The Week in Public Finance: Suing Christie, Low-Paying Jobs and Wooing Subaru
A roundup of money (and other) news governments can use.
You’ve been served
The bad news keeps coming from New Jersey. First, its pension funds appear in even worse shape now that new accounting rules have gone into effect for pension plans that aren't fully funded. Then, last week, an analysis showed that its borrowing costs have increased because of its poor financial health. Now, the state’s largest pension funds are suing Gov. Chris Christie for cutting $2.4 billion in pension fund payments he promised to pay as part of 2011 pension reform. (Christie slashed the payments to balance New Jersey’s budget last year.)
The board of trustees for the funds voted to sue the governor back in June but didn’t go through with it until this week. The lawsuit asks Christie to restore the cuts. In a statement emailed late on Dec. 9, the board said it did not enter into litigation lightly. “We would much prefer that the Governor had kept his word, since each participant has dutifully paid their employee contributions which increased from 3% of salary to 7. I %, currently and are scheduled to [increase further],” the board said.
It added that during this same time, the participants were also forced to accept a roughly one-third reduction in the cost/value of their benefits. “The funding problems of the pension funds are, to quote the Governor himself, the fault of prior administrations,” the statement continued. “And now, by scrapping his own promises while demanding sacrifices from public workers, the Governor has claimed this breach of faith as his and his alone.”
Where have all the good jobs gone?
By now, it’s pretty clear that the country's recovery from the Great Recession is going to be annoyingly slow. Think tortoise instead of hare. A big part of the reason is because the jobs recovery has also been slow -- we all figured out how to do more with less during the lean years and the jobs that are coming back now tend to be lower-paying. That means comparatively less money being pumped into the consumer economy. That’s no way to promote quick growth.
A new report by the Georgia-based Center for State and Local Finance chronicled the state’s experience with job growth from 2000 to 2012. It found that the recession essentially piled on to a longer state trend of higher-paying jobs disappearing. The shift from an economy with a large statewide manufacturing sector to one that is dominated by services is a big culprit. “While the number of jobs in the state has remained relatively unchanged from 2000 to 2012, the shares of premium-, mid- and low-wage jobs have changed,” the report concludes. “Georgia has lost 104,039 premium-wage jobs from 2000-2012.” About half of these jobs were lost during the recession.
Of note for other states with a formerly dominant manufacturing base, the report said that this shift has primarily affected the state's urban areas -- premium- and mid-wage jobs lost out to mid-wage jobs in healthcare, social services and education services and with low-wage leisure and hospitality jobs. “No such shift seems to have occurred in the rural Georgia region, which experienced a large decline in mid-wage jobs, mostly in the manufacturing sector, but had little or no job growth in any other sectors to offset the manufacturing job losses,” the report said.
An argument for tax abatements?
Governing recently published a story about proposed accounting changes to government financial reports that would require governments to start reporting tax abatements as lost income. This requirement, if it takes hold, would be a victory for those who demand more transparency to woo companies and who tend to be skeptical of tax abatements' worth. This week, Moody’s Investors Service issued an analysis that seemed to offer up more support for these kinds of tax incentives.
The ratings agency took a look at Camden, N.J.’s deal bringing Subaru of America's corporate headquarters there. Moody’s applauded the deal, calling it a “credit positive for one of the nation’s poorest cities.” Camden will get 500 jobs in the 2017 move and an increase in property tax revenue -- but not right away. To woo Subaru, Camden has given the company a 10-year tax abatement on its improvements to the land (called the Gateway District, a large 45-acre office park adjacent to the headquarters of Campbell Soup Company). That means that Subaru will pay property taxes only on the land’s current, lower value. After the abatement period ends, the project’s value will fall to the tax rolls incrementally over the following 10 years. “While there is some risk Subaru could leave Camden before it fully joins the tax rolls,” Moody’s said, “the company has committed to staying for at least 15 years.”
Camden isn’t acting alone -- Subaru’s planned relocation was also spurred by $118 million in tax incentives approved by the New Jersey Economic Development Authority (NJEDA) and is the latest in a series of NJEDA-backed developments in Camden. Camden has struggled with high poverty and unemployment for decades, Moody’s said, but has recently received increased state economic development assistance that will result in an estimated 1,700 jobs, including the 500 from Subaru.