FAIR -- FAIR AND IMMEDIATE RELIEF

GOVERNOR JAMES E. McGREEVEY

Thursday, April 29, 2004

Reverend Clergy,

Mr. President,

Mr. Speaker,

Majority Leaders Kenny and Roberts,

Minority Leaders Lance and DeCroce,

Governor Byrne,

And most importantly, my fellow New Jerseyans:

I would first like to take this opportunity on behalf of our State to recognize the outstanding contribution of Governor Thomas H. Kean in the service of our nation.

Governor Kean's Chairmanship of the 9/11 Commission will provide for a valuable contribution in understanding the circumstances of the 9/11 tragedy and helping to prevent a re-occurrence.

As in the past, he has made us proud of being New Jerseyans.

It is traditional for a Governor to come before the Legislature only twice a year -- once to discuss the State of the State and once to discuss the budget.

And it is rare for a Governor to address a joint session of the Legislature for any other purpose.

But we are facing a property tax crisis that has been building in New Jersey for more than a quarter of a century.

Today, I am asking for your support to stand up for the property taxpayers of this state -- for our senior citizens and middle class families.

I am asking each of you to put aside partisan politics and think beyond the special interests.

I am asking each of you to be straightforward with the public about the choices we must make to build the communities we must have.

I am asking each of you to bring citizens into the process and trust their judgments about the type of services they want and how much they are willing to pay.

I am asking each of you to help bring fairness to our tax system and hope to our citizens.

Ultimately, I am asking each of you to make a choice about whether to continue the status quo or stand up for middle class families and senior citizens.

I also want to be realistic. If there were a simple solution to the fact that property taxes are rising every year faster than the cost of living, it would have been done a long time ago.

Already, half of our State budget goes to local aid and direct property tax relief. Our State income tax is constitutionally dedicated to that same purpose. Yet, we are still taking other State tax revenues to combat rising property taxes.

Three successive years of fiscal responsibility have paid off:

We balanced three State budgets without raising the sales or income tax;

We increased aid for education to historic levels;

And we are now on the leading edge of the nation's economic recovery.

New Jersey is creating jobs faster than 46 other states, and we've created more new jobs than all of our neighboring states combined.

Now, we must turn our efforts to getting property taxes under control. Now we must focus on getting immediate relief to our hard-pressed families while pursuing long-term reform of New Jersey's property tax system ...

a system which at best, is unfair, and at worst, a destructive influence on every community ... on every decision from housing, to schools to protection of our environment.

It is a system that is literally tearing our communities apart ... young families unable to return to the towns where they grew up and senior citizens unable to stay in the homes they worked their whole lives to own.

It is a system that is fueling the over development that consumes our State ... a system that is destroying open space and polluting our drinking water ... as it forces communities into an unwinnable ratable chase in a futile effort to keep property taxes under control.

It is a system without a conscience, stifling young couples struggling to start new families and victimizing seniors who are struggling to hold on to their homes.

They need help now. But the property tax problem is so ingrained and so endemic to our structure of government that no single action by itself will bring meaningful reform.

Unless we reduce spending, any relief we provide will be swallowed up in the years ahead. Property taxes and spending are simply rising at too rapid a rate.

And ultimately, we must look to restructure our entire system.

Property tax reform must have a short term and a long-term component if it is to work.

This afternoon, I am going to present to you a middle class property tax relief program that will help nearly two million senior citizens and middle class New Jerseyans.

This plan will return more than $800 million to the property taxpayers who have been hardest hit.

It will more than double the direct property tax relief programs provided by the State -- from $670 million to $1.5 billion.

Immediate relief should not, however, be confused with long term reform, so I will also present a blueprint to immediately address administrative spending and provide the means to overhaul the property tax structure.

Alone, any one of these is insufficient, but together they form a vision to build a far better New Jersey.

This new direction will be driven by the same values that helped us overhaul auto insurance and DMV ...

the same decency that has driven our effort to allow domestic partnerships and stem cell research ...

the same compassion that fuels our efforts to reform DYFS ...

and the same respect for fairness that guided our effort to close $1 billion in corporate tax loopholes.

Most importantly, we must start by being honest about the process, what we can achieve, and in what time frame.

I have no interest in creating unrealistic expectations, false hopes, or empty rhetoric.

And so the elements of the FAIR plan are straightforward:

•  Fair and immediate relief for our hardest hit property taxpayers;

•  Reforms that will limit administrative and bureaucratic spending;

•  And a plan to involve the citizens of our state in meaningful property tax reform by putting a Constitutional Convention on the November 2005 ballot.

When I presented my budget on February 24th, I outlined the unprecedented property tax relief that it provided.

Fully one half of the budget is dedicated to direct and indirect relief programs ...

A doubling of funding for the Senior Citizens property tax freeze in order to enroll 130,000 seniors ...

A homestead rebate for 1.6 million people ... a veterans' property tax deduction for 320,000 ... and a New Jersey Saver check for 1.2 million residents ...

A $10,000 paid property tax deduction ...

Special aid for the fastest growing school districts ...

A $200 million increase in school aid, for an historic total of $8.7 billion ...

A quadrupling of the increase in municipal aid and new taxpayer hero grants to reward mayors who hold the line on taxes.

In total, nearly $13 billion in direct property tax relief and State aid to towns, counties, and local school districts.

All of this on top of another $17 billion in local property tax collections.

And still, property taxes keep going up. It is time for us to act and to make choices to provide help.

The public wants a plan, not a message. They want relief, not rhetoric.

And when I said in February that I would be back, I meant it.

Today, I return with a FAIR plan to get immediate relief to middle class property taxpayers and a blueprint for change that offers the hope for a different future.

For three years in a row this Legislature has helped keep my commitment to balance our state budget without increases in the sales or income tax. And in the next state budget, we are going to do it again.

In the face of historic budget deficits, we made tax fairness and fiscal discipline the twin pillars of our policy.

Corporations that had escaped paying their fair share were called upon to do so. And government spending was reduced three years in a row.

Now we are faced with a choice.

We can maintain the status quo and watch as spending and property taxes continue to rise ... as middle class families and senior citizens continue to chafe under this unbearable system.

That is certainly an option. It is an option I reject.

We have reached a crisis point that demands we have the courage and vision to act.

We need to stop worrying about who or what is to blame -- there is enough to go around for all of us.

We need to take responsibility for providing relief and responsibility for providing a plan.

MIDDLE CLASS PROPERTY TAX RELIEF

The property tax is a tax without a conscience. Everyone pays regardless of income, regardless of ability to pay, and regardless of their status in life.

On average, in New Jersey, a working family earning $45,000 a year pays 10% of their income to property taxes. The family making half a million dollars pays only 3%, and the family making a million dollars or more is paying 1% or less.

It is unfair, it is inequitable and it must be changed.

The Bush tax cuts have brought a windfall to the wealthiest 1% of America.

Under the President's tax cut, a family making $550,000 in income received a $19,000 annual windfall.

A family making $750,000 received a $29,000 windfall.

A family making $1,000,000 received a $40,000 windfall.

By using a small portion of the Bush income tax windfall, we can create a much fairer tax system for New Jersey.

Right now in New Jersey an individual making $80,000 pays the same tax rate as an individual making $800,000.

We can restore tax fairness and provide immediate relief to nearly two million working families and senior citizens by simply returning a fraction of the federal windfall to them.

These are the men and women struggling to meet mortgage payments and save for college tuition.

These are the senior citizens living on fixed incomes who face dire choices between food, medicines, and heat every time a property tax increase eats into their income.

They are the ones being crushed by property taxes -- who disproportionately feel the bite of this flawed system and who received too little help from the federal government.

These are the people who need our help.

To be direct, that is the choice before us.

In order to fund this property tax relief, I am asking the Legislature to enact a 2.6% millionaire's tax increase on income over $500,000.

This will only affect the income in excess of $500,000. Every dollar of income below $500,000 of every citizen in New Jersey will be totally unaffected.

The millionaire's tax will be solely on those who have benefited most from President Bush's tax cuts. It will impact only 28,500 taxpayers, or less than 1% of New Jersey.

And New Jersey's millionaires will still be able to deduct this millionaire's tax from their federal income tax.

With this millionaire's tax, a family earning $550,000 will keep $18,154 of the $19,000 Bush tax cut. They will only lose $846, or less than 5% of their total windfall.

Let me say that again ... With this millionaire's tax, a family earning $550,000 will keep $18,154 of the $19,000 Bush tax cut. They will only lose $846, or less than 5% of their total windfall.

This will raise an additional $800 million which will be used to more than double the total direct property tax relief we provide to working families and senior citizens.

And every penny of the $800 million raised will be used to provide direct property tax relief in the pockets of nearly two million families.

93% of New Jersey property taxpayers will receive a larger property tax relief check.

Not a single dime, not a single nickel will go to more government spending or more bureaucracy. It will go to middle class families, working men and women and senior citizens.

And the system is already in place to deliver this relief into people's hands. We must act quickly and enact the FAIR plan so we can include this extra relief in the Summer mailing of homestead rebate checks and in the Fall mailing of NJ SAVER checks.

Under the FAIR plan, the maximum homestead rebate check for senior citizens will be increased by 50% -- from $775 to $1,200.

458,000 senior citizens will benefit from this increased $1,200 rebate.

For nearly 1.2 million working men and women, middle class families, we will triple their direct property tax relief from an average check of $250 to a new maximum check of $800.

For another 190,000 working men and women, we will double the average rebate to a new $500 check.

SPENDING REFORMS

A millionaire's tax will make our tax system far more fair and provide relief to those who need it most, but it will not address the spending that drives up property taxes every year.

We have to be honest with ourselves and our constituents that property tax relief is different from property tax reform.

A property tax plan without spending and efficiency reforms is incomplete.

So in addition to the relief for middle class families and senior citizens, I am asking the Legislature to enact a series of spending reforms that will freeze government and administrative spending at 2.5%.

For three years in a row, we have cut spending on state government operations. And next year any increase in state spending on government operations will be frozen at 2.5% or less.

In order to bring property tax rates under control, I am asking the Legislature to extend this 2.5% freeze to municipalities, school districts and school administration.

In addition, we must eliminate holes in our current Swiss cheese spending laws. And I have asked Commissioners Levin and Librera to present a plan to do just that.

Our teachers and our school system are New Jersey's greatest assets.

The high quality of our teachers and the high quality of our schools separates New Jersey from the rest of the nation.

It is why our economy is among the strongest in the nation and why we must ensure that education dollars are invested in teachers and in the classroom.

According to the U.S. Department of Education, New Jersey leads the nation in per pupil spending, but we are 39th in spending on classroom instruction and have the 8th highest percentage of spending of administration and support services.

We have to drive that figure down and put more money into teaching and classroom instruction and less money into administrative expenses.

So in addition to an overall 2.5% freeze, I am asking the Legislature to place strict limits on school administrative expenses and freeze any increase at 2.5%.

Any school district that goes above this figure should understand that the Department of Education will not allow its budget to go to the voters until the excessive administrative expenses are reallocated to the classroom or returned to the taxpayers.

We must eliminate unnecessary mandates so I am requesting you pass S1533 and eliminate wasteful mandates that take time and money away from classroom instruction.

In order to move funding out of excessive surplus accounts and into the pockets of taxpayers, I am asking the state Legislature to immediately reduce the allowable school district surplus from 6% to 3% and require the savings be dedicated to property tax relief.

This will provide over $80 million in immediate property tax relief.

And I have asked Commissioner Librera to develop a pilot proposal for counties to accelerate administrative and operational efficiencies in order to help local school districts save money.

These are changes that will protect the services we want and root out the duplication, the inefficiencies, the mandates and the wasteful spending we do not need.

But we must do more. So I am also appointing a Citizens Task Force to hold public hearings and forums across the State to gather additional ideas for the Legislature to consider.

This public process is modeled after the one used in our successful efforts to reform the Division of Motor Vehicles, EZPass, auto insurance, and to protect the Highlands. It is critical to building consensus.

CONVENTION

The property tax system is a problem of unprecedented dimensions and it requires an answer of unprecedented magnitude.

It requires the boldest approach to bring real change.

For years I have had serious concerns about a property tax Constitutional Convention.

I was unconvinced that a convention was the best way to get at the root of our property tax problem.

I was concerned that a convention might veer off course to pursue other agendas.

But given the enormity of this problem and the nature of this crisis, my personal reservations are less important than getting something done.

A property tax convention is not the only route to reform, but ironically, it may now be the best.

The best, because it promises to involve the people in endorsing the process and, thereafter, in ratifying its recommendations.

The best, because it invites officials from every level of government and citizens from every walk of life to serve as delegates and to participate in the deliberations.

The best, because it takes the process out of Trenton and puts it directly into the hands of the voters.

Only a convention will ensure that the public, the individuals who bear the consequences of our broken system, have a voice in the deliberations and final say in the outcome.

And by providing immediate relief to middle class families and senior citizens, we will ease the pressure while the Convention does its work.

A decision to hold a convention and consider changes to our State Constitution is an extremely serious undertaking.

Today I am endorsing and will support a citizens Constitutional Convention on property taxes but it must be true to our values and principles.

A citizens property tax Constitutional Convention must consider spending as well as revenue.

The scope of a convention must be strictly limited to the issue of property taxes. It cannot diminish our commitment to a "thorough and efficient" education or become a forum to revisit long- standing constitutional principles.

A convention must have a delegate selection process that is fair and representative of our state.

It must have the support and input of the public in its creation, deliberations, and ultimate solution.

It must be done right, and before we ask the public to approve such a convention, there are issues that must be addressed.

That is why the Citizens Task Force will also be charged with making a recommendation to the Legislature on the structure and scope of a convention.

I will ask this Citizens Task Force to return its recommendations in time for the Legislature to put the Convention question to the public next year.

CONCLUSION

Every day across our state there is evidence that New Jersey is on the right track and that our future is brighter because of the decisions we have made.

For three years in a row, the budget has been balanced without an increase in the sales tax or the income tax.

We have closed $18 billion in deficits, we have eliminated $1 billion in corporate tax loopholes, and we have reinstituted fairness to our tax system.

And our fiscal discipline has paid off with an economy whose recovery endorses our actions.

We have created 54,000 jobs in the past year and added more jobs than all our Northeast neighbors combined.

Our unemployment level has been below the national average for eleven straight months and we have the highest jobs level in two years ...

Our children's reading and math scores are among the best in the nation and our pre-school program has received national recognition.

And these achievements are a testament to New Jersey's dedicated teachers.

Our efforts to reform auto insurance and improve security and service at DMV are not simply producing real benefits for New Jersey drivers, they are drawing national attention and praise.

We have enacted the strongest protections against poisonous mercury in the air and arsenic in the water in the nation.

Our reservoirs and water supply enjoy unprecedented protection from the threat of pollution and over-development.

Our commitment to reforming DYFS and safeguarding the welfare of our most vulnerable children is evidence of our compassion as a society.

And our courage to allow domestic partnerships and stem cell research is a tribute to our decency as a people.

These achievements are a testament to what happens when we join together in common purpose to pursue a common vision.

We can build a better state. We can build a better New Jersey.

The greatness of a vision is not what it can accomplish today, but the possibilities it can offer tomorrow.

Our willingness to embrace bold and sometimes controversial ideas in the pursuit of excellence has given the people of New Jersey the ability to achieve greatness.

When Alzheimer's or Parkinson's or spinal cord injuries lose their deadly grip because of our stem cell initiative ...

or when a young foster child grows up to lead a successful career because of our DYFS reforms ... we can look back and take pride that our efforts played a small part in making New Jersey a better place for the next generation.

But I know we can do better ... I have been to every corner of this State. I see the challenges that families and our seniors face every day.

There are too many people living paycheck to paycheck, working harder but not getting ahead...

Too many families struggling to achieve their middle class dreams in a world that has gotten more complicated, more costly, and more overwhelming...

Too many seniors forced to make untenable choices as rising costs eat into fixed incomes.

These are the people who need us ... who need us to stand up and fight for them.

When I ran for Governor, I made a commitment -- a commitment to stand up and fight for working families every day.

It's the reason why I am here -- it is the reason why we are all here.

Property taxes, more than any other challenge we have confronted, will speak volumes about our values and our priorities.

It is not too much to ask those who have benefited the most from President Bush's federal tax cuts to contribute a portion of that windfall to ease the property tax burden on senior citizens and middle class families, to make our State a better place to live.

To those of you in this Chamber who would take issue with the timing or the substance of any of these proposals -- on behalf of the property taxpayers of this state, I ask you these two simple questions:

If not now, when?

If not a plan that protects our seniors and the middle class, then who?

These are the people we serve. . . and these are the people we must fight for.

One plan.

Three components.

Immediate property tax relief for senior citizens and middle class families.

An end to runaway bureaucratic spending at local government and local school boards.

A citizens Constitutional Convention to empower the people to take on the special interests and bring about fundamental structural reforms that only a citizen-led effort can achieve.

There are long days and tough decisions ahead of us, but I ask you to envision a different New Jersey -- where senior citizens worry about seeing their grandchildren instead of whether they can pay their property taxes ...

Where young families can buy the house of their dreams without worrying about that dream being destroyed by the escalating burden of property taxes.

Together we can chart a new direction for New Jersey.

Now, let's get it done.