An amazing story in the Wall Street Journal (April 17, 2010) chronicles how difficult it is to turn a state around. James Freeman interviewed Governor Chris Christie, who is making a valiant effort to turn the state around. New Jersey now has the nation’s highest tax burden and is losing wealth and jobs in droves. He has frozen spending and is looking at pension reform, among other major changes to state spending. I’ve read few articles that characterize as succintly the problems faced by governors trying to make their states more competitive.
Freeman’s article is more comprehensive, but I’ve clipped a few choice pieces in an attempt to string a story together that I think examplifies the problems and pitfalls of state fiscal reform. (Those that follow fiscal policy at the state level won’t be surprised that the story hinges on K-12 education funding.)
Here’s the important string, IMHO:
“As you can imagine, the Christie agenda is not wildly popular among presidents of government-employee unions. To put it more precisely, Mr. Christie is now in a political street fight with the head of the New Jersey Education Association, the teachers union that spent millions last year to defeat him.”
“While the state lost 121,000 jobs last year, education jobs in local school districts soared by more than 11,000. Over the past eight years, according to Mr. Christie, K-12 student enrollment has increased 3% while education jobs have risen by more than 16%. The governor believes cuts in aid to local schools in his budget could be entirely offset if existing teachers would forgo scheduled raises and agree to pay 1.5% of their medical insurance bill for one year, just as new state employees will be required to do every year.”
A new Rasmussen poll found that 65% of New Jersey voters agree with him about a one-year pay freeze for teachers. But the teachers union wants to close the budget gap by raising the income tax rate on individuals and small businesses making over $400,000 per year to 10.75% from its current 8.97%.
“Mr. Christie doesn’t think that state and local budget problems can be fixed without tackling education spending. That’s because the state has a hybrid system in which local property taxes fund schools and some of the money is redistributed by the state from affluent areas to poorer communities. According to Mr. Christie, New Jersey taxpayers are spending $22,000 per student in the Newark school system, yet less than a third of these students graduate, proving that more money isn’t the answer to better performance. He favors more student choice, which is why he’s ramping up approvals for charter schools.”
“With a 9.8% unemployment rate (significantly above neighboring New York), Mr. Christie has plenty of data to make his case that the state’s government has put too much of a burden on the private economy. He also is heartened by polls showing public frustration with the cost of the state’s lavish programs. “The ones who pay are going to stand up and say, ‘Enough already, I can’t do it!'”
“He needs them to stand up now and support him. While voters seem ready for a new approach to governance, the new governor’s personal popularity has suffered a bit amid the acrimony. Mr. Christie says that the teachers union has spent $1.8 million in the last month on media advertising to defeat his budget plan. “That’s just the beginning. We’re in April. This budget isn’t going to pass until June 30.”
New Jersey may well be the test case for whether reform can really occur.