appellate Division.

 

“The extrinsic evidence and legislative history decidedly indicate the Legislature intended to increase temporary disability coverage for volunteer firefighters injured in the course of performing their duties when it enacted the current” law, wrote Justice Walter Timpone for the court. He added that the law “authorizes all volunteer firefighters injured in the course of performing their duties to receive the maximum compensation permitted, regardless of their outside employment status at the time of injury.”  This decision could have a wide impact. According to a recent investigative report from the state comptroller’s office, New Jersey had 30,372 volunteer firefighters as of last March. Most of these are likely employed but there are also an unknown number who are retired from work or otherwise unemployed.

 

Jennifer Cottell, an attorney with Capehart & Scatchard of Mount Laurel who represented Bridgewater, said the court’s ruling could also apply to rescue squad workers and a number of other types of local volunteers. The ruling could wind up raising the cost of premiums for municipalities, which pay an insurer or self-insure for worker’s compensation.  “Once the underwriters get word of this decision, municipalities are going to see a huge increase in their costs for coverage,” Cottell said.  Kocanowski was a member of the Finderne Fire Department in Bridgewater when, in March 2015, she and other volunteer firefighters responded to a multi-alarm fire in nearby Franklin Township, according to court papers. While carrying equipment, she slipped on ice, suffering numerous bone fractures, ligament tears, nerve damage and other injuries to her right leg and foot and her back. Kocanowski had two surgeries, physical therapy and other medical treatments but continues to suffer from back, leg and foot issues and can drive only very short distances.

 

For most of the time while she was volunteering, Kocanowski also had paid work, including as a nanny and a home healthcare aide. She stopped working in October 2013 to care for her ill father, who died a month later. Kocanowski took a six-month leave of absence from firefighting following his death to care for her ill mother and settle her father’s estate. She returned as a volunteer to the department in July 2014 but did not resume paid work.  Nine months after her injury, Kocanowski filed for temporary disability and/or medical benefits and requested the state maximum weekly disability payment, which was $855 per week at the time, because she was an injured volunteer firefighter. Bridgewater opposed the application, saying that since Kocanowski was not employed at the time of the accident, she was not entitled to disability benefits.

 

The workers’ compensation judge agreed with the township, deciding in March 2016 that New Jersey case law required a person to be receiving a salary in order to receive disability benefits, which is meant as a wage replacement. An appeals panel agreed, ruling that “there first must be an entitlement by the volunteer to payment of temporary benefits. That payment depends on proof of lost wages.”  State workers’ disability compensation was first required by a 1911 law, according to court papers. In 1931, the Legislature required municipalities to provide compensation for volunteer firefighters based on their salary in private employment or the pay they had last received if they were unemployed. The statute was amended in 1952 and today it is more vague, requiring that compensation for injury or death of firefighters and numerous other types of volunteers “Be based upon a weekly salary or compensation conclusively presumed to be received by such person in an amount sufficient to entitle him, or, in the event of his death, his dependents, to receive the maximum compensation by this chapter authorized.”

 

Timpone wrote in the decision that while the “language is unclear, we find its legislative history indicates a strong intent to provide temporary disability coverage to volunteer firefighters at the maximum compensation provided for in the Act.” The decision holds that the amended law “was intended to grant all volunteer firefighters the maximum compensation allowed, regardless of current or previous income.”  Cottell said she was “really shocked” by the court’s choice to interpret unclear statutory language, rather than suggesting lawmakers draft new legislation to clarify their intent.  “It is clear that the temporary disability benefit has always been a wage replacement,” Cottell said. “Miss Kocanowski was not working. She was not receiving income. The law was not meant to give people income if they weren’t already receiving it.”

 

But the decision cites the important role volunteer firefighters play in a state where most municipalities do not have a paid fire department. “The Legislature has long sought to encourage that role by providing certain protections and exemptions for volunteer firefighters,” the decision states. “In recognition of the protections and benefits the Legislature has created for volunteer firefighters, our courts have liberally construed the Workers’ Compensation Act to provide coverage for volunteer firefighters.”  It cites two past decisions beneficial to volunteer firefighters seeking compensation: In one, a volunteer playing for a department’s baseball team was deemed to have been injured “in the line of duty,” while in the other, a 93-year-old who had no paid employment at the time was considered to have been performing a “public fire duty” when he was injured while tending the stove at the firehouse.

 

“It would be incongruous and inconsistent, after years of expanding protections and exemptions for volunteer firefighters, for the Legislature to abruptly limit the class of volunteer firefighters who qualify for temporary disability from any volunteer firefighter who had ever been employed to only volunteer firefighters employed at the time of injury,” the decision states.  The ruling sends the case back to the state Division of Workers’ Compensation to award Kocanowski the $855 weekly benefit retroactively. The only compensation Kocanowski had received to date had been $125 per week from the Finderne Fire Department for one year after the accident.  Cottell said this could have wide-ranging implications. An unemployed college student, for instance, could volunteer for a few hours a weekend with the fire department, suffer an injury, and wind up receiving the maximum workers’ compensation, which is currently $921.  “This is going to be a problem for municipalities,” she said. “I think municipalities are going to drive the Legislature to fix it.”

 

Measure to Keep ‘Dirt Brokers’ Out of Recycling Industry Moves Up, Slowly

Tom Johnson, NJ Spotlight,  February 19, 2019

 

Fears that organized crime could infiltrate recycling sector prompt progress on tough licensing law that would include some background checks  An eight-year struggle to close loopholes to keep bad actors out of the recycling sector is moving closer to winning legislative approval.

 

The legislation S-1683, spurred by a 2011 report by the State Commission of Investigation into illegal dumping of toxic-tainted soil and debris, cleared the Senate Environment and Energy Committee last week.  Long debated, the latest version of the bill won backing from the SCI, the attorney general’s office, state Department of Environmental Protection, and recycling sector, all of whom had expressed some reservations about the legislation in the past.

 

Those concerns mostly revolved around expanding the scope of a tough licensing law for the solid- and hazardous-waste industry to segments of the recycling sector. The original SCI report — amplified by follow-up studies — documented schemes in which contaminated fill and construction debris were dumped as clean fill.  “In recent years, the same type of mob figures who once infiltrated the garbage industry are now exploiting the ever-expanding recycling industry,’’ said Sen. Bob Smith, the chairman of the committee and a sponsor of the bill.  “The illicit disposal of contaminated materials under the façade of recycled materials creates a real threat to public safety and the health of the environment,’’ he added. “It’s an environmental threat that requires a law enforcement response.’’  The changes to the bill limit the scope of facilities required to perform background checks under the licensing law, by exempting recyclable materials such as metal, glass, paper, and plastic containers — as well as construction debris shipped to state-approved facilities.

 

But it would require any business engaged in providing soil- and fill-recycling services to register with the state DEP and ultimately obtain a recycling license from the attorney general’s office. It also would extend background checks to a broader range of people involved in the sector, including salespeople, consultants, and brokers.  “We think we now have a pretty good bill,’’ said Smith (D-Middlesex), whose committee had previously held three other hearings on other versions of the measure.  “This is an important piece of legislation,’’ agreed Lee Seglem, executive director of the SCI. “The commission is alarmed that these very serious problems have persisted.’’

 

The SCI first detailed problems in the industry in a report that uncovered contaminated fill and construction debris were used by a so-called dirt broker to shore up a bluff in Old Bridge, abutting Raritan Bay. Old Bridge was left to clean up the mess with a projected cost of as much as $400,000.00. On Thursday, Vernon Township Mayor Harry Shortway urged the committee to amend the bill to deal with a problem in that community, where neighbors have sought unsuccessfully to end the dumping of truckloads of dirt and debris on a residential property. The township has fined the owner more than $75,000.00, but has been unable to stop the unauthorized dumping.  The legislation now heads to the Senate Budget and Appropriations Committee.

 

State House News for Finance Officers

January 30, 2019

  

Minimum Wage

On January 28th, GFOA, the New Jersey State League of Municipalities (NJLM), the New Jersey School Boards Association, and the New Jersey Association of Counties (NJAC) testified before the Assembly Appropriations Committee and the Senate Budget and Appropriations Committee concerning Assembly, No. 15/Senate, No. 15 (Coughlin D/ Tucker D)(Sweeney D-3), which would increase the minimum wage to $15.00 per hour over time. 

Our collective organizations testified that this legislation, may ultimately, force certain local governing bodies to either increase user fees,  reduce or eliminate services, or cut staff as the measure would now include counties, municipalities, and school districts as employers. The State’s current minimum wage law only applies to private businesses and does not include the State, counties, municipalities, and school districts Allen v. Fauver 327 N.J. Super. 14 (App. Div. 1999).  However, all must comply with the federal minimum wage requirement of $7.25 per hour. In light of the 2% property tax cap levy, recently enacted laws such as the “Workplace Democracy Enhancement Act” and “Earned Sick Leave” that place additional burdens on local governments,  and the failure to permanently extend the 2% cap on binding interest arbitration awards and Chapter 78, an increase in the minimum wage does not help counties and municipalities deliver often mandated services in an effective and efficient manner, and does help control the continued growth of property taxes.  Special thanks to GFOA’s Board of Directors and county finance officers as members of NJAC for providing the following data on how an increase in the minimum wage would impact local governing bodies across the State.

  • Atlantic County reported that it would cost the County $182,000.00 per year to fully implement a $15.00 per hour minimum wage to primarily pay entry level employees.  The County further reported that the County has been using the collective bargaining process to ensure that employee wages are above the federal poverty level.  
  • Bridgewater Township in Somerset County reported that it would cost the Township $74,710.00 per year to fully implement a $15.00 per hour minimum wage to primarily pay seasonal employees.  The Township further reported that the increase would eventually force the Township to increase registration fees for recreation programs and forgo hiring seasonal park employees. 
  • Burlington County reported that it would cost the County $312,713.00 per year to fully implement a $15.00 per hour minimum wage to primarily pay entry level election board, human services, library, and animal shelter employees.  The County further noted that the above figure does not include potential increases for similar employees earning a wage slightly above $15.00 per hour.
  • Cinnaminson Township in Burlington County reported that a $15.00 per hour minimum wage would not impact the Township as all Township employees currently earn at least $15.00 per hour. 
  • Cumberland County reported that it would be a minimal cost for the County to fully implement a $15.00 per hour minimum wage to primarily pay student interns, library assistants, and laborers.  The County further reported that the County adopted a “Living Wage” resolution in 2002.
  • Gloucester County reported that there would be an insignificant cost for the County to fully implement a $15.00 per hour minimum wage.  The County further reported that the County adopted a “Living Wage” resolution in 2019
  • Harrison Township in Hudson County reported that it would cost the Township $86,000.00 per year, an increase of 86%, to fully implement a $15.00 per hour minimum wage to primarily pay  recreational aides and seasonal employees.  The Township further reported that the increase would eventually force the Township to increase registration fees, but that the increases would not cover the costs associated with operating the programs.
  • Hudson County reported that the County enacted an Executive Order in 2018 to increase the minimum wage for County employees to $15.00 per hour at a cost of $744,425.00 to implement and that the measure affected 406 of the counties 3100 employees. Hudson County took the initiative to enact the “Fair Wages for County Employees” Executive Order No. TAD-7. 
  • Monmouth County reported that a $15.00 per hour minimum wage would affect 300 seasonal park employees, 100 library monitors, and several clerical employees.  The County further noted that the above figures do not include similar employees earning a wage slightly above $15.00 per hour. 
  • Morris County reported that it would cost the County $85,356.00 per year to fully implement a $15.00 per hour minimum wage primarily to pay seasonal interns and library employees. 
  • Moorestown Township in Burlington County reported that it would cost the Township $59,400.00 per year, an increase of 43.9%, to fully implement a $15.00 per hour minimum wage to primarily pay recreation aides and laborers.
  • Somerset County reported that it would cost the County $277,818.00 per year to fully implement a $15.00 per hour minimum wage to primarily pay various county ($24,897.00), library ($79,723), and park ($173,198.00) employees. 
  • Sussex County reported that it would cost the County $201,000.00 per year to fully implement a $15.00 per hour minimum wage.  The County further noted that the above figure does not include potential increases for similar employees earning a wage slightly above $15.00 per hour; and, does not include fringe benefits which would add an additional $105,000.00.
  • Toms River Township in Ocean County reported that it would cost the Township $575,673.00 per year  to fully implement a $15.00 per hour minimum wage.  The Township further reported that the increase would force the Township to increase registration fees for recreation programs, youth programs, beach tags, and the Township’s swimming pool. These increases would likely lead to decreased program enrollment and eventually job cuts.  The Township would also seek assistance from the State to subsidize the additional financial burden as the Township’s working class has been subject to several years of substantial post Hurricane Sandy tax increases. 
  • Warren County reported that a $15.00 per hour minimum wage would likely increase staffing costs associated with programs that depend on contracted labor and services, such as the County’s senior nutrition programs.  The County also reported that it would not be affected by the gradual increase in the minimum wage until 2022  and that financial impact would be minimal at that time.  Waterford Township in Camden County reported that the Township pays most of its employees at the Township’s library between $9.00 and $15.00 per hour and two employees more than $15.00 per hour. Otherwise, a $15.00 per hour minimum wage would not impact the Township. 
  • Wharton Borough in Morris County reported that it would cost the Borough $8,769.00 per year, an increase of 9.09%, to fully implement a $15.00 per hour minimum wage  specifically for part-time employees at the Township’s library.   The Borough further reported that this increase would force the Township to reduce services at the library as the library’s budget is subject to a statutory formula generally driven by the Borough’s ratable base, and the library may not pass on operational increases to residents in the form of user fees.

In an effort to alleviate some of our concerns, both committees amended the legislation to expand the definition so seasonal employment to mean “employment during a year by an employer that is a seasonal employer, or non-profit or government entity of an individual who is not employed by that employer outside of the period of that year commencing on May 1 and ending September 30, or employment by a governmental entity in a recreational program or service during the period commencing on May 1 and ending September 30, except that “seasonal employment” does not include employment of employees engaged to labor on a farm on either a piece-rate or regular hourly rate basis.”   Please note that the legislation would not exempt seasonal employees but would extend the phase-in date to $15.00 per hour to 2026. 

 

More specifically, this legislation would incorporate into the minimum wage law the constitutional provision which has resulted in the increase of the minimum wage rate to $8.85 per hour on January 1, 2019, and which increases the rate on January 1 of each subsequent year by any increase which occurs in the consumer price index for all urban wage earners and clerical workers (CPI-W) during the 12 months prior to the September 30th before that January 1st.  The bill would also incorporate into the law that whenever the federal minimum wage exceeds the State minimum wage, the federal minimum wage would be adopted as the State minimum wage and the increases based on increases in the CPI-W would be applied to the federal minimum wage rate.

In addition, the bill would provide for certain increases in the State minimum wage greater than the increases resulting from the provisions of the Constitution.  The bill would provide that except for certain specified workers, the general minimum wage rate would be increased to $10.00 per hour on July 1, 2019, to $11.00 per hour on January 1, 2020, followed by $1.00 increases each year until the rate reaches a level of $15.00 per hour in 2024. As noted above, the measure would provide for a longer phase-in period for employees of any employer with less than six employees, and for seasonal employees other than tipped employees.  For these employees, the minimum wage rate would be increased to $10.30 per hour on January 1, 2020, and then increased each year from 2021 to 2025 by eighty cents, and then increased in 2026 by seventy cents so that it reaches a level of $15.00 per hour in 2026, followed by further increases from 2027 to 2028 as needed to have these employees earning the same minimum wage rate as the general minimum wage rate in 2019.  Both houses are expected to pass the legislation and Governor Murphy is expected to sign the reform into law. 

Tax Abatements

On January 17th, the Senate Community and Urban Affairs Committee favorably reported Senate, No. 58 (Singleton D-7), which would require municipalities to file copies of tax abatement and exemption agreements with county chief financial officer and county counsel with 10 days of execution. 

In summary, this bill would require municipalities to file copies of any tax agreements authorizing short-term property tax abatements and exemptions with the county chief financial officer and county counsel within 10 days of their adoption.  Under current law, these tax agreements are required to be filed within 30 days of their adoption with the Division of Local Government Services in the Department of Community Affairs.  This bill would lower this timeframe to 10 days, delete the requirement that a copy be sent to the Division of Local Government Services, and instead require copies be forwarded to the county chief financial officer and county counsel.

This bill would also require municipalities that provide short-term property tax abatements and exemptions to annually report the total amount of real property taxes exempted and abated in the current tax year.  Under current law, this information is only reported to the Division of Local Government Services and the Division of Taxation in the Department of the Treasury.  This bill would add the county chief financial officer and county counsel to the list of recipients of this information. S-58 is on Second Reading in the Senate and with no current companion version in the General Assembly. 

Early Bid Release

On January 31st, the Senate will consider and is expected to pass Senate, No. 2947 (Singleton D-7), which would require the release of a bid list prior to the bid date under the Local Public Contracts Law. 

In summary, this legislation would amend the "Local Public Contracts Law” to provide that once three or more parties have received bid documents, the local contracting unit would be required to release the names of all parties who have received bid documents, upon request.  The bill would further require that the local contracting unit is required to make the information available in a timely manner. Alternatively, if the contracting unit maintains its own website, the contracting unit may post the information on its site.  Failure to release or post the information would prevent the contracting unit from accepting bids and would require the re-advertisement of bids. Additionally, the bill would require bid proposal documents for contracts to erect, alter, repair or improve real property, the total price of which exceeds the Local Public Contracts Law bid threshold, to include a bidder's affidavit of non-collusion

The sponsors’ stated intent of the bill is to encourage minority and women owned businesses to bid on public projects as typically only subcontractors specifically noticed by bidders may submit bids on subcontracting work.  The sponsors further submit that the legislation should reduce the costs of projects because it will expand the pool of subcontractors competing for work.  GFOA’s Legislative Affairs Committee and the NJLM are concerned that the legislation would lead to bid rigging and collusion among bidders and oppose the measure accordingly. The companion version Assembly, No. 4580 (Mazzeo D-2/Armato D-2) is currently in the Assembly State and Local Government Committee awaiting consideration. 

 

Delinquent Taxes

 

Also on January 31st, the General Assembly will consider and is expected to pass Assembly, No. 4904 (Mukherji D-33/Quijano D-20), which would authorize a municipality, upon adoption of a resolution, to forgo charging interest on delinquent property tax installment payments of certain property taxpayers.

 

Under the bill, a property taxpayer who is a federal employee, who is not being paid due to a full or partial shutdown of operations of the federal agency by which the property taxpayer is employed as the result of a federal budget impasse or who is a contractor whose pay is received from a federal agency, but is delayed or diminished as a result of such an impasse, and who is a delinquent taxpayer, would not be charged interest on the delinquent property taxes of the property taxpayer if the federal shutdown occurs less than 45 days prior to the date upon which a property tax installment payment is payable and remains in effect on the date that the property tax installment payment is payable.  The governing body of the municipality would be required to adopt a resolution providing that interest shall not be charged to a delinquent taxpayer under these circumstances if payment of the property tax installment is made on or before the date upon which the next property tax installment payment is payable.

 

The Legislature further amended the bill as introduced to clarify that an eligible delinquent property taxpayer must be a federal employee who is furloughed, or is working, but not being paid, during the federal budget impasse; or a contractor paid by a federal agency whose pay is delayed or diminished as the result of the federal budget impasse and is receiving unemployment benefits.  The amendments would also remove the requirement that the shutdown must occur less than 45 days prior to the date upon which a property tax installment payment is payable; and would revise the bill’s effective date so that the bill is retroactive to  December 22, 2018 and will apply to property tax payments due and payable on February 1, 2019 and property tax payments due and payable thereafter.

 

Importantly note that this legislation is permissive and would provide municipalities with the discretion to forgo charging interest on delinquent property tax installment payments under certain circumstances. However, and was the case under the “SALT” legislation and regulations, GFOA’s Legislative Affairs Committee opposes the measure because of its concerns with implementation and in defining who “qualifies as a contractor whose pay is received from a federal agency.”  GFOA’s Legislative Affairs Committee is also concerned about whether a municipality that adopts a resolution to forgive interest on delinquent property taxes would still be required to forward 100% of property taxes collected to its county and school districts as required under the law. The Senate companion version Senate, No. 3347 (Cryan D-20/Sweeney D-3) is currently on Second Reading.  The Senate is expected to vote on the measure at one of its upcoming voting sessions and Governor Murphy is expected to sign the bill into law.

 

Stormwater Utilities

Finally on January 31st, the General Assembly will consider and is expected to pass Senate, No. 1073/Assembly, No. 2694 (McKeon D-17/Pinkin D-18)(Smith D-18/Bateman R-16), which would permit counties, municipalities, and certain authorities to establish stormwater utilities and related fees. 

In summary, this bill would authorize a county or municipaliy  to  establish a stormwater utility for the purposes of acquiring, constructing, improving, maintaining, and operating a stormwater management system.  The county or municipality may establish a stormwater utility as a new department within the county or municipality, or as an operation of an existing department having responsibility and control over a stormwater management system.  Under the bill, a county, municipality, or authority  that establishes a stormwater utility would be authorized to charge and collect reasonable fees and other charges to recover the stormwater utility’s costs for stormwater management.  These fees and other charges would be collected from the owner or occupant of any real property from which stormwater runoff enters the stormwater management system or the waters of the State.  In establishing a fee or other charge, a local unit would be required to provide a partial fee reduction in the form of a credit for any property which has installed and is operating and maintaining stormwater best management practices that reduce, retain, or treat stormwater onsite.  A local unit would be required to provide an additional credit to any property which has installed and is operating and maintaining green infrastructure onsite.  Under the bill, land actively devoted to agriculture or horticulture would be exempt from any fee or other charge.

 

The measure would also authorize a local unit to use the fees or other charges collected for a variety of stormwater-related purposes outlined in the bill.  A local unit that collects fees or other charges would be required to remit to the State Treasurer annually an amount equal to five percent of all fees or other charges, or $50,000, whichever amount is less.  The State Treasurer would deposit these moneys into the “Clean Stormwater and Flood Reduction Fund” (fund), established by the bill.  Moneys deposited in the fund would be specifically dedicated and used by the Department of Environmental Protection (DEP) to fund planning, implementation, and coordination activities related to stormwater utilities in the State, water quality monitoring and assessment, point and non-point source water pollution reduction projects, implementation of the DEP’s stormwater management program, and a public education and outreach program relating to stormwater management.

 

Under the bill, a local unit that establishes a stormwater utility would be permitted to issue bonds for the purpose of raising funds to pay the cost of any part of the stormwater management system.  Additionally, the bill would provide that a local unit that establishes a stormwater utility may acquire by gift, grant, purchase, condemnation, or in any other lawful manner, any privately-owned stormwater management system or any real property necessary for the construction, improvement, operation, or maintenance of a stormwater management system.  However, if a local unit requires any payment as a condition of assuming ownership, operation, or maintenance of any privately-owned stormwater management system, the payment could not exceed the costs attributable to the stormwater management system    The bill would further provide that a local unit that establishes a stormwater utility may enter into a contract with a private entity for the planning, design, engineering, construction, improvement, maintenance, and operation of a stormwater management system.  Additionally, the legislation would permit a local unit to use local competitive contracting in lieu of public bidding for the hiring of a private or nonprofit entity to operate and manage a stormwater management system. 

Treasury Not Worried About Slow Revenue Growth in Early FY2019 — Should it be?            
John Reitmeyer, NJ Spotlight, January 22, 2019

New Jersey’s fiscal year is a little more than halfway over and thus far there’s been only modest revenue growth. That’s something of a surprise considering a series of tax hikes were enacted over the summer, but top Department of Treasury officials are not yet sounding alarms.  One reason for their optimism is that they expect the recently ended tax-amnesty program will net at least the $200 million in back taxes originally budgeted. The state’s new tax for online sales has also gotten off to a slow start as companies grow accustomed to it, suggesting revenue from that source should eventually become more robust.

Treasury is also downplaying concerns about the overall pace of tax collections: The first half of the fiscal year closed at the end of December with revenues up about 2 percent compared with the same period last year. Overall growth will have to hit 7.5 percent through the end of June to keep the budget balanced, which is a requirement of the state constitution. While some fear there may be too much ground to make up, Treasury officials are more sanguine heading into the back end of the fiscal year, which always makes or breaks a budget thanks to April income-tax filings. “Right now, in the aggregate, we’re on track,” said Catherine Brennan, the state’s deputy treasurer, at a recent public-finance meeting in New Brunswick that was sponsored by the New Jersey Bar Association.

In all, the fiscal 2019 budget totals $37.4 billion, which is the largest in the state’s history. It relied on a series of tax hikes to help support an increase in spending on things like K-12 education, public-employee retirements, and mass transit. Among them were higher income-tax rate on earnings over $5 million and a higher corporate-tax rate for companies with more than $1 million in annual profits. New taxes were also established for ridesharing and home-sharing services, and for online sales and sports betting following recent federal court rulings.  Meanwhile, the Murphy administration and legislative leaders also launched the tax-amnesty program in an effort to raise revenue without having to rely on even more tax hikes. While the amnesty window was open between November 15 and January 15, delinquents were able to settle outstanding liabilities with reduced interest charges and no penalties.

Brennan, speaking during last week’s event in New Brunswick, suggested the effort was a success based on preliminary results. The fiscal 2019 budget counts on the state netting $200 million from the tax amnesty.  “It’s actually too early to say how we’ve done, (but) we’re confident we’ve met our revenue projection,” Brennan said.  Reaching or surpassing the revenue goal for the amnesty program could give the state a boost heading into the crucial April income-tax season given the only modest pace of growth in general revenues that has occurred through the end of December. According to Treasury’s latest revenue report, total tax collections were just shy of $13 billion heading into the second half of the fiscal year. That figure bested the $12.6 billion that was collected by this time during fiscal 2018 and generated the 2.1 percent growth rate.

But New Jersey’s income-tax collections were disappointing in December, falling well short of what the state collected from the income tax — which is the budget’s largest source of revenue — during the same month last year. To explain the drop-off, Treasury officials pointed to federal tax changes that went into effect at the start of 2018 that likely caused many taxpayers to push payments into the end of 2017, falsely inflating that year’s December receipts. They now expect to see a rebound in January, and nonpartisan analysts from the Office of Legislative Services suggested in their own review that December and January collections should be viewed together before any conclusions are drawn. But an analysis of the same tax-collection data by the Garden State Initiative, a right-leaning think tank based in Morristown, suggested only 2.1 percent growth in tax collections through the first half of the fiscal year is a cause for real concern. The pace of growth will have to “accelerate geometrically” through the final six months of the fiscal year to meet the year-end goal of 7.5 percent, the group’s analysis said.

Meanwhile, budget officials in neighboring New York are also concerned about the pace of revenue collections, with the administration of Gov. Andrew Cuomo recently deciding to downgrade the state’s revenue forecast by about $400 million due to an unexpected to drop in income-tax collections, according to a recent report from Bloomberg.  If a forecast adjustment does end up being necessary for New Jersey’s budget, it would likely come in early March when Murphy is due to put forward his budget proposal for fiscal 2020. Treasury officials said very little about any new tax changes that could be in the works for fiscal 2020 during last week’s event. But they did confirm the Murphy administration remains committed to a series of fiscal-policy goals that were first identified as top priorities last year. They include increasing the contribution into the pension system, which is due to go up by about $700 million in fiscal 2020, and further boosting the state’s budget surplus, an account that is used to hedge against unforeseen revenue gaps that right now equals about 2 percent of total spending.

Putting even more pressure on the fiscal 2020 budget will be the need to make up for the $200 million in net revenue from the tax-amnesty program — assuming that target is met — because it is only a one-time source of funding that was used to balance the fiscal 2019 spending plan.  “Without a new source of revenue or significant cuts to programs that New Jersey families rely on, it's unclear what will fill this $200 million budget hole,” said Sheila Reynertson, a senior policy analyst at New Jersey Policy Perspective, a left-leaning think tank based in Trenton.

New Jersey-New York area lost 5,700 millionaires in 2018
David M. Zimmer, North Jersey Record, January 18, 2019

The New Jersey area lost thousands of millionaires in 2018, even as their ranks grew worldwide. A tumultuous year for global stock markets and federal and state tax changes are responsible, experts say.

The New Jersey-New York population center that encompasses New York City, Jersey City and Newark last year lost more than 5,700 of its high-net-worth individuals with liquid assets of $1 million to $30 million, according to a new report from research firm Wealth-X.  Debra Taylor of Taylor Financial Group in Franklin Lakes said she has been advising many of her wealthy New Jersey clients to set up residency in other states. The loss of unlimited state and local tax deductions for the 2018 federal tax year is drastically elevating the metro area's already high cost of living for some, she said.

“The folks that technically can afford to live here are also the people who have second homes. They could be in Pennsylvania. They could be in the Southwest. Very often it’s Florida,” she said. “The tax situation in those states is much more attractive.”  One client, Taylor said, would have to spend $150,000 more each year to remain a New Jersey resident. By spending half the year outside of New Jersey, that client can avoid the full brunt of the amended federal tax code that caps state and local tax deductions at $10,000, she said.  Some of Taylor's other clients, who are considered middle class in New Jersey, are finding that their money buys them more in places with a lower cost of living and taxes, such as Florida and Texas.

“These people are doing OK here. They’d be doing great anywhere else, and what I’m finding is those people are relocating,” she said. “They are leaving New Jersey.”  In 2016, New Jersey lost its richest taxpayer at the time: David Alan Tepper, a billionaire businessman, hedge fund manager and owner of the Carolina Panthers NFL team. He and his family left Livingston and relocated to Miami Beach, Florida. His exit caused one state official at the time to warn of a risk to the state budget because of the resulting loss of income tax. Tepper's net worth is believed to be $11.6 billion.  New Jersey lost more than just millionaires in 2018.  Twice as many people moved out of New Jersey last year as moved in. The migration, the largest of any state, has dropped the Garden State's population to pre-2013 levels.  Statistics show newcomers skew younger than those moving out. Nevertheless, retirees are leading an emigration that saw the state's ratio of outbound movers top United Van Lines’ 42nd annual National Movers study.

Where are the millionaires?  Despite the decline in the New York-New Jersey metro area, the number of millionaires is growing worldwide and nationwide.  The number of high-net-worth individuals reached 8.68 million in the U.S. last year. Worldwide, the number increased to 22.4 million last year. The totals represent year-over-year increases of 2.3 percent in the U.S. and 1.9 percent overall.  Six of the top 10 cities for high-net-worth individuals are in the U.S., including Los Angeles (576,000), Chicago (353,775), San Francisco (314,055), Washington, D.C., (301,495) and Dallas (298,220).  The highest growth in the top 10 cities was found in Paris. European nations saw significant growth relative to countries in North America, Asia and Oceania. Growth of 4.7 percent in France, 4.9 percent in Germany and 6.2 percent in Italy contested with declines of 1.1 percent in Canada, 1.2 percent in South Korea and 2.3 percent in Australia.  “Hampered by declines in equity markets and relatively slower GDP growth, the U.S. came in fourth in terms of growth in its [high-net-worth] population and their wealth across the top 10 countries," the report reads.

The fastest-growing nations in terms of future wealth are in Africa, according to the report. Expected growth over the next five years tops 16 percent in Nigeria, where there are more than 29,000 millionaires, and 12 percent in Egypt, where there are 22,000 millionaires.  Following closely behind is Bangladesh, at 11.4 percent. The densely populated emerging market leads the charge for the Asia-Pacific region, which Wealth-X expects to see the highest annual growth rate up to 2023.  Asia is now home to as many high-net-worth individuals as Europe. That number is expected to grow, with 32 of the 40 cities predicted to see the highest growth all in China.  “The region’s HNW population is projected to increase at a compound annual growth rate of 7.6 percent over the next five years, with total net worth trailing slightly at 7.5 percent,” the report states. “At a global level, our forecast shows near identical compound annual growth rates of 6.1 percent for the [high-net worth] population and 6.0 percent for their combined wealth, indicating minimal change to average net worth.”


State House News for Finance Officers

November 30, 2018

Legal Marijuana

 

On Monday, a joint committee of the Senate Budget and Appropriations Committee and Assembly Appropriations Committee favorably reported Senate, No. 2703/Assembly, No. 4497 (Scutari D-22/Sweeney D-3)(Quijano D-20/Holley D-20), which would legalize the personal use of cannabis. 

      

In general, this legislation would provide for the personal use of marijuana for persons 21 years of age or older, who may possess, use, purchase, or transport: marijuana paraphernalia; one ounce or less of marijuana; 16 ounces or less of marijuana infused product in solid form; 72 ounces or less in liquid form; 7 grams or less of marijuana concentrate; and up to 6 immature marijuana plants. The bill would also provide that a person may transfer of one ounce or less of marijuana; 16 ounces or less of marijuana infused product in solid form; 72 ounces or less in liquid form; 7 grams or less of marijuana concentrate; and up to 6 immature plants, without marijuana cultivation facility to a person who is of or over the legal age for purchasing marijuana items, provided that such transfer is for non-promotional, non-business purposes. The bill would prohibit a person to consume or smoke marijuana items openly in a public place, except as may be permitted in consumption areas.

 

The measure would also levy a tax upon marijuana sold or otherwise transferred by a marijuana cultivation facility to a marijuana product manufacturing facility or to a retail marijuana store. The tax would include the prevailing sales tax and an additional tax rate of 12%.  The bill would further require the Department of the Treasury to establish procedures for the collection of all taxes levied and would require that two percent of the revenues collected would be allocated annually to the local governmental entity where is  marijuana establishment is located and must to be dedicated to drug prevention and treatment.    The measure would not levy a tax upon marijuana intended for the sale at medical marijuana centers pursuant to the “New Jersey Compassionate Use Medical Marijuana Act.” 

    

The legislation would also authorize municipalities to enact an ordinance or regulation governing the time, place or manner and number of marijuana establishment operations and provides for civil penalties violating those ordinances. A municipality may enact ordinances or regulations, not in conflict with the provisions of the bill. The bill would additionally provide that a municipality may prohibit the operation of marijuana cultivation facilities, marijuana product manufacturing facilities, marijuana testing facilities, or retail marijuana stores through the enactment of an ordinance.  Under the bill, the failure of a municipality to enact an ordinance prohibiting the operation of a marijuana establishment within 180 days following the effective date of the bill would permit the operation of a marijuana retail establishment within the local governmental entity for a period of five years, at the end of which five year period, and every five year period thereafter, the municipality would again be permitted to prohibit the operation of a marijuana establishment.

 

The legislation would not: require an employer to permit or accommodate marijuana in the workplace; allow driving under the influence of marijuana; or permit marijuana in a school, hospital or correctional facility. The legislation would establish a Marijuana Regulation Review Commission which shall be responsible to review and approve regulations developed by the division.  Finally, the legislation would permit the possession of up to an ounce of marijuana punishable by a civil violation during the period of enactment until legalization becomes effective; and, would amend several sections under the criminal code in 2C of the New Jersey Statutes to reflect the decriminalization of marijuana.   S-2703 and 4497 are on Second Reading in the respective houses, but its unclear at this time if the legislation will pass in its current form or if Governor Murphy will sign the bill into law as written. 

 

Legislative Districts

 

Also on Monday, the  Senate Budget and Appropriations Committee favorably reported Senate Concurrent Resolution, No. 43 (Scutari D-22/Sweeney), which would propose a constitutional amendment to make various changes to the Legislative Apportionment Commission.

 

In summary, this concurrent resolution would increase the membership of the Legislative Apportionment Commission from 10 to 13 members and would impose certain requirements on the process and composition of the districts established by the Commission for the New Jersey Legislature.  The resolution would require the chairs of both State committees to appoint two members to the Commission with at least one of each of those appointments being a member of the public.  The amendment would further require the four legislative leaders from both major political parties to each appoint two members with at least one of each of those appointments being a member of the Legislature.  The bill would require the Chief Justice of the Supreme Court of New Jersey  to appoint the 13th member. 

 

The Commission would be required to certify a plan establishing legislative districts that ensures fair representation, which pursuant to the resolution, would mean that each of the two major political parties have an equal number of districts more favorable to that party. A district would be more favorable to a political party if the percentage of the combined two-major-party votes received in that district in all Statewide general elections by that party over the last 10 years for the offices of United States President, United States Senator, and Governor exceeds the Statewide percentage of the combined two-major-party votes received by that party in those elections. A major political party’s percentage of the combined two-major-party votes would be calculated by dividing the number of votes received by that political party by the combined total number of votes received by the two major political parties.

 

The Commission would also be required to certify a plan to establish legislative districts that enhances the competitiveness by ensuring that at least 25 percent all districts are more favorable to either major political party by no more than five percentage points of the average Statewide percentage of the combined two-major-party votes received in all Statewide general elections by that party over the preceding decade for the offices of United States President, United States Senator, and Governor. Of those districts included therein, for each district in which the percentage of the combined two-major-party votes for a party exceeds that party’s percentage of the combined two-major-party votes in those Statewide elections, there will be a corresponding district in which that party’s percentage of the combined votes is less than the other major party’s percentage of the combined votes in the Statewide elections by approximately the same percentage.  SCR 43 is on Second Reading in the Senate, which is expected to pass the measure along partisan lines.  The companion version, Assembly Concurrent Resolution, No. 60 (Greenwald D-6/Murphy D-7) is currently in the Assembly State and Local Government Committee awaiting consideration.   If the measure passes both houses in identical form it will appear on the ballot at the General Election in 2019 as the State’s concurrent resolution do not require gubernatorial action. 

     

Common Sense Shared Services Pilot Program Act

 

On November 27th, Governor Murphy signed into law Assembly, No. 1100/Senate, No. 1586 (Downey D-11/Houghtaling D-11)(Gopal D-11/Singleton D-7), which would add Monmouth and Atlantic counties as pilot counties under the Common Sense Shared Services Pilot Program Act. 

 

In summary, this new law authorizes the sharing of services for a municipal clerk, chief financial officer, assessor, tax collector, municipal treasurer, or municipal superintendent of public works without regard to the tenure rights that persons who hold those positions may have.  Under the pilot program, municipalities may enter into shared service agreements for the services of tenured employees; and, provide for the dismissal of any tenured local employees who are not selected to be service providers under the shared services agreement.  Under current law, Camden, Morris, Ocean, Sussex, and Atlantic counties operate under the pilot program. 

 

The new law requires a shared services agreement under the pilot program to address the proportion of work hours that a selected municipal clerk, chief financial officer, assessor, tax collector, municipal treasurer, or municipal superintendent of public works would be required to dedicate to each pilot municipality.  The law further requires a shared services agreement to address any additional compensation that the selected employee may receive for assuming additional duties under the agreement.  If the selected employee receives additional compensation for assuming additional duties under the shared services agreement, the additional compensation would not be reduced during the term of the agreement without good cause.  The law clarifies  that such a tenured local official who is reappointed to the their former position upon the cancellation or expiration of a shared services agreement within the two-year period immediately following their dismissal would be entitled to the same level of salary or wages the employee had received at the time of their dismissal, augmented by any increases in salary granted to all other tenured employees while the shared services agreement was in effect. 

 

Statute of Limitations       

 

The Senate Judiciary Committee will likely consider at one of its upcoming meetings Senate, No. 477 (Vitale D-19/Scutari D-22), which would eliminate the statute of limitations in certain civil actions for sexual abuse, expand the categories of defendants liable in such actions, and remove the safeguards provided local governing bodies under the New Jersey Tort Claims Act (TCA). 

 

In summary, this legislation would eliminate the current two-year statute of limitations in civil actions for the sexual abuse of a child; the willful, wanton or grossly negligent act or omission of a sexual assault or other crimes of a sexual nature brought against a trustee, director, officer, employee, agent, servant or volunteer of a nonprofit corporation, society or association organized exclusively for religious, charitable or educational purposes; and, the sexual offense committed against a minor due to the negligent hiring, supervision or retention of an employee, agent or servant of a nonprofit corporation, society or association organized exclusively for religious, charitable, educational or hospital purposes. The bill would also expand the category of persons who are potentially liable in any civil action alleging the sexual abuse of a child to include any person who knowingly permitted or acquiesced in the sexual abuse would be civilly liable. Finally, the measure would eliminate the protections afforded local governing bodies under the “New Jersey Tort Claims Act,” and would further hold public entities liable in actions for damages alleging the sexual abuse of a child.

 

Although organizations such as the New Jersey State League of Municipalities (NJLM), the New Jersey Association of Counties (NJAC), and the New Jersey School Boards Association (NJSBA) applaud the sponsors for their efforts to provide the victims of sexual abuse with additional remedies against the person and entities guilty of committing such heinous crimes, the organizations have made the following general recommendations: eliminate the statute of limitations in civil actions against the perpetrators of sexual abuse; and, extend the statute of limitations from 2 to 7 years in civil actions for sexual abuse filed against local governing bodies.  The groups submit that these recommendations would expand the ability of the victims of sexual abuse to pursue civil actions against the person that committed such terrible acts; and, would reasonably preserve the safeguards contemplated by the Tort Claims Act as local governing bodies defend all lawsuits with limited property taxpayer dollars.  These groups have also asked the sponsors to have the Office of Legislative Services (OLS) conduct a Legislative Fiscal Estimate to determine the measure’s potential fiscal impact on local governing bodies.  The companion version  Assembly, No. 3648 (Quijano D-20/Vainieri HuttleD-37) is currently in the Assembly Judiciary Committee awaiting consideration.   

 

New Jersey, Worst of All the States for Spending More Money Than it Raises

John Reitmeyer, NJ Spotlight, November 26, 2018

 

New Jersey’s longstanding tradition of spending more than the state collects in revenue each year is exposed as a national outlier in a new analysis of the budgeting practices that all 50 states have used over the last 15 years. 

 

The comprehensive review by the nonpartisan Pew Charitable Trusts places New Jersey dead last among the states when it comes to maintaining fiscal balance, which is raising enough revenue on an annual basis to cover expenses for the same given year.  Only Illinois came close to matching New Jersey’s poor fiscal performance going back to 2003. The Pew analysis also shows the Garden State’s worst year of overspending just occurred during the 2017 fiscal year, even as many other states were cleaning up their acts during the ongoing recovery from the Great Recession.

 

The Pew analysis is just the latest loud warning sign for New Jersey, which already has one of the worst credit ratings of any U.S. state, behind only Illinois. It also comes just a few years after former Republican Gov. Chris Christie convinced Democratic legislative leaders to enact a series of tax cuts without reducing any spending, and as Gov. Phil Murphy, a first-term Democrat, has clashed with legislative leaders from his own party over undoing some of those tax cuts.  It remains to be seen what, if anything, will change in the wake of Pew’s findings. Senate President Steve Sweeney (D-Gloucester) has been calling for a new round of public-employee benefit cuts to slash state costs, but they have not been endorsed by Murphy, who still favors higher taxes.

 

Between the 2003 and 2017 fiscal years, Pew determined that the median amount of revenue raised by the states, including taxes and federal grants, was equal to 102.1 percent of their total expenses. That means the typical state maintained fiscal balance over the 15 years.  But Pew found that 10 states operated with an aggregate negative fiscal balance over the 15-year period, with the largest gaps appearing in New Jersey, 91.3 percent; Illinois, 93.8 percent; and Massachusetts, 96.1 percent. Among the top-performing states over the same period were Alaska, 135.9 percent; Wyoming, 126.1 percent; and North Dakota, 120.8 percent.  The analysis spanned the years of the Great Recession, and the median number of years that states operated with a fiscal imbalance was three. Montana was the only state to come through the 15-year period without a deficit in any given year, while New Jersey and Illinois were the only two states to experience a deficit in every year that Pew looked at. They were also the only states where the aggregate shortfalls were over 5 percent.

To conduct the state-by-state review fairly, Pew compared audited financial statements from all 50 states instead of their annual budgets, giving researchers the ability to account for the fiscal stunts that states often use to obscure deficit spending.  “Zooming out from a narrow focus on annual or biennial budgets offers a big-picture look at whether state governments have lived within their means, or whether higher revenue or lower expenses may be necessary to bring a state into fiscal balance,” the analysis said.  Pew’s research revealed that New Jersey’s worst deficit occurred during the 2017 fiscal year, when just 84 percent of the revenues that were needed to cover annual spending were collected.

The state’s second-worst performance was in fiscal 2009, which was amid the recession, when revenues totaled 84.7 percent spending.  Although New Jersey’s post-recession tax collections have expanded, the fiscal 2017 imbalance that was tracked by Pew occurred after Christie and lawmakers agreed in 2016 to reduce several major sources of revenue. They cut the sales tax, from 7 percent to 6.625 percent, and phased out the estate tax, among other changes. But they also hiked overall spending during fiscal 2017 as contributions to the public-employee pension system were increased and Christie prioritized new funding for anti-addiction programs amid the building opioid crisis.  While Pew’s findings cast the handling of state finances during Christie’s tenure in a negative light, it remains to be seen whether Murphy will be able to work with lawmakers to make any improvements. Earlier this year, Murphy convinced legislative leaders to hike the state income-tax rate on earnings over $5 million, and to increase the top-end corporate-tax rate on businesses with more than $1 million in annual profits. This was done to support increased spending on public education, mass transit and the pension system, which remains one of the nation’s worst-funded state retirement plans.

But lawmakers resisted Murphy’s call to restore the 7 percent sales tax and to hike the personal-income tax on earnings over $1 million, even while accepting the governor’s major spending priorities — and tacking on some of their own to the appropriations bill that Murphy ultimately signed into law in early July.  The Pew analysis explained why states should generally strive to maintain fiscal balance, comparing them to the average American family that on occasion can absorb a year where household income falls short of expenses.  “But chronic shortfalls — as with New Jersey and Illinois each year since at least fiscal 2002 — are one indication of a more serious structural deficit in which revenue will continue to fall short of spending absent policy changes,” the analysis said. “Without offsetting surpluses, long-running imbalances can create an unsustainable fiscal situation.”

Two Words From Fed Chairman Jerome Powell Sent Markets Soaring

Binyamin Appelbaum, NY Times, November 28, 2018

With just two words on Wednesday, the Federal Reserve’s chairman sent stocks surging by raising hopes that the central bank might be closer to ending its push to drive up interest rates. The chairman, Jerome H. Powell, said the Fed’s benchmark interest rate was “just below” the neutral level, meaning the central bank was close to the point where it would not be tapping on the brakes or pressing on the gas. Only last month, Mr. Powell had said it was “a long way” from neutral, leaving investors worried that the rate increases would crimp growth.  The small change sent stocks soaring 2.3 percent, erasing the losses from a rocky November. To investors, the new wording meant that the Fed might leave rates closer to their current level, keeping in place the steady fuel that low rates have provided to a 10-year-long bull market.  Analysts quickly warned that investors were overreacting. There was little evidence in the rest of Mr. Powell’s speech that he intended to signal a change in plans.

 

But the market’s euphoria underscored the chairman’s struggles to strike the right pitch in an increasingly challenging economic and political environment, as President Trump attacks the Fed and the country’s growth comes under pressure. The market has been jittery over concerns that further rate increases could undermine the economy at a time when the prospects for companies and consumers may be softening.  The economy has been a picture of health, expanding at a 3.5 percent annualized pace during the third quarter. The unemployment rate has fallen to 3.7 percent, its lowest level in almost half a century. Inflation has picked up this year, and Mr. Powell on Wednesday highlighted signs of increased risk-taking in some financial markets, including lending to corporations.

 

But Mr. Trump has relentlessly criticized the central bank, and Mr. Powell in particular, for raising interest rates, arguing that the Fed is choking growth. Emerging signs of weakness in some parts of the economy, including auto manufacturing, agriculture and housing, are also raising concerns that the best part of the long recovery might now be in the rearview mirror.  “We’re in the 10th year of the expansion, and there are some soft points,” said Ellen Hughes-Cromwick, a former chief economist at the Ford Motor Company and the Commerce Department who is now the associate director of the University of Michigan’s Energy Institute. “The auto sales cycle has peaked, and the housing cycle also has peaked.”

 

Ms. Hughes-Cromwick said that she did not foresee an imminent end to growth, but that higher interest rates, combined with rising inflation and faltering corporate confidence, could set the stage for a recession. If those things happen, “I don’t really see how the economy can keep powering ahead,” she said.  Most economic forecasters, including at various government agencies and big Wall Street banks, expect the American economy to continue growing in 2019. But there is a broad consensus that the pace will slow as the sugar high provided by the Trump administration’s $1.5 trillion tax cut and spending increases begins to wear off. Some forecasters see a small, but growing, chance of a recession.

 

“This is a geriatric expansion,” said David Kelly, chief global strategist at J. P. Morgan Asset Management.  He noted that if growth continued through next summer, this would become the longest expansion of the American economy since at least the Civil War. Economists have long argued that expansions do not die of old age. But the end of Mr. Trump’s stimulus is likely to drop growth back toward a 2 percent annual rate, leaving little margin for error.  “It wouldn’t take much to go wrong to put us into a recession,” Mr. Kelly said.  Mr. Trump’s chief economic adviser, Larry Kudlow, tried to play down such concerns on Tuesday.  “There’s a certain amount of pessimism I’m reading about. Maybe it has to do with a mild stock market correction,” Mr. Kudlow said, before saying such fears were misplaced. He rattled off recent economic data — including the latest jobs report, which he described as “very spiffy” — before concluding, “We’re in very good shape.”

 

Mr. Powell also reiterated Wednesday that the economy was doing well, that inflation was under control and that no glaring risks were on the horizon. Against that backdrop, the Fed is still expected to raise its benchmark rate in December. Mr. Powell emphasized that the Fed would make decisions about future increases by keeping a close eye on the economy.  “We know that moving too fast would risk shortening the expansion,” he said Wednesday, in remarks before the Economic Club of New York. “We also know that moving too slowly — keeping interest rates too low for too long — could risk other distortions in the form of higher inflation or destabilizing financial imbalances.”  The Fed’s benchmark rate currently sits in a range of 2 percent to 2.25 percent. In September, Fed officials estimated that the neutral rate is between 2.5 percent and 3.5 percent. Most officials predicted the central bank would raise rates three times in 2019.

 

In the view of many analysts, Mr. Trump and Mr. Powell themselves pose the greatest threats to continued growth.  Mr. Trump’s trade war with China is inflicting pain on some parts of the economy, notably in the Midwestern farm belt, where growers of soybeans and other crops have lost access to their largest export market.  The Fed’s interest rate increases are also weighing on some parts of the economy, including home building. Sales of new and existing homes have fallen in recent months as interest rates on mortgage loans have risen.  The automobile industry is being battered by the tariffs and rate increases. Mr. Trump’s tariffs on aluminum and steel have raised costs, while higher rates have discouraged some potential buyers. Auto sales have been in decline since 2016, and General Motors said this week that it would cut 14,000 jobs and shut down five North American factories.

 

Mr. Trump has insisted loudly and repeatedly that the Fed should be held responsible for any economic weakness. In an interview with The Washington Post on Tuesday, the president said the Fed was a “much bigger problem than China.”  “I’m not being accommodated by the Fed,” Mr. Trump told The Post. “I’m not happy with the Fed. They’re making a mistake because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me.”

 

In publicly berating the Fed, Mr. Trump is breaking sharply with the practice of recent administrations, which maintained a studied silence about monetary policy.  One reason is that urging the Fed to move can be counterproductive. The Fed likes to present itself as a technocratic institution that floats above the political fray. While some policymakers and economic analysts argue that the Fed should suspend rate increases, such a pause would now expose the Fed to criticism that it is acceding to Mr. Trump.  Mr. Powell has insisted that the Fed will act without regard to Mr. Trump’s statements. In a recent speech, he emphasized that the central bank is overseen by Congress, not the president.  But Mr. Powell added to his own challenges in October, in an unscripted answer to a question about how high the Fed might need to raise rates.

 

“We may go past neutral,” Mr. Powell said during an interview at the Atlantic Festival, “but we’re a long way from neutral at this point, probably.”  Mr. Powell’s subsequent remarks on the subject strongly suggest that he would have liked to have chosen his words more carefully. Mr. Powell and other Fed officials also have emphasized that the exact level of the neutral rate is not important to the central bank’s plans.  Some Fed officials, however, have said they want to pause at that point to consider whether further increases are warranted. Others have said they want to raise rates more, judging that the economy will need a little restraint.  Richard H. Clarida, the Fed’s vice chairman, said on Tuesday that deciding how high to go would require “judgment and humility.”

 

State House News for Finance Officers

November 2, 2018

 

Workers Compensation Coverage

 

On October 18th, the Assembly Labor Committee favorably reported Senate, No. 716/Assembly, No. 1741 (Greenstein D-14/Bateman R-16)(Quijano D-20/Benson D-14), which would create a rebuttable presumption of workers’ compensation coverage for public safety workers and other employees under certain circumstances.

  

In summary, this bill would provide that if in the course of employment, a public safety worker is exposed to a serious communicable disease or a biological warfare or epidemic-related pathogen or biological toxin, all care or treatment of the worker, including services needed to ascertain whether the worker contracted the disease, shall be compensable under workers' compensation, even if the worker is found not to have contracted the disease.  If the worker is found to have contracted a disease, the bill would create a rebuttable presumption that any injury, disability, chronic or corollary illness or death caused by the disease is compensable under workers' compensation.

 

Additionally, the measure would affirm workers’ compensation coverage for any injury, illness or death of any employee, including an employee who is not a public safety worker, arising from the administration of a vaccine related to threatened or potential bioterrorism or epidemic as part of an inoculation program in connection with the employee’s employment or in connection with any governmental program or recommendation for the inoculation of workers.  The bill would create a rebuttable presumption that any condition or impairment of health of a public safety worker which may be caused by exposure to cancer-causing radiation or radioactive substances is a compensable occupational disease under workers' compensation if the worker was exposed to a carcinogen, or the cancer-causing radiation or radioactive substance, in the course of employment. 

 

The bill would further require employers to maintain records of instances of the workers deployed where the presence of known carcinogens was indicated by documents provided to local fire or police departments under the “Worker and Community Right to Know Act,” and where events occurred which could result in exposure to those carcinogens.  In the case of any firefighter with seven or more years of service, the bill would create a rebuttable presumption that, if the firefighter suffers an injury, illness or death which may be caused by cancer, the cancer is a compensable occupational disease.

 

The bill would also provide that with respect to all of the rebuttable presumptions of coverage, employers may require workers to undergo, at employer expense, reasonable testing, evaluation and monitoring of worker health conditions relevant to determining whether exposures or other presumed causes are actually linked to the deaths, illnesses or disabilities, and further provides that the presumptions of compensability are not adversely affected by failures of employers to require testing, evaluation or monitoring. The measure would cover public safety workers covered by the bill include paid or volunteer emergency, correctional, fire, police and medical personnel.

 

Although GFOA certainly supports our first responders and public safety workers, the Association is concerned with the substantial costs this legislation would impose on local governing bodies as it would dramatically increase  workers’ compensation claims as the claims covered under the bill are currently paid for by Medicaid and health insurers. The Senate passed S-716/A-1741 on June 7th by a vote of 29-4 and the Assembly Labor Committee Second Referenced the measure to the Assembly Appropriations Committee for consideration.

 

Common Sense Shared Services Pilot Program Act

 

On October 29th the both houses unanimously passed Assembly, No. 1100/Senate, No. 1586 (Downey D-11/Houghtaling D-11)(Gopal D-11/Singleton D-7), which would add Monmouth and Atlantic counties as pilot counties under the Common Sense Shared Services Pilot Program Act. 

 

In summary the Common Sense Shared Services Pilot Program Act authorizes the sharing of services for a municipal clerk, chief financial officer, assessor, tax collector, municipal treasurer, or municipal superintendent of public works without regard to the tenure rights that persons who hold those positions may have.  Under the pilot program, municipalities may enter into shared service agreements for the services of tenured employees; and, provide for the dismissal of any tenured local employees who are not selected to be service providers under the shared services agreement.  Under current law, Camden, Morris, Ocean, Sussex, and Atlantic counties operate under the pilot program. 

 

The legislation would also require a shared services agreement under the pilot program to address the proportion of work hours that a selected municipal clerk, chief financial officer, assessor, tax collector, municipal treasurer, or municipal superintendent of public works would be required to dedicate to each pilot municipality.  The legislation would further require a shared services agreement to address any additional compensation that the selected employee may receive for assuming additional duties under the agreement.  If the selected employee receives additional compensation for assuming additional duties under the shared services agreement, the additional compensation would not be reduced during the term of the agreement without good cause.  The legislation would clarify that such a tenured local official who is reappointed to the their former position upon the cancellation or expiration of a shared services agreement within the two-year period immediately following their dismissal would be entitled to the same level of salary or wages the employee had received at the time of their dismissal, augmented by any increases in salary granted to all other tenured employees while the shared services agreement was in effect.  Governor Murphy is expected to sign the measure into law. 

 

Stormwater Utilities

 

On October 22nd, the Assembly Telecommunications and Utilities Committee Second Referenced to the Assembly Appropriations Committee for consideration Senate, No. 1073/Assembly, No. 2694 (McKeon D-17/Pinkin D-18) (Smith D-18 /Bateman R-16), which would bill permit counties, municipalities, and certain authorities to establish stormwater utilities and related fees and other charges.

 

In summary, this bill would authorize a county or municipaliy  to  establish a stormwater utility for the purposes of acquiring, constructing, improving, maintaining, and operating a stormwater management system.  The county or municipality may establish a stormwater utility as a new department within the county or municipality, or as an operation of an existing department having responsibility and control over a stormwater management system.  Under the bill, a county, municipality, or authority  that establishes a stormwater utility would be authorized to charge and collect reasonable fees and other charges to recover the stormwater utility’s costs for stormwater management.  These fees and other charges would be collected from the owner or occupant of any real property from which stormwater runoff enters the stormwater management system or the waters of the State.  In establishing a fee or other charge, a local unit would be required to provide a partial fee reduction in the form of a credit for any property which has installed and is operating and maintaining stormwater best management practices that reduce, retain, or treat stormwater onsite.  A local unit would be required to provide an additional credit to any property which has installed and is operating and maintaining green infrastructure onsite.  Under the bill, land actively devoted to agriculture or horticulture would be exempt from any fee or other charge.

 

The measure would also authorize a local unit to use the fees or other charges collected for a variety of stormwater-related purposes outlined in the bill.  A local unit that collects fees or other charges would be required to remit to the State Treasurer annually an amount equal to five percent of all fees or other charges, or $50,000, whichever amount is less.  The State Treasurer would deposit these moneys into the “Clean Stormwater and Flood Reduction Fund” (fund), established by the bill.  Moneys deposited in the fund would be specifically dedicated and used by the Department of Environmental Protection (DEP) to fund planning, implementation, and coordination activities related to stormwater utilities in the State, water quality monitoring and assessment, point and non-point source water pollution reduction projects, implementation of the DEP’s stormwater management program, and a public education and outreach program relating to stormwater management.

 

Under the bill, a local unit that establishes a stormwater utility would be permitted to issue bonds for the purpose of raising funds to pay the cost of any part of the stormwater management system.  Additionally, the bill would provide that a local unit that establishes a stormwater utility may acquire by gift, grant, purchase, condemnation, or in any other lawful manner, any privately-owned stormwater management system or any real property necessary for the construction, improvement, operation, or maintenance of a stormwater management system.  However, if a local unit requires any payment as a condition of assuming ownership, operation, or maintenance of any privately-owned stormwater management system, the payment could not exceed the costs attributable to the stormwater management system    The bill would further provide that a local unit that establishes a stormwater utility may enter into a contract with a private entity for the planning, design, engineering, construction, improvement, maintenance, and operation of a stormwater management system.  Additionally, the legislation would permit a local unit to use local competitive contracting in lieu of public bidding for the hiring of a private or nonprofit entity to operate and manage a stormwater management system.  The Assembly Appropriations Committee is expected to consider the measure at one of its upcoming meetings. 

 

Residency Requirements 

 

On October 18th, the Senate Economic Growth Committee favorable reported Senate, No. 1917 (Ruiz D-29/Cunningham D-31), which would authorize municipalities to prohibit an applicant from obtaining employment with a municipal police department or paid fire department unless the applicant agrees to remain a resident of the municipality for the first five years of employment. 

 

The bill would also permit county and regional police and fire forces to implement the residency requirements.  In any municipality with such an ordinance, the legislation would provide an applicant with six months from the date the applicant begins their official duties, following all requisite training, to relocate to the municipality, county, or region served by the force.  The bill would also provide an exception to the residency requirement if any member of the fire department or police department suffers injury, or a threat of injury, to their person, family, or property, committed by another who acts with purpose to: intimidate the member because of their status as a member;  manipulate an investigation; or, otherwise influence the member to violate their official duties. S-1917 is on Second Reading and the companion version Assembly, No. 2922 (McKeon D-27)  is currently in the Assembly State and Local Government Committee awaiting consideration. 

 

S500.0 Million in New State Debt on November Ballot

John Reitmeyer, NJ Spotlight, October 23, 2018

 

General-obligation bonds would fund expansion of vo-techs and other upgrades to educational facilities  New Jersey voters have been more than willing to authorize several major state borrowing initiatives in recent years, and they will soon decide whether the state should take on another $500 million in new debt to fund a wide range of education-facility upgrades.  The only public question on the November ballot this year asks voters whether they want $500 million in general-obligation bonds to be issued that would be used to pay for the expansion of career-training facilities at both the high school and county college level, and to also fund improvements to K-12 school security and drinking-water systems across the state.

 

The proposed borrowing has widespread support in the Legislature, including from key leaders in both parties. It’s also been endorsed by a number of business-lobbying groups and the state’s leading advocates for vocational-technical high schools. But concerns have also been raised about how the bond issue could impact the state’s already significant debt burden, especially as more than $1 billion in new borrowing has been authorized in recent months without any voter approval.   The original proposal for the bond issue came out of a yearlong review of state policies related to the manufacturing industry, which lawmakers are trying to revive as a leading sector of New Jersey’s economy. During a series of hearings, industry leaders told legislators they have a number of job openings but not enough qualified applicants to fill them.

 

Officials from the New Jersey Council of County Vocational-Technical Schools testified that more than 30,000 students filed applications last year to attend a vocational-technical high school, but only a little more than 12,000 students statewide were accepted, primarily due to space constraints.  $350 million of it would go to vo-techs.   In response, the proposed bond issue would raise $350 million to fund facility upgrades at the vocational-technical schools, and to also pay for school-security upgrades in K-12 districts, something that lawmakers added to the borrowing measure in the wake of the deadly school shooting earlier this year in Parkland, Florida that left 17 dead. Another $50 million from the bond issue would be made available to county colleges to expand facilities used by their career-training students. The remaining $100 million would fund water-infrastructure improvements at K-12 schools throughout the state.

 

Assembly Speaker Craig Coughlin (D-Middlesex) said the bond issue “offers a real chance to advance things that I think are important for the future (and) things that are important for the economy.”  “I’m proud to say that I’m going to support that public question,” Coughlin said during a news conference in the State House yesterday. Joining him were Senate President Steve Sweeney (D-Gloucester) and several other lawmakers from both parties who back the $500 million bond issue.  “It’s important that we expand the capacity of vocational schools so that we don’t turn kids away,” Sweeney said.   Mike Wallace, the New Jersey Business & Industry Association’s vice president of government affairs, said supporting the new borrowing issue is “an easy one” for his organization since it will help get more students trained to fill existing openings in the job market.

 

 “We hear regularly from our employer members that they can’t find the workforce with the necessary technical skills needed to fill these jobs,” Wallace said.  Judy Savage, executive director of the New Jersey Council of County Vocational-Technical Schools, also suggested the spending on the school facilities would bring a return to the broader state economy. “When we prepare more people for well-paying jobs, that’s going to produce higher income-tax receipts for the state,” she said.  Even though the public question received widespread, bipartisan support in the Legislature earlier this year, Gov. Phil Murphy cited broader concerns about the state’s already significant debt burden as he used a late-August conditional veto to cut the overall size of the bond issue from the $1 billion that was originally approved by lawmakers down to $500 million.   “While I certainly endorse the priorities established in this bill, I also believe that their long term fiscal implications must be carefully considered,” Murphy said in the CV.   As of the most recent official state-debt report from the Department of Treasury, New Jersey was carrying a total of $46.1 billion in bonded debt, easily outpacing the size of the current, $37.4 billion annual budget. Annual payments needed to pay off the state’s bonded debt are also over $4 billion in the current fiscal year.

 

Meanwhile, the Murphy administration in recent months has also signed off on $600 million in new borrowing for a key commuter-rail bridge near Secaucus Junction and allowed for the refinancing of $300 million in long-term debt to fund the ongoing renovation of the State House in Trenton. That follows some $400 million in new debt that was issued in the final days of former Gov. Chris Christie’s tenure to fund state building upgrades earlier this year. And all that debt was issued through the state Economic Development Authority in a way that doesn’t require voter approval.   The state’s already large amount of borrowing was cited in a recent post on the conservative website Save Jersey that urged voters to reject the ballot question when they go to the polls on November 6. Website founder Matt Rooney wrote that lawmakers and the governor made no effort to “cut spending or reallocate funds to free up the cash for school improvements” as they moved the $500 million bond issue onto the November ballot.

 

“The politicians are hitting New Jersey taxpayers up for more money since it’s easier than doing their jobs,” Rooney wrote.   Still, New Jersey voters in recent years have a record of generosity when it comes to approving proposed bond issues, including last year when $125 million in new borrowing for local library facility upgrades was approved by a large margin. In 2012, voters also authorized $750 million in new debt to help fund improvements at colleges and universities throughout the state. In 2007 and 2009, voters also approved bond issues worth $200 million and $400 million, respectively, to support land-preservation efforts.  Sen. Steve Oroho (R-Sussex) said it’s “very critical” that voters can weigh in on the latest proposed borrowing issue, and he suggested it deserves support based on what the proceeds would be used for.  “There’s nothing more important than the security of our children. There’s nothing more important than making sure that they’re not drinking water with lead in it,” Oroho said.   “The voters I hope will recognize that this important for our economy, and very important for our children,” he said.

 

Meanwhile, Murphy spokesman Matthew Saidel issued a statement yesterday that reaffirmed the governor’s support for the scaled-down version of the borrowing issue. “Governor Murphy applauds the Legislature for identifying critical priorities in our education system in need of further investment,” Saidel said.

 

Campaign and Ethics Changes, Infrastructure and Drug Prices

Nicholas Fandos, New York Times, October 31, 2018

WASHINGTON — Democrats would use their first month in the House majority to advance sweeping changes to future campaign and ethics laws, requiring the disclosure of shadowy political donors, outlawing the gerrymandering of congressional districts and restoring key enforcement provisions to the Voting Rights Act, top Democratic leaders said on Tuesday.

 

If they win, they would then turn to infrastructure investment and the climbing costs of prescription drugs, answering voter demands and challenging President Trump’s willingness to work on shared policy priorities with a party he has vilified. The idea, said Representative Nancy Pelosi of California, the Democratic leader, is to show voters that Democrats are a governing party, not the leftist mob that Mr. Trump describes — and to extend an arm of cooperation to the president after an electoral rebuke.

 

“This is going to be a bitter pill for them all to swallow when they see the election results, if they turn out as we expect,” Ms. Pelosi said in an extended interview on Tuesday, predicting a Democratic wave. She added of the prospect Mr. Trump would collaborate, “I don’t think he himself knows what he is going to do.”  As Mr. Trump spends the final week of a scorched-earth midterm campaign rallying his base around hot-button immigration issues and depicting Democrats as a security threat, Ms. Pelosi and her deputies sought to project a more modest and politically popular agenda on issues ranging from health care to criminal justice changes. They said they would work to improve the Affordable Care Act, for example, rather than rushing to replace it with a single-payer health care plan.  And even as they ready an onslaught of investigations into alleged malfeasance by the president and his administration, they said common ground could be found with Mr. Trump.

 

“We’re still going to have Donald Trump as president, so obviously that’s going to limit to an extent what we can accomplish in the short term,” Representative Jim McGovern, the Massachusetts Democrat who would be in line to chair the Rules Committee, said in an interview. “But one thing we can accomplish is we can run the place like professionals and restore some integrity to the institution.”  Democrats, of course, may fall short of a majority on Tuesday, and if they do net the 23 seats they need, there is no guarantee Mr. Trump, or Republicans who are expected to maintain control of the Senate, will cooperate. Mr. Trump has shown an interest in working with Democrats in the past, on issues like gun control and immigration, only to backtrack, and he could emerge from Election Day determined to shun Democrats.

 

Senator Mitch McConnell of Kentucky, the majority leader, would have his own motivations to bypass or block House proposals as he blockaded legislation pushed by President Barack Obama. Then there is the challenge of reining in the most energized liberal lawmakers for whom anything short of a presidential impeachment would be a compromise too far.  But after eight years in the minority, most Democrats believe they will need to do more than embarrass the White House with subpoenas and investigative hearings if they want to be more than a one-term majority and reclaim the presidency in 2020. Ms. Pelosi made clear her party would only bend so far. Democrats are not “going to lowest common denominator to get a presidential signature,” she said.

 

Representative Steny Hoyer of Maryland, Ms. Pelosi’s longtime No. 2, said Mr. Trump’s stances would speak for themselves to 2020 voters. “The best politics for us is trying to work toward adopting the best policy for the American people,” he added.  As they talked up possible bipartisan initiatives, Ms. Pelosi and Mr. Hoyer said that Democrats would push through — on party line votes if necessary — other more liberal agenda items they say enjoy broad public support but have been stymied for years by Republican majorities. They include gun safety legislation, a bill to give permanent legal status and a path to citizenship to young, undocumented immigrants who came to the country as children, and the Equality Act, which would amend longstanding civil rights laws to extend legal protections based on sexual orientation and gender identity.

 

Ms. Pelosi said for the first time that she would urge her caucus to revive a select committee focused on climate change similar to the one that Democrats funded from 2007 to early 2011 to “prepare the way with evidence” for energy conservation and other climate change mitigation legislation. Republicans defunded the panel when they took the majority, but Ms. Pelosi said it was clearly still needed to educate the public about the impact of more frequent extreme weather events.  “The template for 2020 is getting built in the House,” Representative Raúl Grijalva of Arizona, a progressive in line to chair the Natural Resources Committee, said summing up another Democratic view.  Democrats have also prepared detailed, more liberal approaches for a $1 trillion infrastructure package and how to slow the increases in prescription drug costs, but indicated that they would steer proposals through the regular committee process in an effort to try to build a consensus with Republicans first. Mr. Hoyer said Democrats and Republicans would disagree over how to fund infrastructure spending, but they could bridge the gap with Mr. Trump’s help.

 

“His objectives are objectives that we share,” he said. “If he really means that, then there is an opening for us to work together.”  At least in theory, Democrats view election and ethics reform as another issue of potential collaboration. But their legislative package of more than a dozen bills, overseen by Representative John Sarbanes of Maryland, looks more like a retort to Mr. Trump’s popular campaign claims that he would “drain the swamp” in Washington — a difference Democrats have weaponized on the campaign trail.  In an echo of actions they took in 2007, the last time they assumed House control, Democrats plan to use a package of rules governing the chamber prepared by Mr. McGovern to take unilateral steps that they say will tighten ethical standards, including in a nod to an ongoing ethics scandal roiling Republicans, a ban on House members sitting on corporate boards.

 

Together, Ms. Pelosi said, putting those efforts first would “caffeinate” the Democrats’ agenda, even if Republicans in the Senate do not take up the legislation. “When people know the priority that we are giving to the integrity and government piece, it increases the confidence they have that we can do what we said,” Ms. Pelosi said.  Chief among the legislation’s provisions would be a measure by Representative Terri Sewell of Alabama that would amend the Voting Rights Act of 1965 to comply with a 2013 Supreme Court decision in Shelby County v. Holder that gutted the bill’s key enforcement provision. In issuing its 5-4 decision, the court urged Congress to replace the scheme under which the federal government had overseen changes to election laws in states with a history of voting rights abuses.

 

Republicans in control of Congress at the time took a pass, and Democrats believe Ms. Sewell’s bill could help counteract a new wave of election laws across the South that have limited access to the polls.  Another measure, written by Representative David Cicilline of Rhode Island, would require political nonprofit 501(c)(4)s to disclose the identity of most of their donors for the first time. Democrats would like to go further, passing a constitutional amendment to overturn the Citizens United decision and restore to Congress the power to limit money in politics, but those political prospects appear slim.

 

Yet another provision, written by Representative Zoe Lofgren of California, would require all states to establish independent commissions to draw congressional districts. Several states already employ such bodies, but gerrymandering of political boundaries is the norm in most states, allowing the party in control of state government to create the most favorable jurisdictions for its congressional elections every decade, distorting the will of voters, Democrats argue.  Also included are a series of bills tightening restrictions on federal lobbyists, beefing up the executive branch’s Office of Government Ethics, which clashed with Mr. Trump early in his presidency, and requiring the president and vice president to divest any business holdings to prevent a possible conflict of interest.

 

State House News for Finance Officers

October 12, 2018

 

Electronic Procurement       

 

On October 15th, the Senate Budget and Appropriations Committee will consider Assembly, No. 3112 (Benson D-14/Mukerhi D-33)(Beach D-6/Oroho R-24), which would authorize local governing bodies subject to the “Local Public Contracts Law” and “Public School Contracts Law” to use electronic procurement technologies.

 

In summary, this legislation would authorize local governing bodies to use electronic procurement for the receipt of proposals and quotations, competitive contracting, reverse auctions, the purchase of goods and services, the sale of personal property, and other public procurement-related activities to be determined by the Director of Local Government Services. The measure would also authorize local governing bodies, joint purchasing units, and cooperative pricing systems to use electronic procurement practices for the purchase of electric generation services, electric related services, gas supply services, or gas related services, for use at facilities so long as the purchase otherwise complies with the provisions of the "Electric Discount and Energy Competition Act"; for the sale of surplus personal property under certain circumstances; and, for the sale of real property that would otherwise comply with the sale and lease provisions under the “Local Lands and Buildings Law.”   The bill would further require the Director of the Division of Local Government Services, in consultation with other State government entities, to promulgate rules and regulations.  GFOA generally  supports this legislation as as the measure would modernize the antiquated procurement process and save valuable time, money, and resources.  The General Assembly unanimously passed A-3112 in June and the Committee is expected to favorably report the  measure.  

 

Prompt Payments

 

On October 4th, Governor Murphy signed into law Assembly, No. 3808 (Greenwald D-6/Bramnick R-12) (Singleton D-7/Oroho R-24), which would provide for the prompt payment of public contracts for the purchase of goods and services. The Governor Conditionally vetoed the measure in August and the Legislature concurred with the conditional veto late last week.  In general, the new law requires a contracting unit to pay interest on the amount due a business concern if the required payment is not made before the required date under certain circumstances.  The measure further stipulates that unless otherwise provided for in the contract, the required payment date is 60 calendar days from the date specified in the contract.

 

More specifically, the new law provides that “A contracting unit, as defined in … shall pay interest on the amount due a business concern pursuant to a properly executed invoice, when required, if the required payment is not made on or before the required payment date. Unless otherwise provided for in the contract, the required payment date shall be 60 calendar days from the date specified in the contract or if no required payment is specified in the contract, then the required payment date shall be 60 calendar days from the receipt of a properly executed invoice, or  60 calendar days from the receipt of goods or services, whichever is later…. A contracting unit may waive the interest payment for a delinquency due to circumstances beyond the control of the contracting unit, including but not limited to a strike or natural disaster….” The new law defines a business concern as “any person engaged in a trade or business, including a private nonprofit entity operating as an independent contractor, providing goods or services directly to a contracting unit or to a designated third party and operating pursuant to a contract with a contracting unit which requires either a single payment or multiple payments, but shall not include a “public utility….” This law takes effect on the 120th following enactment. 

 

No More Plastic Bags

 

On September 27th, the Senate Environment and Solid Waste Committee Second Referenced to the Senate Budget and Appropriations Committee for consideration Senate, No. 2776 (Smith D-17/Greenstein D-14), which would prohibit stores and food service businesses from providing carryout bags made of plastic film, polystyrene foam food service products, and single-use plastic straws.  The bill would also require stores to asses a fee on paper carryout products.

 

The bill would define a  carryout bag as a bag that is provided by a store or food service business to a customer at the point of sale for the purpose of transporting groceries, prepared foods, or retail goods. The measure would prohibit customers from using a non-handled bag made of plastic film used to separate and prevent a food item from damaging or contaminating another item; a bag made of plastic film used to contain an unwrapped food item; or a durable, handled carryout bag made from any natural or synthetic material other than plastic film, including woven or nonwoven plastic or cloth, that is at least 10 mils thick, and that is specifically designed and manufactured for multiple reuse.

 

The bill would also prohibit a person from selling or offering for sale any polystyrene foam food service product and prohibit a food service business from selling or providing any food in a polystyrene foam food service product.  However, the legislation would provide an exemption from this prohibition for a period of one year after the effective date for:  disposable, long-handled polystyrene foam soda spoons, when required and used for thick drinks; portion cups of two ounces or less, if used for hot foods or foods requiring a lid; and  meat and fish trays for raw or butchered meat or fish that is sold from a refrigerator or similar retail appliance. Under certain circumstances, the DEP would have the ability to waive the prohibition for up to one year upon written application by a person or food services business. 

 

The measure would also prohibit a food service business from selling or providing a single-use plastic straw to a customer.  However, a food service business would be permitted to provide, upon request, a single-use plastic straw to a person that requires one due to a disability or medical condition. Finally, the legislation would  require each operator of a store to impose a fee of at least $0.10 on the customer for each paper bag that is provided as a carryout bag to the customer.  Each operator would be required to remit $0.05 of the fee to the Director of the Division of Taxation in the Department of the Treasury. 
The companion version Assembly, No. 4330 (Pinkin D-18/Kennedy D-20) is currently in the Assembly Solid Waste and Recycling Committee awaiting consideration. 

 

Pension Forfeitures

 

Also on September 27th, the General Assembly passed by a vote of 79-0 Assembly, No. 3766 (Armato D-2/Houghtaling D-11), which  would require a person who holds or has held any public office, position, or employment to forfeit the person’s pension or retirement benefit if the person is convicted of harassment, sexual contact, lewdness, or sexual assault when the offense is related directly to the person's performance in, or circumstances flowing from, the specific public office or employment held by the person. 


The measure would also require such forfeiture if the person is convicted of the crime of corruption of public resources in the first degree. The crime is of the first degree when a person knowingly uses or makes disposition of a public resource valued at $500,000 or more for an unauthorized purpose, when that public resource is subject to an obligation to be used for a specified governmental function or public service. Under current law, a person who holds or has held any public office, position, or employment is required to forfeit their pension or retirement benefit upon conviction of certain enumerated crimes involving or touching such office, position or employment.  This bill  would add the crimes of corruption of public resources, harassment, sexual contact, lewdness, and sexual assault to that list of crimes.  The companion version Senate, No. 2595 (Corrado R-40) is currently in the Senate State Government, Wagering, and Tourism Committee awaiting consideration.

 

Countdown to New State Sales Tax on Online Shopping

John Reitmeyer, NJ Spotlight, October 9, 2018

 

New Jersey has a new tax law on the books that will soon require most e-commerce websites to collect sales taxes — and send the revenue to Trenton — whenever they sell products to Garden State residents.  The new tax policy goes into effect next month, just in time for the start of this year’s holiday shopping season.

 

Signed into law by Gov. Phil Murphy last week, the policy change comes several months after a major U.S. Supreme Court ruling made it clear that states have a right to require that companies collect sales taxes in the states where they are selling products online even if they don’t have a physical presence there.  New Jersey’s new law will require online retailers and marketplaces like eBay to begin collecting sales taxes and turning the revenue over to the state if they have gross revenues over $100,000 a year in New Jersey, or if their in-state sales volume exceeds more than 200 transactions annually.

 

Lawmakers have portrayed the levying of online sales taxes as an issue of fairness for the state’s brick-and-mortar retailers, putting them on a more equal footing with online companies. The new policy, which takes effect on November 1, could also juice up revenue collections for the cash-starved state; initial estimates predict nearly $200 million or more could be collected during the current fiscal year.  Relevant legal precedents related to what are known as “remote sales” date back to a time when most purchases that were not made in-person were completed using catalogs or print advertisements. In those cases, courts determined it was too onerous to make out-of-state companies track and collect sales taxes for every state where residents were buying their products. After the internet was invented and e-commerce grew into a major industry, websites and online marketplaces continued to skirt the sales-tax laws as residents were instead supposed to keep track and pay their states any sales-tax obligations on their own.

 

But in a decision issued by the U.S. Supreme Court in June, the justices upheld a South Dakota law that established a sales tax for online purchases made by that state’s residents. In their decision, the justices suggested the online sales have created a tax shelter that disadvantages in-state brick-and-mortar businesses selling the same products. They also noted technological advances and tax software make it much easier to track and process state sales-tax rates.  The court decision came down just days before New Jersey’s deadline for a new budget, and lawmakers rushed to pass a measure resembling South Dakota’s. Murphy conditionally vetoed the measure, after which lawmakers redrafted it, and it eventually made it back to the governor’s desk late last month. He signed the bill into law late last week, meaning it will be in place for Black Friday and Cyber Monday, two of the year’s busiest days for e-commerce.

 

A notice issued recently by the state Division of Taxation defines a remote seller that will be subject to the new law as “a business that sells products online or by mail order or telephone to a customer located in a state in which the seller has no physical presence.” That means it applies to companies that sell their own products online, but also those like eBay that create an online marketplace for buyers and sellers. Amazon falls under both categories since it sells its own products and also operates a product marketplace. But Amazon’s own products have already been subject to the state sales tax since 2013, thanks to a policy enacted during the tenure of former Gov. Chris Christie.

 

The new tax law requires the same 6.625 percent sales-tax rate that is currently levied on in-person purchases in New Jersey to also be applied to the remote sales. But it provides an exemption for travel agencies, including those that arrange accommodations online.  Although it took lawmakers awhile to get on the same page with Murphy, the tax-policy change still has the potential to generate a sizable portion of new revenue for the state budget during the 2019 fiscal year. Lawmakers assumed the remote sales tax would eventually be adopted, and an official revenue estimate of $188 million was included in the state budget that Murphy signed into law in early July. Other, more optimistic projections suggest as much as $350 million could be generated by the time the fiscal year closes next June.

 

After Murphy’s recent decision to sign the bill, sponsors suggested the policy change should benefit state-based businesses — which hire New Jersey residents and pay local taxes on their properties — whereas the online companies have no real ties to the state.  “The fact that they are not physically located in New Jersey should not exempt a business from sales tax and use requirements,” said Assemblyman Paul Moriarty (D-Camden). “These businesses should play by the same rules as other New Jersey businesses who pay property taxes, local taxes and make an investment in the communities they're in.”

 

New Jersey is Among America's Least Prepared States if Another Recession Hits

Samantha Marcus, NJ Advance Media, September 20, 2018

 

About a decade after the start of the Great Recession that rocked the U.S. economy, New Jersey remains among the states least fit to weather another economic downturn.  In fact, the state's budget's reserves are too low to soften the blow of even a moderate slump, according to a pair of new reports measuring states' readiness.

 

The reports also said the state continues to rely on volatile taxes -- such as the income tax, which can fluctuate wildly depending on how the economy is doing -- and that puts revenues at risk.  "Budget reserves are a first-line defense against revenue shortfalls and in a majority of states remain insufficient to absorb the first-year fiscal effects of a moderately severe recession," an S&P Global Ratings report said.  Moody's Analytics pegged New Jersey as 47th among all states in its capability of weathering a recession, followed by Oklahoma, North Dakota and Louisiana. S&P also had New Jersey near the bottom of the list.

 

Moody's found the "typical" state would need to sock away the equivalent of 11 percent of its budget to ride out a moderate recession without cutting spending or raising taxes and 18 percent in a severe downturn.  New Jersey state government will spend $37.4 billion this year but only has a tiny fraction of that -- 2 percent -- in its rainy day fund to fall back on.  “We are acutely aware of these concerns," said state treasury spokeswoman Jennifer Sciortino. "This is why we fought throughout the budget process to build a healthier surplus and secure recurring revenue sources.  This is and will continue to be a priority for us moving forward."

 

The reports put some numbers to the problem.  S&P projects that in the first year of a moderate recession, states could lose a combined $71 billion, or roughly 10 percent, of the money they collect from personal income, corporate and sales taxes.  In a more severe downturn, they'll be out $84.7 billion, or nearly 12 percent.  The projected losses are even greater than during the Great Recession, as states are relying increasingly on taxes vulnerable to economic conditions, analysts said.  New Jersey is no exception.  Two of the largest sources of tax revenue here -- personal income and corporation business taxes -- are hard to predict, often fluctuating from year to year.  The gross income tax is highly dependent on wealthy filers, which is why state coffers and lawmakers sighed when billionaire hedge fund manager David Tepper relocated to Florida.

 

From this year's budget battle came a new, 10.75 percent top marginal tax rate on personal income over $5 million, which will make the state's highly progressive income tax system even more so.  This, analysts said, also helps explain why New Jersey is at greater risk than others.   "By states putting more of their eggs in one basket, tax bases have become more dependent on a smaller number of taxpayers with extremely volatile incomes, manifesting higher highs and lower lows for tax collections," said Moody's Analytics in its own analysis.

 

A moderate downturn could gouge 18 percent of those three tax streams here, as measured by S&P's stress test of the big three taxes.  In a more severe downturn, the loss could reach 20 percent. Only Alaska would lose a bigger share of its income, S&P said.  But that's why states have rainy day funds.  Twenty states have enough reserves to cope with the first year losses in revenue, S&P said. Of course, New Jersey is not among them.  The state's low reserves would cover just 14 percent of the lost revenue in a moderate economic event and 13 percent in a severe one, according to the report.

 

The four states least capable of cushioning the blow, according to S&P -- New Jersey, Illinois, Kentucky and Pennsylvania -- all have the worst-funded public pension systems in the country.  They're also among the 15 states S&P deemed most at risk, and those underfunded pension systems have something to do with their troubles.  State's don't have a lot of flexibility to cope with a recession outside of increasing taxes and cutting spending. Those with "high fixed costs" like debt service and contributions to post-retirement health and pension benefits have even less wiggle room," S&P said.  "Therefore, the states most at risk to experiencing severe fiscal stress in a recession are those with a combination of a propensity for revenue volatility; insufficient budget reserves to withstand the first-year fiscal deficits associated with a moderate recession; and elevated fixed costs," the analysts said.  Moody's Analytics found New Jersey would lose nearly 12 percent of all revenues in a moderate recession and nearly 17 percent under a severe scenario.

 

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