With the election it seemed worthwhile to do extra articles covering issues in New Jersey, which perhaps might be of interest to other states but which were of particular interest here. That opened a new subject area which might perhaps have been opened sooner, as the New Jersey Political Buzz Examiner ought to cover New Jersey issues. In 2012, the only New Jersey issues covered were those brought to the voters on the ballot.
This column does not usually delve into the parochial matters that touch only those in New Jersey; however, with Election Day looming and two issues on the ballot, it is worth taking a moment for a "Local Issues" column. There are two "ballot issues", questions presented to the public which usually, in New Jersey, amount to the democratic determination of an outcome.
The first is a bond issue. Bond issues are the State asking the voters for permission to borrow money, which New Jersey cannot do without permission; further, the voters must be informed of the intended use of the money.
Bond issues to increase infrastructure--roads, parks, public buildings--are similar to mortgages: they increase the value of what the State owns hopefully by more than the state spends. Those that pay for operating expenses tend to be more inflationary, as the government tries to pay for services we cannot afford now by promising to pay for them later. This appears to be in the former category, intended to pay for improvements on college and university campuses. That does not mean it is not potentially inflationary, only that it is less so.
All credit is inflationary. This will illustrate that. New Jersey needs money, so it "sells" bonds, in this case seven hundred fifty million dollars' worth, promising to "buy" them "back" at a greater value after a specified period. If you "buy" a State bond, you lend New Jersey, for example, ten dollars. The piece of paper you receive is worth ten dollars (more, as it matures and collects interest), and you can use it to borrow money, because lenders agree that it has value. So you have ten dollars, and the State has the same ten dollars. You and the State have colluded to turn ten dollars into twenty; both of you have the ability to spend your ten dollars, that is, to transfer ten dollars value to someone else in exchange for goods and services. You can't use the bond to buy lunch, but you can "trade" it, selling your claim on New Jersey future income.
Why does that matter? If there are a hundred dollars in the economy and a hundred dollars worth of goods, that static relationship means that a one dollar loaf of bread will cost a dollar. If we double the amount of money to two hundred and don't change the total goods, people will effectively bid up the value of that loaf, because it is now worth two dollars, since every dollar that exists after the increase represents only half a dollar before. This forces prices to rise. In the case of building infrastructure, once the State has seven hundred fifty million dollars, it is bidding against the seven hundred fifty million in credit its lenders now have, buying construction materials and services. Creating demand drives up prices making it more expensive for you to buy the same materials at your local hardware superstore, or to hire the same services.
That is, it makes it more expensive if we began with that balance between money and value. That balance is always in flux. This kind of bond issue might stimulate the economy, if in fact we have seven hundred fifty million dollars worth of unused construction goods and services. It would mean jobs for unemployed construction workers, and for those who produce the materials used in construction. It also means dumping that seven hundred fifty million dollars into the pockets of consumers and businesses, the latter spending it on increasing their own businesses (which repeats the job creation process) and the former spending it on goods (which increases demand and so drives prices but also production, also creating jobs). In theory, by the time New Jersey has collected enough money in taxes to repay your ten dollars with interest, it will have ten dollars worth of new infrastructure and several people will have been paid that ten dollars.
Government deficit spending is not a simple issue, no more so than the decision to take a mortgage to buy a home or a loan to purchase a car: borrowed money spent well can improve the economy.
Thus the issue is whether we in New Jersey think this a good time to borrow money to pay people to expand our educational campuses. Economists probably will argue the question. The construction trades and educational institutions will undoubtedly favor it. Fiscal conservatives will be concerned about the potential inflation and future taxation to cover repayment. My answer would be little more than another opinion; but I welcome your answers via comments, if you have an opinion or think there is a significant factor I missed.
The second ballot issue is less complicated but perhaps more interesting: the legislature is requesting a constitutional amendment authorizing them to withhold monies to pay for employee benefits in the specific cases of the New Jersey judiciary. That is, should the State as employer have the power to make judges pay for part of their health insurance, retirement plan, and whatever other benefits the State provides, and should the legislature be the ones who oversee this? And, of course, should we amend the Constitution of the State of New Jersey to include that?
We might wonder why such an amendment is needed. It does not necessarily mean that such an action would be unconstitutional under our State constitution, only that it is not clearly authorized. Thus it could be that the legislature is anticipating trouble, that it wants at least to discuss withholding a portion of judicial salaries to cover costs of benefits. A law could be passed, even signed by the governor--and then any judge in the state could hold that the law is unconstitutional because the state constitution does not give the legislature such authority. It might take a long time to get the state supreme court to decide on the issue, and they might decide that they don't want the legislature withholding portions of their wages (they cannot reasonably all recuse themselves, and the federal courts usually try to avoid disagreeing with the decisions of state courts concerning the meanings of their own constitutions). Thus by having the amendment approved by the voters, they avoid this confrontation with the judiciary, and empower themselves to make decisions concerning withholdings.
It is likely that most citizens, suffering the sting of increased payroll withholdings as companies reduce company contributions toward benefits facing hard economic times, would agree that judges should not be immune from such payroll withholdings. The question, though, is whether the legislature ought to make these decisions. Generally in law legislative branches hold the purse strings, that is, ultimately decide how much money the government should raise in taxes and how to spend it. However, activist judiciaries in the past half century have frequently ordered state and local governments to finance programs the judges believe are mandated by existing law, taking this authority to themselves. It is not impossible that a judge would enjoin the state against withholding money from salaries to cover benefits, or from reducing benefits themselves, based on some interpretation of present law, and prevent them from altering the law.
Still, the judiciary tends to oversee itself. Beyond the approval process that appoints judges to the bench, judicial autonomy is considered an important part of judicial function. Given this, arguably the judiciary could have its own administrative branch (it does, for other purposes) which could oversee benefits and costs. The legislature would still be positioned to control the state contribution to such benefits without being empowered directly to control individual contributions.
Overall, there is a strong argument for allowing the legislature to control state payroll; and such an amendment would not mean that the legislature had to make such decisions itself, but only that it would have the power to authorize payroll deductions from the judiciary. In an age in which we are all looking for sound state financing, this seems a reasonable step.
If you think I have overlooked some factor in this, I welcome your views in the comments.
It always bothered me that before the election we are bombarded with news about what might happen, candidates, offices, issues--and then almost the day after the election the news is gone, and it is a challenge to discover the results. Since this column addressed the New Jersey Public Questions last weekend, it seemed appropriate to let readers know a bit more now that the votes are counted.
The first question, the bond issue to borrow money for infrastructure at state colleges and universities, passed. As noted, this will mean jobs in the construction and construction supplies industries, and improvements to educational institutions. The seven hundred fifty million dollars should give the state economy a boost; while the bonds are something of a mortgage on the new buildings, if the economy improves and the education of more workers helps it the repayment should not be difficult.
The second question, concerning payroll withholdings from judicial salaries to fund benefits, also passed, and overwhelmingly.
In this regard, the "hypothetical" idea that a judge might find such withholdings unconstitutional was actually not entirely hypothetical. In 2011 Governor Christie attempted to address a shortfall in funding for pensions and healthcare coverage of public employees by increasing the withholdings in public employee pay checks. A Superior Court judge (the appelate level of the New Jersey court system) in Hudson County filed suit in Superior Court in Mercer County (where Trenton, the state capital, is, and thus where the law was passed), claiming that because the New Jersey Constitution forbids changing judicial salaries during the tenure of the judges receiving them, such withholdings amounted to an unconstitutional reduction in his salary. The Mercer County Superior Court judge agreed. It was appealed to the Supreme Court of the State of New Jersey, which also agreed.
The debate in part is whether withholding a larger portion of judicial salaries to cover an increased cost of benefits really is a reduction in salary. After all, from the State's perspective, the salary of each judge includes not only the net pay but also withholdings for federal taxes and insurance, and for state taxes, and the withholdings and employer contributions for benefits including state unemployment and disability insurance but also healthcare and pension plans. Some of those withholdings could be increased outside the control of the State government (e.g., Federal Income Tax withholdings), and some would be altered by the state government non-specifically (e.g., an increase in state disability insurance premiums on everyone). If, then, the cost of healthcare coverage rises, from the State's perspective it means an increase in the payments to each employee; if so, then having the employees cover the increase through withholdings amounts to keeping them at the same salary level, although decreasing their net pay.
From the employee's perspective, though, an increase in mandatory contribution to benefits packages is a de facto reduction in pay. If the benefit from health insurance is valued in terms of amount of medical care (rather than cost of such care) then the salary can be defined as this much cash in the paycheck plus this much in medical services, and a reduction in either is a cut in salary. Logically, then, the state would be obligated to pay from other sources for the rising costs of benefits to maintain the same level of coverage. From the perspective of the employee judges, this would be no change in their salaries; from the perspective of the State it would be an increase.
Two other factors are significant. The first is that when the New Jersey Constitution was written there were no employee benefits and no withholdings; thus the question is whether benefits are part of "salary" as intended by the Constitution, and if so whether it is the cost of benefits or the value of benefits that matters. The other factor is the issue of whether the value of benefits can be kept the same. As medicine advances, new procedures are introduced and covered as old procedures become less common, and costs change, usually rising. Yet covering the new procedures at greater cost amounts to an increase in value, and thus an increase in the total salary package received. We don't expect that judges will get an automatic increase in cash pay whenever the price of bread rises; yet their medical coverage rises to meet the increased costs of care. It makes sense that the value of their salary package would then be decreased in some area to maintain the same level of compensation. This at least makes that possible.
The Supreme Court (of New Jersey) sided with the judges. The voters have now sided with the State, giving the legislature the power to adjust the withholdings from judicial salaries to cover the increased costs of benefits.