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House-Passed Health Bill Would End Coverage for More Than Half a Million New Jerseyans

Posted on June 21, 2017October 10, 2020 by Raymond Castro

Proposal shifts billions in federal costs to New Jersey and could reduce consumer protections for millionsTo read a PDF version of this report, click here.

New Jersey has a lot at stake as the Senate considers the American Health Care Act (AHCA), because the bill lawmakers are considering is still a disaster for New Jersey – made worse by the amendments added by the House.

The provisions in the original bill that most harm New Jerseyans – effectively eliminating the Medicaid expansion, permanently capping Medicaid, repealing health insurance subsidies for moderate-income New Jerseyans and eliminating the individual and employer mandate – essentially remained the same in the House-passed version. The repeal of the Medicaid expansion and subsidies in the marketplace alone would result in a $28 billion loss in federal funds over 10 years and cut about 54,000 jobs, causing irreparable harm to New Jersey’s health, budget and economy

These findings are consistent with the recent Congressional Budget Office (CBO) analysis^[1] that found little difference between the original and the House-passed bill at the national level. For example, it concluded the House-passed bill would cause about the same number of Americans to become uninsured as in the original (23 million and 24 million, respectively).

One way or another, this bill would hurt most New Jerseyans: seniors, people with disabilities, children, working families, health providers and ordinary taxpayers. The only way to prevent such widespread pain is for the Senate to reject proposals that:

Effectively end the Medicaid expansion by reducing the matching rate
End the Medicaid program as an entitlement by permanently capping and reducing funding
Replace subsidies for moderate-income Americans with tax credits that offer less or no assistance to those who need it most
Reduce essential benefits and consumer protections

More Than Half a Million New Jerseyans Would Lose Coverage by 2026, Spiking the Uninsurance Rate by 50 Percent

New Jersey’s remarkable progress in reducing the uninsured would be more than reversed under this bill. Under the Affordable Care Act (ACA), more than 800,000 residents gained coverage, decreasing the state’s uninsurance rate to 9.8 percent from 13 percent for people below age 65. Under the House-passed bill, an estimated 540,000 New Jerseyans would lose coverage, making that rate jump to 13.5 percent by 2020 before eventually reaching 14.7 percent by 2026.

In short, the uninsurance rate would increase by 50 percent and would actually be higher than it was before the ACA. There are a number of reasons for this, including that about 172,000 New Jerseyans were covered under NJ FamilyCare under pre-ACA federal waivers that have since expired.

Americans would start to become uninsured as soon as the AHCA is enacted, according to the CBO, which assumes that that would take place in 2017. In New Jersey that means about 16,000 New Jerseyans would become uninsured this year, 337,000 New Jerseyans would lose coverage by 2020 and eventually 540,000 more Garden State residents would be uninsured by 2026.

New Jerseyans would lose coverage in several ways.

Most would become uninsured due to the phase-out of the Medicaid expansion, because very few of the recently covered could afford insurance in the new marketplace. For example, a typical 45-year-old at the federal poverty level currently pays nothing for Medicaid, but would have to pay $2,390 in net premium costs in the new marketplace, which is 19 percent of his or her entire income.^[2] Given that most of the poor in New Jersey cannot even afford their very high housing costs, most have no disposable income for these additional costs.

Meanwhile, consumers in the individual market would lose coverage due to higher out-of-pocket costs for lower-income residents, the administrative complexity of applying for and administering the new tax credits and the repeal of the individual mandate. In addition, there would be a relatively small number of people currently in employer-based insurance who would lose coverage due to the repeal of the employer mandate.

The individual market coverage losses are largest early on, and then decrease slightly over time, but coverage losses in Medicaid only increase over time. Thus in 2020 the newly uninsured consist of an equal number of New Jerseyans in Medicaid and the Marketplace – but by 2026 about two-thirds are from Medicaid.

Number of Uninsured Would Swell in All Congressional Districts

The House-passed health bill would hit all parts of New Jersey hard, with tens of thousands of residents losing coverage in every Congressional district. This is clearly not a partisan issue. In fact, on average, districts represented by Republican Congressmen would see a larger average percentage increase in the number of uninsured than districts represented by Democrats. Constituents represented by the only two members of New Jersey’s Congressional delegation who voted in favor of this bill – Congressmen Tom MacArthur and Rodney Frelinghuysen – would be particularly hard hit; these districts are two of three in the state with percentage increases in the uninsured above 100 percent.

One in 10 New Jersey Adults Would Lose Coverage Due to the Effective End of the Medicaid Expansion

About 562,000 New Jersey adults are enrolled in the Medicaid expansion. Most of these beneficiaries are working in – or live with someone working in – a low-paid job. Many are parents trying to support their children. And the AHCA would quickly result in virtually all of these New Jerseyans losing their health coverage.

Under the AHCA, someone on the Medicaid expansion in December 2019 would be allowed to stay enrolled at a 90 percent federal match starting in 2020 until they became ineligible. But the problem is that the income of Medicaid beneficiaries often changes due to fluctuations in their wages and hours. If a person earned a little more and became ineligible for the Medicaid expansion, the federal government would no longer provide the higher 90 percent match if he or she returned. The end result: Within just a few years, nearly all Medicaid expansion recipients (99 percent, according to the CBO) would have left the expansion population and would therefore no longer be matched at the higher rate.

The AHCA Shifts Billions in Federal Costs to New Jersey

The proposal passed by the House would cause New Jersey to lose $21 billion in federal funds for the Medicaid expansion over seven years, creating a health crisis in New Jersey and making the state’s budget crisis even worse. This problem would take effect quickly because of the rapid turnover in Medicaid-eligible workers. In the first year alone the state would lose about $1.4 billion in federal funds, which would increase to almost $4 billion dollars a year by 2026.

Currently the state relies on about a half billion dollars in savings each year from the Medicaid expansion to help balance the state budget.^[3] These savings include, for example, reduced state funding for charity care to hospitals and a lower state matching rate for adults who were previously covered under NJ FamilyCare. However the biggest problem would be caused by the likely loss of $21 billion in federal funds that the state uses to ensure about half a million residents have health care via the ACA’s Medicaid expansion.

Maintaining Medicaid Expansion Would Cost New Jersey Billions

The AHCA does not prohibit states to continue offering an expanded Medicaid, but it shifts a prohibitively large burden of the cost back to states. New Jersey would have to pony up 50 percent of the cost of new Medicaid expansion applicants starting in 2020, rather than the 10 percent it has to provide under the ACA.

This would cost the state $600 million in the first year; by 2026 New Jersey would be on the hook for $1.8 billion a year – a total of $9 billion over seven years starting in 2020 when the phase-out starts under the AHCA.

Continuing the Medicaid expansion would be more difficult for New Jersey than most other states. For one, it has one of the largest enrollments in the Medicaid expansion and the federal matching rate that would be available to New Jersey under the bill would be only 50 percent, the 42^nd lowest rate in the nation.^[4] And New Jersey is already in a state of near bankruptcy, with many other urgent and significant funding needs. Lastly, the state’s economy is expected to continue to lag behind the rest of the nation through 2025.^[5] For these reasons, this analysis assumes the state would be in no financial condition to continue the Medicaid expansion.

A Permanent Cap on Medicaid Would Threaten the Health of 1.6 Million New Jerseyans

New Jersey would also lose additional federal funding under the proposed Medicaid per capita cap. The bill would establish a dollar-amount cap on each person enrolled in Medicaid. The cap would be different for different types of enrollees (aged, disabled, children, adults, and adults in the Medicaid expansion) and it would be adjusted annually by the federal index for health services prices (CPI-Medical) for adults and children, and the same index plus one percentage point for seniors and people with disabilities. Given that the CBO projects that the index for health costs will increase on average by 3.7 percent annually from 2017 to 2026, compared to a 4.4 percent increase for Medicaid costs – it would guarantee savings to the federal government (and lost federal funds to the state) – which is the purpose of the cap.

Such a cap would affect everyone on Medicaid, especially seniors and people with disabilities because they represent about three quarters of Medicaid funding. Under a per capita cap model there is a disincentive to reduce eligibility because the federal funding follows the individual.

Therefore the most likely scenario is that there would be a major decrease in the reimbursement rate for most services, making them inaccessible to thousands of New Jerseyans – and reimbursement for some services could be eliminated entirely. This would dramatically affect thousands of Medicaid providers who would see a sharp decrease in revenue, especially New Jersey’s hospitals, which already have had their state and federal charity care funds cut by over half. This is another area where New Jersey would fare worse than most other states because its current reimbursement rates are already so low. For example, New Jersey’s rate to physicians for all services is less than half what Medicare pays, ranking the state 49^th lowest nationally.^[6]

This report does not include an estimate for the federal funding loss that would result from a per capita cap because it would likely underestimate the impact. That is because once a cap is established in Medicaid, it would be very easy for Congress to reduce it at any point, which is the point. In fact, the President has already proposed reducing the caps in his budget even though the Medicaid per capita cap legislation hasn’t been enacted yet. Other federal entitlement programs that have had their funding capped have never recovered. Given that Medicaid is a $15 billion program that represents about 25 percent of New Jersey’s budget, even a slight decrease in the $10 billion in federal funding the state currently receives could have catastrophic implications for Medicaid and other state priorities.

Premium Tax Credits Would be Reduced by $7 Billion Over 10 Years

In addition to the loss of $21 billion in Medicaid over seven years, New Jerseyans purchasing insurance in the marketplace would lose about $16 billion in current premium tax credits over 10 years. That loss would be partially offset by a $9 billion increase in new tax credits starting in 2020, for a net decrease of $7 billion in premium tax credits. The main reason for the overall loss is the current tax credits – which are calculated to ensure that no one pays more than a certain share of their income on insurance – would be replaced with lower, flat credits based on age.

The AHCA’s credits are $2,000 for the youngest consumers and $4,000 for the oldest, and are gradually phased out starting at $75,000 annually for a single person and $150,000 for joint tax filers. That will mean that higher-income New Jerseyans would receive a premium credit for the first time but lower-income New Jerseyans who need assistance the most would see a major drop in their tax credits. On average, a person buying insurance in the marketplace would pay $3,600 more in out-of-pocket expenses under the bill.[7] What’s more, a consumer now is usually protected from any increases in insurance premiums as long as they select the marketplace’s standard (silver) plan, but under the AHCA the consumer pays for the full increase.

Eventually premiums would go down slightly, but only because more costs would be shifted to the consumer in out-of-pocket expenses. This would be especially true for older people because the bill allows insurers to charge them five times the amount for premiums than young people. A typical 60-year-old would pay $8,000 more for insurance; even taking into account tax credits they would be hit with an unaffordable 800 percent increase[8]

In addition, as a result of amendments that were adopted and sponsored by New Jersey’s own Congressman Tom MacArthur, states would be allowed to greatly increase premiums based on pre-existing conditions and to eliminate many essential benefits like hospitalization, maternity care and mental health or substance abuse treatment. This would shift even more out-of-pocket costs to the consumers Additional funding was added to Patient and State Stability Fund in the bill to help address these problems but it would not be nearly sufficient to offset the cost to consumers.[9]

To be conservative, this analysis assumes that New Jersey would not request these waivers. However, that would still be a distinct possibility. For one, prior to the ACA New Jersey allowed insurers to issue bare-bones health plans and deny treatment for pre-existing conditions for 12 months after enrolling. In addition there would be pressure on the state to apply for waivers if premiums increase to unacceptable levels. Furthermore, if New Jersey does not submit these waivers but other states do it could still affect New Jerseyans, because employers are free to base their benefits on what another state requires as long as the business has a site in that state.

Health Care Cuts Being Used to Free Up Money for Big Tax Cuts for Wealthy Americans

The Republican leadership in Congress has made it clear that federal savings from these cuts to health care would pay for big tax cuts for wealthy Americans. In New Jersey, the wealthiest 5 percent of households will receive a total of $13 billion in tax cuts over 10 years. The tax cuts are most concentrated at the very top, with the wealthiest 1 percent of New Jersey taxpayers receiving 73 percent of the tax cut. These taxpayers, with an average annual income of $2.9 million, would receive an average tax cut of $23,000 a year.^[10]

Proposal Would Disrupt New Jersey’s Economy and Cause the Loss of Thousands of Jobs

As might be expected, the loss of $28 billion in federal funds would seriously hurt the state’s economy. The $4.8 billion or so in federal funds New Jersey would be losing each year by 2026 would lead to a decrease of $6.6 billion in economic activity and the loss of 54,000 jobs.^[11] That’s because federal funds, which come from outside the state, have what economists call a “multiplier effect.” As the funds make their way through the economy, they increase economic activity. For example, a nurse is hired, and he or she now has the income to buy a house or something else, which also generates additional economic activity and jobs.

Methodology

Increase in the uninsured

It was estimated that about two-thirds of everyone losing Medicaid due to the phase-out of the Medicaid expansion would not be able to secure alternative health insurance and therefore would become uninsured. This estimate was adjusted for each year based on the CBO estimate nationally. It was conservatively assumed that enrollment in the Medicaid expansion would not increase over the period studied consistent with recent enrollment rates.

To determine the number of the uninsured as result of changes in the marketplace, it was estimated that half of everyone in the marketplace with a subsidy would become permanently uninsured leaving about 100,000 New Jerseyans uninsured by 2026. To determine the number of uninsured in each prior year, the CBO national rates were used.

To calculate the number of uninsured due to changes in employment based insurance, New Jersey’s share of the US population was applied towards the CBO national estimates for the uninsured due to the loss of this insurance.

To determine the number of persons who would have been uninsured under the ACA, New Jersey’s number of uninsured for 2015 based on the 2015 American Community Survey was adjusted in subsequent years according to CBO national projections. To calculate New Jersey’s total population, the American Community Survey data for 2015 was adjusted based on its historical increase in the state’s population. The final uninsurance rate due to AHCA was calculated by dividing the total new uninsured each year by the state’s projected population under age 65 each year.

Lost federal funding

2017 New Jersey federal Medicaid funds were adjusted each year based on the state’s historical increases in per capita costs in the Medicaid expansion to determine the projected federal funds under the ACA (baseline) in New Jersey. These amounts were reduced based on the CBO attrition estimates nationally. The baseline was subtracted from the projected federal funds under AHCA to calculate the loss in federal funds each year. Unlike the CBO national estimate, it was assumed that the federal funding loss would not start until 2020 since there is no cost sharing in Medicaid in New Jersey and there is no incentive for enrollees to leave earlier. To calculate lost federal funds in the marketplace, New Jersey’s share of the national marketplace enrollees was applied to the CBO national estimates for the federal premium tax credit savings.

Congressional district impact

Each Congressional District’s share of Medicaid expansion enrollees as estimated by the NJ Division of Medical Assistance and Hospitals and share of marketplace enrollees as estimated in the 2015 American Community Survey for New Jersey was applied to the statewide estimates above.

Endnotes

[1] Congressional Budget Office, H.R. 1628, American Health Care Act of 2017 As passed by the House of Representatives on May 4, 2017, May 2017.

[2] Center on Budget and Policy Priorities, People Losing Medicaid Under House Republican Bill Would Face High Barriers to Coverage, June 2017.

[3] NJ Department of Human Services, Responses to OLS Questions on Governor’s FY2018 Budget, 2017.

[4] Kaiser Family Foundation, Federal Medical Assistance Percentage (FMAP) for Medicaid and Multiplier.

[5] Rutgers University, R/ECON: NJ’s Economy Will Continue to Lag the Nation’s Through 2025 While Undergoing Structural Changes, 2017.

[6] Kaiser Family Foundation, Medicaid-to-Medicare Fee Index, 2014.

[7] Center on Budget and Policy Priorities, House-Passed Health Bill Cannot Be Fixed, May 2017.

[8] Ibid 7

[9] New Jersey Policy Perspective, New Jerseyans with Pre-Existing Conditions Remain at Risk, May 2017.

[10] Institute on Taxation and Economic Policy, Affordable Care Act Repeal Includes a $31 Billion Tax Cut for a Handful of the Wealthiest Taxpayers: 50-State Breakdown, March 2017.

[11] NJPP analysis of economic model in Families USA, New Jersey’s Economy Will Benefit from Expanding Medicaid, February 2013.

Fairly and Adequately Taxing Inherited Wealth Will Fight Inequality & Provide Essential Resources for All New Jerseyans

Posted on June 14, 2017October 10, 2020 by Sheila Reynertson

To read this report as a PDF, click here.

As wealth and income gaps between average New Jerseyans and the state’s wealthiest households continue to grow, policymakers must take steps to address this extreme inequality. One of the most effective ways to do so is to restore fair and adequate taxation of inherited wealth. This targeted tax policy can help close the wealth gap in the long run by facilitating crucial investments that can boost all New Jersey families – not just those that pass millions of dollars down from one generation to the next.

Decades of uneven income and wealth growth have put the wealthiest residents miles ahead of everyone else. This has made it harder for most families striving to get ahead and put a strain on future economic growth. In fact, these widening disparities have been responsible for having depressed U.S. economic growth by more than 20 percentage points from 1990 to 2010.^[1]

And New Jersey is among the states where this trend is most pronounced.

New Jersey has the seventh widest income gap in the country, with the wealthiest 5 percent of households earning an average of 16 times more than the poorest 20 percent, and an average of five times more than the middle 20 percent.^[2] And these figures significantly understate the disparity, because they don’t include income from capital gains – which go disproportionately to the richest households.

The income of the richest 1 percent of households in the Garden State grew 190 percent between 1979 and 2013, while everybody else’s income grew just 20 percent. A lopsided gain on that scale hasn’t been seen in New Jersey since the Gilded Age in the 1920s.

One of the most effective ways to promote widespread prosperity is to tax inherited wealth. For decades New Jersey has done just that by levying both an estate tax and an inheritance tax and using the revenue for assets like public colleges, safe communities and health care that benefit everyone.

Currently, 18 states plus D.C. levy either an estate tax, an inheritance tax or both. States that tax inherited wealth include – not surprisingly – most of the country’s wealthiest states. In fact, 4 of the 5 states with the highest median household income, and 4 of the 5 with the highest share of millionaire households, tax inherited wealth.^[3] And 15 of the 18 states have a higher median household income than the country as a whole.

In New Jersey, very few heirs pay these taxes on inherited wealth: about 5 percent of heirs pay the estate tax, and about 5 percent pay the inheritance tax – and many pay both, so overall fewer than 10 percent of heirs pay these taxes.

The estate tax is paid by estates based on the net value of its assets on the day of the death; the inheritance tax is paid by individuals who receive gifts from estates. Together, these taxes bring in more than half-billion dollars in annual revenue and have been a reliable, even growing, source of funding for New Jersey. Last year they brought in nearly $770 million – a 51 percent increase since 2002.^[4]

Some 300 estates – the very largest, with taxable assets over $3 million – pay 39 percent of estate and inheritance taxes in a given year.

However, New Jersey’s estate tax is on course to be fully repealed on January 1, 2018, giving a spectacular tax break to a few thousand of New Jersey’s wealthiest families and significantly reducing the state’s capacity to make investments benefitting all New Jerseyans. Policymakers should reverse course by restoring fair and adequate taxation of inherited wealth by either bringing back the estate tax, reforming the inheritance tax or some combination of both.

Restoring New Jersey’s Estate Tax

For decades, New Jersey’s estate tax has been paid by heirs of estates worth over $675,000, with tiered tax rates topping out at 16 percent. Just 4 to 5 percent of estates – those of New Jersey’s wealthiest households – are large enough to owe any estate tax. Nothing passed on to a surviving spouse, civil union partner or domestic partner is subject to the estate tax. And the amount of estate tax owed is reduced by any New Jersey inheritance tax paid, ensuring that inherited wealth is not taxed twice.

Once the estate tax is fully repealed, the state will lose about $500 million a year, greatly reducing the state’s ability to make crucial investments while further enriching the heirs of New Jersey’s wealthiest families.^[5]

It’s from those inheriting extreme amounts of wealth that the estate tax collects the bulk of its dollars. In fact, the largest 4 percent of estates make up 43 percent of the tax paid, while the smallest 37 percent of estates make up just 7 percent. Eliminating this tax gives those inheriting estates worth more than $5 million a tax break averaging a whopping $1.1 million – a reduction 51 times larger than the break for those inheriting estates with taxable assets between $675,000 and $1 million.

By restoring the estate tax with a higher threshold, New Jersey could regain the lion’s share of estate tax revenue it has collected while ensuring that the wealthiest heirs pay their fair share. For example, reinstating the tax on estates worth more than $1 million would recoup 93 percent of the tax revenue, preserving an estimated $5.6 billion over the next decade – dollars that are sorely needed to meet the needs of all New Jersey families and invest in the building blocks of a strong economy.

That would put New Jersey back on the map with other wealthy states and neighboring states that tax inherited wealth.

Strengthening New Jersey’s Inheritance Tax

New Jersey is one of six states that collect an inheritance tax. Established in 1892, this tax is levied on inheritances over $25,000 for some relatives and on inheritances worth over $500 for estates inherited by non-relatives. The tax rate now ranges between 11 and 16 percent depending on the relation to the decedent and size of the estate. Most close relatives are exempt, as are charitable donations. Over 5,000 estates are subject to the tax per year bringing in between $300 million and $400 million per year.

While lawmakers eliminated the estate tax last year, they left the inheritance tax in place. If New Jersey is to depend on the inheritance tax as its only source of taxation of inherited wealth, then policymakers must reform it to make it fairer and more adequate.

Currently, bequests exceeding $25,000 are taxed at 11 to 16 percent, depending on the gift’s value. This applies to siblings (including half brothers and sisters), the spouse, widow or widower of the decedent’s child, and the surviving civil union partner of the decedent’s child. These beneficiaries make up 30 percent of inheritance tax filers and bring in 20 percent of the revenue.

The bulk of the inheritance tax is paid by a class of non-exempt beneficiaries that includes aunts and uncles, nieces and nephews, cousins and other heirs. These include out-of-state beneficiaries as the tax is applied to the deceased person who lived in, or had property in, New Jersey. They pay 15 percent on the first $500 to $700,000 they receive and 16 percent on anything above that amount. These filers pay about 80 percent of all the inheritance tax revenue.^[6]

The most effective way to reform the inheritance tax would be to expand the types of heirs required to pay the tax. Bringing the exemptions to the inheritance tax in line with those who are exempt from the estate tax – namely ensuring that a spouse or domestic partner of the deceased remains exempt – would increase the amount of revenue collected by this tax. This means family members like descendants, parents and grandparents would be required to pay inheritance tax.

In addition to expanding the universe of those who are subject to the tax, lawmakers ought to reform the inheritance tax to ensure that only New Jersey’s wealthiest heirs pay the tax. Creating a exemption up to $1 million would keep this tax fair and help guard against concentrated wealth.

Lawmakers should also explore tweaking – and simplifying – the inheritance tax rates. Currently the top rate of 16 percent kicks in at $1.7 million for some heirs, and $700,000 for others. If no tax was levied on estates under $1 million, adopting a simplified bracket system with progressively higher rates at each million-dollar mark and ranging from 11 to 20 percent would be sensible.

Taxing Inherited Wealth Has Little Impact on Retiree Interstate Moves

Despite stories to the contrary, there is no credible evidence to support the claim that New Jersey’s elderly residents are fleeing taxes on inherited wealth by moving to lower-tax or no-tax states. In fact, the annual revenue collected from the estate and inheritance taxes has been consistently reliable – and growing. Any revenue loss from wealthy retirees choosing to leave the state to avoid these taxes hardly compares to the significant revenue raised by them.

In the most rigorous study on the effect of estate taxes on interstate moves to date, the patterns of state-to-state movement among American elderly have remained relatively consistent over time, even as state tax policies toward the elderly changed significantly across states.^[7] In other words, if older people who leave New Jersey are heading to popular retiree destinations regardless of tax policy, there is no reason to offer them tax breaks in the hopes that they will stay.

Endnotes

^[1] The Organisation for Economic Co-operation and Development, Trends in Income Inequality and its Impact on Economic Growth, December 2014.

^[2] Center on Budget and Policy Priorities and Economic Policy Institute, How State Tax Policies Can Stop Increasing Inequality and Start Reducing It, December 2016.

^[3] Five highest median household income states taken from U.S. Census American Community Survey, 2015. Five highest shares of millionaire households taken from Phoenix Marketing International, Millionaires By State Ranking, 2010-2016.

^[4] New Jersey Department of the Treasury, Comprehensive Annual Financial Reports, FY 2001 – FY 2015.

^[5] New Jersey Office of Legislative Services, Legislative Fiscal Estimate of A-12, October 2016.

^[6] For more details on who is exempt from the inheritance tax, visit www.state.nj.us/treasury/taxation/pdf/other_forms/inheritance/transferinheritanceclasses.pdf. For more details on the tax rates, visit http://www.state.nj.us/treasury/taxation/inheritance-estate/tax-rates.shtml

^[7] National Tax Journal, No Country for Old Men (Or Women): Do State Tax Policies Drive Away the Elderly?, June 2012.

Trump’s Budget Puts New Jerseyans of Color at Great Risk

Posted on June 2, 2017October 10, 2020 by Jon Whiten

To read a PDF version of this report, click here.

The spending plan unveiled last week by President Trump would cause great harm to New Jersey, damaging the state’s low-income and working-class families the most. Deep cuts to health care, food assistance, aid for the disabled and more are paired with massive tax cuts for the wealthiest Americans, which will cause the widening gap between those doing very well and the rest of us to grow.

The proposal, which is also built on highly unrealistic growth projections, is an enormous cost shift from the federal government to states. As a result, the human cost will be most severe in states like New Jersey, where we already face chronic budget shortfalls and don’t have adequate resources to meet the needs of our residents.

And while all New Jerseyans are at risk under the President’s proposal, New Jerseyans of color stand to lose the most. Any cuts to programs that prevent, reduce or mitigate poverty are bound to disproportionately harm groups that experience higher rates of poverty.

In New Jersey as in other places, black and Hispanic residents face structural barriers to economic advancement – and are more than twice as likely as whites to live in poverty.

Cuts to Health Care

Medicaid – targeted for $600 billion in cuts over 10 years in the budget proposal, on top of the over $800 billion in cuts included in the version of the American Health Care Act passed by the House – currently provides health coverage to 1.8 million New Jerseyans.[1]

Of all current Medicaid recipients, nearly half (47 percent, or 852,000 people) are 18 years old or younger. And a majority of those who benefit from Medicaid (65 percent) are people of color.[2]

Cuts to Food Assistance

The Supplemental Nutrition Assistance Program (SNAP) – targeted for nearly $200 billion in cuts over 10 years – helped about 880,000 New Jerseyans in 441,000 households last year. Nearly three in four of those households included a child or an elderly or disabled family member.[3] And a majority of SNAP households (70 percent) are headed by a person of color.[4]

SNAP kept 155,000 people out of poverty in New Jersey, including 77,000 children, per year between 2009 and 2012, on average.^[5] Trump’s budget would cut funding for SNAP in New Jersey by an estimated $2.1 billion over 10 years.[6]

Cuts to Cash Assistance

Temporary Assistance for Needy Families (TANF), which provides cash assistance and other supports to the poorest New Jersey families and children, is targeted for $22 billion in federal cuts over 10 years in the President’s budget.[7] About 46,000 New Jerseyans currently receive crucial assistance through TANF[8]; the number has shrunk dramatically since the late 1990s due to stagnant federal funding – the result of the program being changed from an entitlement to a block grant.

Since then, due to inflation, the value of the funding in New Jersey has been cut in half. And since eligibility is based on the benefit level, as the real value of the benefit has shrunk so has the number of eligible New Jerseyans.

This has made it extremely difficult for the safety net to reach families in need and is one of the reasons why about 90 percent of all children living in poverty in New Jersey receive no assistance from TANF. Only about 32,000 kids receive cash assistance today, compared to 316,000 in 1995.^[9] Of the New Jersey kids receiving assistance, an overwhelming majority (85 percent) are children of color.

Any further federal funding decrease would decimate this program – particularly in states like New Jersey, which hasn’t put up any state money to increase benefit levels for 30 years. Trump’s budget would cut New Jersey funding for TANF by an estimated 10 percent, or $39 million a year.

Cuts to Heating Assistance

About 275,000 New Jersey households – of which seven in ten have either a young child, elderly person or an individual with a disability – get help paying heating bills each year from the Low Income Home Energy Assistance Program (LIHEAP).[10] This program – which brought about $127 million in federal funds to New Jersey in 2016[11] – is completely eliminated in President Trump’s proposed budget.

Of all the individuals that benefit from LIHEAP, a majority (an estimated 69 percent) are people of color.[12]

Cuts to Rental Assistance

A total of 304,000 New Jerseyans in 154,000 households rely on rental assistance from a slew of programs administered by the federal Department of Housing and Urban Development (HUD).^[13] Overall, HUD programs are subject to an immediate 15 percent cut in President Trump’s budget proposal, including a 29 percent cut to public housing funding and a complete elimination of the HOME, Community Development Block Grant and Choice Neighborhoods programs that provide aid to poor communities.^[14]

About one in three of these households includes a child under 18, and 61 percent include either a head of household or spouse who is elderly or disabled. Of the remaining 39 percent of households, most (64 percent) include at least one member who is working. And of all households receiving rental assistance, nearly three in four are headed by people of color.[15]

Trump’s budget would cut federal funds that come to New Jersey for public housing, the HOME program and the Community Development Block Grant program by $171 million in the first year alone.^[16]

Endnotes

[1] According to administrative data from U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, February 2017.

[2] U.S. Census Bureau American Community Survey data, 2015 1-Year Estimates.

[3] U.S. Department of Agriculture 2015 SNAP household characteristics data

[4] Ibid 2

[5] Center on Budget and Policy Priorities, A Closer Look at Who Benefits from SNAP: State-by-State Fact Sheets, January 2017.

[6] Center on Budget and Policy Priorities, President’s Budget Would Shift Substantial Costs to States and Cut Food Assistance for Millions, May 2017.

[7] Center on Budget and Policy Priorities, Trump Budget Gets Three-Fifths of Its Cuts From Programs for Low- and Moderate-Income People, May 2017.

[8] New Jersey Department of Human Services, Division of Family Development Current Program Statistics, March 2017.

[9] New Jersey Policy Perspective, Fast Facts: Poorest New Jersey Children Continue to Suffer from Inadequate Assistance, May 2017.

[10] NJ Shares, May 2017 Newsletter.

[11] U.S. Department of Health and Human Services, 2016 Third Release of LIHEAP Block Grant Funds to States and Territories, Consolidated Appropriations Act, 2016.

[12] Center on Budget and Policy Priorities analysis of U.S. Census Bureau data from the Current Population Survey, March 2014-March 2016.

[13] Programs and funding streams covered in this calculation: public housing, Section 8 Housing Choice Vouchers, Section 8 Project-Based Rental Assistance, Supportive Housing for the Elderly and People with Disabilities, Rental Supplement, and Rental Assistance Program

[14] Center on Budget and Policy Priorities, Trump Budget Would Increase Homelessness and Hardship in Every State, End Federal Role in Community Development, May 2017.

[15] Center on Budget and Policy Priorities tabulation of Department of Housing and Urban Development (HUD) 2016 administrative data.

[16] Ibid 14

How a ‘Tiered Reimbursement’ System Could Improve Child Care in New Jersey

Posted on May 31, 2017October 10, 2020 by Sheila Reynertson

By Sheila Reynertson and Shekeima A. Dockery

To read a PDF version of this report, click here.

One of the most important ways to improve the wellbeing and economic potential of New Jersey’s children is to enhance the quality of learning and care in the state’s early childhood education and care programs. An effective way to encourage the delivery of high-quality child care in New Jersey is to reimburse higher-quality providers at higher rates. This report describes the characteristics of such a “tiered reimbursement system” and estimates the investment that would be required to make it a success in the Garden State.

Funding New Jersey’s Early Childhood Education and Care System

New Jersey appropriates over $1 billion a year on day care and preschool services for children across the state.[1] In the 2016 budget year, New Jersey appropriated about $1.3 billion through two avenues.

Approximately $580 million of this funding was directed through the Department of Human Services for child care subsidies. Subsidies serve low-income New Jersey families, including those who are current or recent Temporary Assistance for Needy Families (TANF) recipients and those with children participating in child care services in the 31 “Abbott” school districts.[2]

The rest of the money was directed through the Department of Education, and included preschool aid for districts that received special early learning funding and funding for other early childhood education programming.

The $1.3 billion does not include smaller chunks of early childhood funding provided through four departments: the Department of Health, which directs some child care funds toward children who may face abuse; the Department of Children and Families, which directs funding toward children who may have developmental disabilities; the Department of Agriculture, which contributes funds to providing food for children attending care centers; and the Department of Environmental Protection, which reserves some funds so that child care centers can address hazardous waste on their sites.[3]

But even after excluding these funds, we assume that our figure of $1.3 billion is an overestimation of dollars that go to early childhood care. New Jersey’s Office of Management and Budget and individual departments don’t universally break down child care by age and, in some programs, child care funds can be used for individuals up to 19 years old.^[4]

A Closer Look at Subsidies

A portion of the funds used to support the child care assistance subsidies are federal dollars allocated through the Child Care Development Block Grant. Most recently reauthorized in 2014, the grant helps states give low-income families the resources they need to obtain child care and return to the workforce.[5] States add local dollars to the federal money to pay providers who accept children from qualifying low-income families.

To guarantee that low-income families using subsidies have access to high-quality care and encourage child care providers to improve their services, states have developed systems to rate and incentivize them. More specifically, states have been experimenting with reimbursing higher-quality providers at higher rates.[6]

These “tiered reimbursement systems” distinguish between different levels of child-provider quality as determined by a Quality Rating and Improvement System (QRIS). New Jersey has a QRIS – called Grow NJ Kids – but it has not been incorporated in statewide reimbursement standards. Currently, the state operates a two-tiered reimbursement model using a simple metric – accreditation status. Providers who meet certain basic standards set by the accrediting entity are paid 5 percent more than providers who do not. (For more on Grow NJ Kids, visit www.grownjkids.com.)

Determining Quality Through a QRIS

There has long been consensus in the education community that high-quality early childhood care can have life-changing effects for children – particularly low-income kids.[7] However, determining quality of care can be difficult. A QRIS addresses the difficulties by providing a standardized way to determine a provider’s quality and set them on a path to improve. The federal Administration for Children and Families identifies QRIS as having five components: clear standards, accompanying financial incentives, monitoring practices, support for program participants and consumer education. While these five elements remain consistent across different systems, the way that states carry them out vary.[8]

Most states use numbers in a QRIS to distinguish between provider status, with higher-quality providers receiving higher rankings. For instance, in Pennsylvania’s QRIS, level 4 providers are of higher quality than level 2 providers. To qualify rating levels, states use “blocks,” “points,” or combination models. In a blocks model, QRIS levels are standardized, and providers must meet all specified requirements for a given level before moving on to the next. In a points model, providers earn points for reaching certain standards, and quality levels are determined by the number of points received. In both models, variables determining levels and points are evidence-informed. Models adopted by individual states have varied widely in terms of variables measured, rigor of the data collected and data collection methods.[9]

It is important that the structure and underlying logic models of a QRIS are commonly validated and connected to core principles of child development. Publicly available QRIS ratings allow consumers to be informed about the quality of their provider choices, allow state or municipal leaders to be aware of the quality that providers – who sometimes receive government funding – are providing, and hold providers accountable for the work they do.^[10]

These systems were created using research supporting the importance of good child care. However, states’ evaluations are scarce and many have yielded ambiguous results.^[11] It is not clear that the evidence-informed systems necessarily create tangible outcomes. Research suggests that some validation studies with positive results may be lacking in rigor.[12] Uncertainties aside, experts have acknowledged that there is some correlation between positive child development and certain features that are commonly included in a QRIS. These features include teacher quality, use of research-informed curriculum and assessments, classroom time and class environment.

Reimbursement Tiers

To comply with the financial incentive component of QRIS utilization, some states have developed tiered reimbursement systems based on provider quality. In 2016, 38 states – including New Jersey, with its two-tiered system – had implemented such reimbursement strategies.^[13]

There is general agreement that the difference between tiered rates must be significant enough to encourage providers to improve and serve more families using subsidies.[14] However, there does not seem to be a consensus around an ideal rate schedule.[15]

A Georgetown University study found a significant correlation between states with substantial differences between rates for accredited care centers and the number of applications for accreditation. The study found a statistically significant increase in accreditation participation when the rate differential was at least 15 percent higher than the base rates.[16] If we assume that these findings are applicable to systems with multiple tiers, New Jersey should consider a tiered reimbursement system with rate differentials of at least 15 percent.

Base Rates

The base rate of any proposed tiered reimbursement system should be robust enough so that providers can offer adequate services and pay fair wages.

The guidelines set by the federal Administration for Children and Families provide some guidance on how states can determine that value. They suggest that states perform a market study of child care costs and reimburse providers at the 75^th percentile of that market rate to allow subsidy program participants to have a wide range of provider choice.^[17]

As of 2016, most states use base reimbursement rates below the 75^th percentile of the market rate and differentiate reimbursement rates along with age group and type of facility.[18] And New Jersey is no exception: the reimbursement rate for infants is at the 19^th percentile of the market rate,^[19] and the rate for preschoolers falls 41 percent below the 75^th percentile – the second largest gap in the nation, after Missouri’s gap of 42 percent.^[20]

The market rate need not be the only factor of consideration when determining appropriate base reimbursement rates. There is not widespread consensus on the cost of child care, but New Jersey could consider using existing cost estimates. A now 15-year-old estimate using national data determined that the yearly cost of high-quality preschool could range from about $7,000 to $12,000 per child.^[21] And a recent Advocates for Children of New Jersey report estimates that families pay between approximately $10,000 and $15,000 per year for child care.[22]

A Fair and Effective Reimbursement Rate Schedule: Two Versions

Using the New Jersey Market Rate

The rate schedule below uses five rating levels like New Jersey’s existing QRIS – Grow NJ Kids – with Levels 1 and 2 as bases. The reimbursement rate estimated for the base levels is at the 75^th percentile of the New Jersey market rate as determined by the 2012 market rate survey. Each subsequent level has a reimbursement rate increase of 15 percent.

A recent report by Advocates for Children of New Jersey estimates the cost of care for the five levels of Grow NJ Kids to be slightly lower than the reimbursement estimates above. However, the figures above are compatible with their estimates of inflation-adjusted cost of tuition in New Jersey.[23]

Using the Abbott Districts as a Benchmark

New Jersey already has an existing framework to estimate the cost of providing high-quality child care. The services offered through the 31 Abbott district preschools are well standardized, monitored, widespread and grounded in child development research. What’s more, research using rigorous evaluation methods has determined that children attending Abbott preschools garner benefits that last well into their elementary school education.[24]

Using these districts as a benchmark, the estimated annual cost of high-quality preschool for private providers is $13,978 per child.^[25] Public providers in the Abbott districts with access to public resources have slightly lower average annual costs, at $11,993 per child. If New Jersey were to use these cost estimates, base monthly reimbursement rates for preschoolers would range from about $1,000 to $1,165, with each subsequent level increasing by 15 percent. (Estimates do not include the cost of grants and rewards.)

Looking to Other States: Three Case Studies

Pennsylvania, North Carolina and Delaware have had success in improving child care provider quality by tying together a QRIS and a tiered reimbursement system. While it is not possible to determine which parts of their systems are responsible for specific improvements without more rigorous evaluations, it is worth examining these three states’ systems.

Pennsylvania

In response to a pattern of eroding quality in early child care in the 1990s, Pennsylvania piloted its Keystone Standards Training/Professional Development Assistance Resources and Support (STARS) quality rating system. The Keystone STARS system was designed to rate the quality of providers, give them financial assistance and create opportunities for child care workers’ professional development. Keystone STARS implemented tiered reimbursement tied to provider quality in 2007.[26]

The STARS system distinguishes quality across four blocked tiers and rewards higher performing providers with daily reimbursement add-on rates that increase along with STAR designation or level.

Results from Keystone STAR evaluations show that the rating component may have a positive effect on provider quality and student performance. In 2006, researchers at the University of Pittsburgh found that providers participating in Keystone STARS were rated as being of higher quality than non-participants. Furthermore, they found participant facilities continued to improve on the STARS metrics once enrolled.[27]

Results of a later study from the Consortium for Policy Research in Education found that preschool-aged children attending STAR 3 and STAR 4 facilities performed modestly better than their peers in STAR 1 and STAR 2 facilities.[28] The Keystone STARS program was found to reverse the trend of decreasing provider quality. Similarly, reports from Pennsylvania’s Office of Child Development and Early Learning note that children receiving high-quality care reach key developmental milestones. A 2010 report noted that over 97 percent of preschool-aged children in STAR 3 and 4 facilities reached – or were on track to reach – their literacy, numerical and social benchmarks.[29]

North Carolina

North Carolina was among the first states to adopt a QRIS.[30] Unlike Pennsylvania, all licensed care facilities in the state must comply with the state’s 5-level Star Rated License system. Level 1 providers must meet the minimum requirements for licensure, and providers in levels 2 through 5 may voluntarily meet additional requirements.[31] There has not been an evaluation of North Carolina’s QRIS results, though the system was validated soon after its implementation.[32] Instead of performing a statewide market rate survey, the state determines market rate by county and provider quality level.

Worth noting is North Carolina’s robust, interconnected early child care system. In addition to a standard child subsidy program, the state operates a parallel program – Smart Start – that provides services including child care provider development and care subsidies for families.[33] It is a one-stop system that works with private funders, nonprofits and communities to provide wraparound services for children.[34]

Though the Smart Start program has not undergone a rigorous evaluation using randomization, it has shown promising results including an increase in access to child care for vulnerable populations and the quality of child care providers.[35] Children who attended Smart Start facilities were also found to be more prepared for kindergarten.[36]

Delaware

Implemented in 2007, the Delaware Stars for Early Success program uses a hybrid points and block model to determine child care provider quality across five levels. Providers voluntarily enter the program at STAR level 1 and move to level 2 after completing an orientation process. To reach levels 3 through 5, providers must obtain certain quality-related benchmarks as defined by the QRIS. [37] The state began to provide tiered reimbursement in 2011, but only to providers rated in the top three levels.[38]

A 2016 evaluation of the Delaware program found that there were only slight differences in child developmental outcomes between provider quality STAR ratings. Children participating in Star 5 programs outperformed children in Star 2 programs by a small margin in a key development indicator, but there was no definitive evidence that higher-rated providers created better outcomes for children than lower-rated providers.[39]

The Path Toward a Robust Tiered Reimbursement System

To successfully maintain a robust and effective QRIS system, New Jersey must give providers sufficient incentive, information and support to comply with the system and make quality improvements. At its core, a successful QRIS system must incorporate well-funded grant programs and easy-to-access professional development opportunities so that struggling providers can improve. The state must also monitor and evaluate participating providers while keeping the QRIS system updated with new research and findings. The most effective implementation of a QRIS and tiered reimbursement system can only happen with significant state investment.

Funding a robust tiered reimbursement system

Even with specific targets for reimbursement levels, it is difficult to make an appropriate estimate without more information. Current publicly available data does not disaggregate data between children receiving full-time care and those who are not. Therefore, the following estimate should not be seen as conclusive.

According to the 2018 state budget, New Jersey provided child care subsidies for 57,094 families in fiscal year 2016. A 2014 National Center for Children in Poverty (NCPP) profile determined that the average New Jersey family has 1.83 children.[40] Using these figures, and the average monthly cost of care using the non-Abbott rate schedule above, a robust tiered reimbursement system would require an annual $1.6 billion investment. The state could fund this system by increasing tax revenues or pursuing public-private partnerships.[41] Given the program costs, a public-private partnership may be a better option to successfully launch such an initiative using North Carolina’s Smart Start system as a model.

Addressing structural barriers to quality child care

When implementing a tiered reimbursement system, and ranking child care providers based on quality of care, policymakers must take extra care to ensure that these systems don’t perpetuate larger-scale structural barriers to quality child care by rewarding those who are already well-positioned to succeed.

In a progressive tiered reimbursement system, funds should be focused more toward centers that need support than those that are being rewarded for good performance. Grants and aid money should be generously given to providers that are lower quality. Rewards and further investments in high-quality providers should be limited and dispersed with consideration.
Child development is not the only important indicator. Throughout their evaluations, states used child developmental outcomes to understand the performance of their reimbursement systems and child care programs. While it is important that children have the support, they need to reach the appropriate developmental outcomes, it is equally important to remember that child care services should be beneficial for the complete wellbeing of children and their families. Child care should not be limited to education services, and instead should be robust and include, for example, health and wellness interventions. Furthermore, as families use child care services to free up the time of adults, it should be affordable and easily accessible. Access and depth of services provided should be included in any re-envisioning of New Jersey’s child care system.
Teacher diversity and cultural competence are important components of quality early child care and education. In quality programs, teachers who “look like” the children they serve foster learning environments that affirm children’s cultures, which can have a major effect on children’s school readiness.
Early child care is not the only child care. A focus on early childhood wellbeing is important as it can have long lasting impacts. However, older children are also in need of comprehensive care services.
Increased funding. Funding scarcity contributes to large-scale inequality. When we try to cut costs, we diminish service quality and availability for vulnerable populations. Any proposed investment in New Jersey’s child care system must avoid shifting funding from one area to another, and should aim to increase funding for all child care services for children ages 0-18. There is no doubt that New Jersey must invest considerably more in its child care system.

Endnotes

[1] This definition of child care refers only to the daily care services provided to children so that their guardians can work.

[2] For more on New Jersey’s Abbott districts, see Education Law Center, Abbott Overview, (Accessed May 30, 2017), http://www.edlawcenter.org/cases/abbott-v-burke/abbott-v.-burke-overview.html

[3] State of New Jersey, The Governor’s FY 2017 Budget: Detailed Budget, February 2016, http://www.nj.gov/treasury/omb/publications/17budget/pdf/FY17BudgetBook.pdf

^[4] New Jersey Department of Human Services, SFY 2014 Maximum Child Care Payment Rates, August 2014, http://www.state.nj.us/humanservices/dfd/programs/child/forms/sfy14_max_cc_pay_rates.pdf

[5] National Association for the Education of Young Children, Child Care and Development Block Grant, (Accessed May 30, 2017), https://www.naeyc.org/policy/federal/ccdbg

[6] National Women’s Law Center, Building Blocks: State Child Care Assistance Policies, 2015, https://nwlc.org/wp-content/uploads/2015/11/CC_RP_Building_Blocks_Assistance_Policies_2015.pdf

[7] Society for Research in Child Development, Investing in Our Future: The Evidence Base on Preschool Education, October 2013, https://www.fcd-us.org/the-evidence-base-on-preschool/

[8] U.S. Department of Health and Human Services, Administration for Children and Families, QRIS Resource Guide, (Accessed May 30, 2017), https://qrisguide.acf.hhs.gov/

[9] Early Childhood Research Quarterly, What Do Quality Rating Levels Mean? Examining the Implementation of QRIS Ratings to Inform Validation, 2015, http://www.sciencedirect.com/science/article/pii/S0885200614000878

^[10] Ibid at 9

^[11] Build Initiative, QRIS 3.0 Tools and Resources: Finance and Quality Rating and Improvement Systems, 2017, http://buildinitiative.org/Portals/0/Uploads/Documents/Resources/QRIS%203/FinanceQRIS.pdf

[12] RAND Education and RAND Labor and Population (Prepared for the Delaware Office of Early Learning), Validation Studies for Early Learning and Care Quality Rating and Improvement Systems: A Review of the Literature, May 2014, https://www.rand.org/content/dam/rand/pubs/working_papers/WR1000/WR1051/RAND_WR1051.pdf

^[13] Ibid at 6

[14] National Women’s Law Center and CLASP, A Count for Quality: Child Care Center Directors on Rating and Improvement Systems, 2014, http://www.clasp.org/resources-and-publications/files/ACountforQualityQRISReport.pdf

[15] Child Trends and Mathematica Policy Research (Prepared for Office of Planning, Research and Evaluation, Administration for Children and Families, Department of Health and Human Services), The Child Care Quality Rating System Assessment: Compendium of Quality Rating Systems and Evaluations, April 2010, https://www.acf.hhs.gov/sites/default/files/opre/qrs_compendium_final.pdf

[16] Foundation for Child Development, Money, Accreditation, and Child Care Center Quality: Working Paper Series, August 2000, http://files.eric.ed.gov/fulltext/ED446851.pdf

^[17] Ibid at 15

[18] Ibid at 6

^[19] New Jersey Department of Human Services, Division of Family Development, Office of Child Care, New Jersey Child Care Development Fund (CCDF) Plan with Conditional Approval Letter for FY 2016‐2018, June 2016, https://www.acf.hhs.gov/sites/default/files/occ/new_jersey_stplan_pdf_2016.pdf

^[20] Ibid at 6

^[21] National Conference of State Legislatures, Investing in Our Future: A Guide to Child Care Financing, June 2002, http://files.eric.ed.gov/fulltext/ED475674.pdf

[22] The range is $11,664-$14,962 for infants; $11,065-$14,062 for Toddlers; and $9,702-$11,937 for preschoolers. From Advocates for Children of New Jersey, Quality Cost How Much? Estimating the Cost of Quality Child Care in New Jersey, April 2017, http://acnj.org/downloads/2017_04_25_Quality%20Costs%20How%20Much_reduced.pdf

[23] Ibid at 22

[24] National Institute for Early Education Research Rutgers—The State University of New Jersey, Abbott Preschool Program Longitudinal Effects Study: Fifth Grade Follow-up, March 2013, http://nieer.org/wp-content/uploads/2013/11/APPLES205th20Grade.pdf

^[25] Clive Belfield and Health Schwartz, The Cost of High-Quality Pre-School Education in New Jersey, December 2007, http://files.eric.ed.gov/fulltext/ED504894.pdf

[26] Pennsylvania Department of Public Welfare, Office of Child Development and Early Learning, Keystone Stars Reaching Higher for Quality Early Learning: Program Report, 2010, https://www.pakeys.org/uploadedContent/Docs/STARS/outreach/2010%20STARS.rpt.final.pdf

[27] University of Pittsburgh Office of Child Development Pennsylvania State University Prevention Research Center, Evaluation of Pennsylvania’s Keystone STARS Quality Rating System in Child Care Settings, December 2006, http://www.pakeys.org/docs/Keystone%20STARS%20Evaluation.pdf

[28] Consortium for Policy Research in Education, An Inquiry into Pennsylvania’s Keystone STARS, November 2015, http://www.cpre.org/sites/default/files/stars_inquiry_report_1.6.16_final.pdf

[29] Ibid at 26

[30] Ibid at 12

[31] North Carolina Department of Health and Human Services, Child Development and Early Education, North Carolina Star Rated License System, (Accessed May 30, 2017), http://ncchildcare.nc.gov/parents/pr_sn2_ov_sr.asp

[32] Frank Porter Graham Child Development Center, University of North Carolina-Chapel Hill, Validating North Carolina’s 5-Star Child Care Licensing System, 2001, http://fpg.unc.edu/sites/fpg.unc.edu/files/resources/reports-and-policy-briefs/FPG_SmartStart_Validating-NC-CC-Licensing-System-February2001.pdf

[33] North Carolina Department of Health and Human Services, Child Development and Early Education, North Carolina Star Rated License System: FAQs, (Accessed May 30, 2017), http://ncchildcare.nc.gov/parents/pr_sn2_fafaq.asp; North Carolina Department of Health and Human Services, Child Development and Early Education, North Carolina Star Rated License System:Providers, (Accessed May 30, 2017), http://ncchildcare.nc.gov/providers/pv_providres.asp

[34] The North Carolina Partnership for Children, Inc., In Your Community, (Accessed May 30, 2017), http://www.smartstart.org/smart-start-in-your-community/

[35] The North Carolina Partnership for Children, Inc., North Carolina’s Smart Start: Implications for Public Policy, 2002 https://www.purdue.edu/hhs/hdfs/fii/wp-content/uploads/2015/07/s_wifis17c05.pdf

[36] Harvard Graduate School of Education, Harvard Family Research Project, North Carolina’s Smart Start Initiative: A Decade of Evaluation Lessons, 2004, http://www.hfrp.org/var/hfrp/storage/original/application/f2dd8f1de9603d4c6971851bf8c24ce5.pdf

[37] RAND Corporation, Evaluation of Delaware Stars for Early Success: Final Report, 2016, https://www.rand.org/pubs/research_reports/RR1426.html

[38] Delaware Department of Health and Social Services, Child Care and Development Fund (CCDF) Plan for State/Territory: Delaware, FFY 2016-2018, 2016, http://dhss.delaware.gov/dss/files/ccdfplan_ffy2016_2018.pdf

[39] Ibid at 37

[40] National Center for Children in Poverty, New Jersey Demographics for Low-Income Children (Calculated from the 2010-2014 American Community Survey), http://www.nccp.org/profiles/NJ_profile_6.html

[41] Pennsylvania Department of Education, Pennsylvania Build Initiative, Child Care Subsidy Rate Policy Task Force, Report of the Build Subsidized Child Care Rate Policy Task Force: Recommendations for Action, June 2004, http://files.eric.ed.gov/fulltext/ED517022.pdf

It’s Time for New Jersey to Rebalance the Economic-Development Scales

Posted on May 10, 2017October 10, 2020 by Jon Whiten

To read a PDF version of this report, click here.

Because of legislative changes made in 2013, New Jersey’s surge in corporate tax subsidies has risen to unprecedented levels, further cramping New Jersey’s ability to invest in schools, transportation and other areas known to be greater drivers of job creation.

This policy shift comes with an enormous financial reward to very few corporations and an enormous cost to Garden State taxpayers. But it doesn’t have to be this way. In fact, 10 key reforms – from forcing policymakers to actually pay for the tax breaks that happen on their watch to reducing the focus on retaining jobs that are already in New Jersey – could help rebalance the scales and ensure a more responsible approach to economic development in the Garden State.

An Unproven Strategy With Poor Results

Taxes play a minor part in business location decisions, and tax breaks – unlike investments in public assets like transportation or higher education – are not proven to grow a state’s economy.

It’s no mystery why that’s the case, considering that state and local taxes make up less than 5 percent of the cost of doing business.[1] In other words, while most large companies will gladly take a tax break, few will move to a location solely because of it. Other factors – like proximity to markets, a well-educated workforce and safe communities with high-quality schools and access to transportation – are far more important, according to surveys of executives from large corporations.[2]

Yet despite the fact that “economic activity is fairly unresponsive to changes in taxes,” as the Urban Institute notes, tax subsidies’ allure “can be overwhelming because they usually have a higher short-term political return than longer-term policies” and because of the fear of losing a major company to another state.[3] Researchers call this the “ribbon-cutting effect” – the unmistakable desire of political leaders to look like they are working hard to create jobs and grow the economy.

And most small businesses – particularly Main Street firms that form the bedrock of communities across the state – don’t benefit from subsidies at all. In fact, just 15 percent of small business owners have even accessed them, according to one recent survey. Not surprisingly, a third of respondents in that same survey said they have “little knowledge or experience” of or with these tax breaks, another 30 percent said these subsidies do “little for small businesses” and just 17 percent said they were “essential for job creation and economic growth.”[4]

In New Jersey, an increasing reliance on big-dollar tax breaks since 2010 has done little to significantly improve the state’s economy. On nearly every economic metric available, the state remains far behind neighboring states and the nation.

From 2014 to 2015, while an increasingly strong recovery helped American median household incomes grow by more than 5 percent, New Jersey’s household income barely grew at all, with anemic 0.3 percent growth that was the slowest in the nation.[5] When adjusted for inflation, New Jersey’s median household income in 2015 remained 6 percent lower than it was in 2007.[6]

Taking a broader look, more than 7 years after the recession’s official end, New Jersey has just 24,900 more jobs it did before the recession began. As of March 2017, New Jersey had the eighth slowest job growth (0.6 percent) since December 2007. For comparison, the nation as a whole has grown jobs by 5.4 percent during that same time, while the Northeast region – even including New Jersey – has posted growth of 4.6 percent.[7]

These trends have held even as New Jersey’s job growth has experienced a slight uptick: the state’s job growth since January 2010 has been the 11^th slowest in the nation, and its growth since the Economic Opportunity Act went into effect in December 2013 remains in the bottom third of the states (17^th slowest).

But these ineffective tax breaks aren’t just failing to grow the economy and a robust middle class in New Jersey. They are also making it harder to maintain and improve the state’s economy moving forward, by creating a damaging cycle of disinvestment that puts the state’s future at risk. Each dollar of subsidy New Jersey approves is a dollar it stands to lose in the coming years, making it even harder to restore key investments in the very things that corporations put at the top of the list when deciding where to locate their businesses.

Subsidy Programs Have Become Unaffordable

It’s been over three years since New Jersey began approving subsidies under the “Economic Opportunity Act of 2013,” which dramatically expanded these tax break offerings, made them more generous to corporations and removed key financial safeguards, including most ceilings on how much the state can spend on subsidies.

In the 41 months since the state Economic Development Authority (EDA) – which manages these programs – began approving subsidies under the new law, the volume awarded by New Jersey has skyrocketed, exacerbating an already surging reliance on these tax breaks since 2010.

Since December 2013 New Jersey has approved $5.3 billion in tax subsidies, bringing the total since January 2010 to $7.9 billion.[8] That’s more than six times as much as were awarded in the entire previous decade, when the state approved $1.2 billion.

And it’s not just the overall amount of subsidies that has exploded. These tax breaks have become far more lucrative to the corporations receiving them – and far more expensive to taxpayers – with the state giving up more and more tax dollars for each job a subsidy recipient creates or retains.

Post-overhaul, the cost per job is over $83,000, far higher than the $41,600 earlier this decade and more than five times higher than the cost of $16,427 in the 2000s.

And what’s worse, nearly half of these jobs – 45 percent in the “Economic Opportunity Act” era – were already here in New Jersey. This is because the tax breaks focus on retaining jobs that corporations threaten – often idly – to move to other states. The result is that New Jersey taxpayers are often footing the bill for profitable corporations to build new headquarters down the road from their current locations.

This was not always the case in New Jersey. In the 2000s, just 25 percent of these jobs were “retained” jobs; and in the 1996-1999 era, none were.

When one strips out these “retained jobs,” and focuses solely on the jobs that are new to New Jersey, the average taxpayer cost per job skyrockets to $152,119 since December 2013 – about double the cost earlier this decade ($77,054) and about seven times higher than the cost of $21,878 in the 2000s.

This surge in tax subsidies will create a long-term and growing drag on New Jersey’s economy, creating a significant problem that policymakers will have to grapple with for at least the next 15 years as the backlog of tax credits is paid out.

The tax breaks will cost New Jersey about $3.3 billion in fiscal years 2017 through 2021 alone, or an average of $668 million a year, according to Economic Development Authority (EDA) estimates.[9] And this is merely the tip of the iceberg in terms of the true long-term fiscal impact (see the recommendations for the shortcomings of these projections and how to improve them).

For a state that cannot meet its past and current obligations, that’s a dangerous amount of revenue that could be put to much better use by investing in the assets that, unlike tax breaks, are proven to grow New Jersey’s economy, like public colleges and transportation, or providing a stronger safety net for the growing numbers of working New Jersey families and children who are living in poverty.

And the negative impact on New Jersey’s finances is only going to grow after 2021, as more of the corporations who’ve been approved for tax breaks in recent years cash in. This natural lag time is the result of two factors: one, it generally takes a few years for approved projects to start delivering any jobs or capital investment and therefore receive any tax break; and two, most subsidy awards are over 10-year periods, which ensures that the revenue loss comes in smaller bites but lasts for a longer period of time. To wit: Of the $5.6 billion in future tax credits approved after the legislative overhaul, only $40.1 million – or less than 1 percent – has been redeemed to date, according to the EDA.[10]

What’s worse, despite the ballooning costs, only a narrow slice of New Jersey’s business community is granted such assistance – less than 300 of New Jersey’s approximately 200,000 businesses have received subsidies under the Economic Opportunity Act.[11] In other words, about two-tenths of 1 percent of New Jersey’s businesses have benefited from the tax shift that the subsidy programs create while the other 99-plus percent are left to make up for the revenue the state will lose.

Common-Sense Reforms Would Put Help New Jersey Back on Track

New Jersey’s policymakers need to control this surge in subsidies before more damage is done to the state’s economy and before the bills we’re passing on to future taxpayers become even larger. Reining in the use of tax breaks for large corporations would allow lawmakers to focus more on tried-and-true economic-development strategies like workforce development and job training; direct entrpreneurial assistance; and investments in public higher education and early education, or public transit – all of which offer much better return on the state’s investment than tax subsidies.[12]

While the Economic Opportunity Act expires in July 2019, there are immediate actions lawmakers should take to protect New Jersey’s future. One option is to simply move the law’s expiration date up, as a leading Republican lawmaker has proposed. Speaking to a reporter about her proposal to shift the expiration date to July 2017, Assemblywoman Amy Handlin rightly noted that “we need to fundamentally change the way we look at these kinds of initiatives if we’re going to keep some fiscal integrity in the state in future years.”[13]

Short of an early end to the programs, there are plenty of other ways New Jersey lawmakers can start to rebalance the economic-development scales.

Restore Spending Caps

Restoring spending caps on the total amount New Jersey can give in subsidies – not just how much a particular company can receive – would be a great victory for accountability and would increase the legislature’s key role in oversight. Caps – commonly applied before the 2013 overhaul – would prevent subsidy programs from growing beyond a predetermined amount without automatically attracting the attention of lawmakers. Currently, only one of New Jersey’s two subsidy programs has a cap (which has been increased twice through little-noticed bills); the other has no cap at all.

New Jersey should also create an annual cap on the amount of subsidies that can be approved. This helps prevent the program from hitting the overall cap earlier than expected and having it simply increased by legislators before the program expires, as it has in the past. New Jersey’s annual cap should follow the lead of Iowa’s, and be across all major tax subsidy programs administered by the Economic Development Authority.

Annual limits are “one of the strongest protections against surprise increases in tax incentive costs,” according to the Pew Charitable Trusts. Caps can be designed in different ways. In some states, subsidies are awarded on a first-come, first-served basis until a program runs out of money. This is typically how caps have worked in New Jersey. But there are other approaches too. In some states, all businesses seeking breaks apply at the same time, and the state chooses which will receive the subsidies and for how much. And in others, all subsidy-seekers that meet the basic program criteria are approved and receive a break, but the dollar value is prorated depending on how many other companies are approved.[14]

New Jersey should also consider implementing a lower dollars-per-job cap to avoid what’s often called “buffalo hunting” by economic development experts: spending lots of dollars on just a few companies and jobs. Sixteen subsidy programs in states from California to Oklahoma to Maryland impose a dollars-per-job cap of less than $10,000.[15] New Jersey’s current average award per job since December 2013 is close to $84,000 – and in Camden city, the subsidized jobs have a price tag of $276,000 each.

Mandate Better Reporting on Outcomes & Improve Evaluation

New Jersey has improved the information it provides to the public about state subsidies over the past few years, including producing annual reports on tax breaks and other tax expenditures since 2010, but a huge hole remains. The state also needs to honor a mandate to create a Unified Economic Development Budget, which is designed to provide more detailed information from all corporations receiving at least $100,000 in state subsidies, including how many jobs have been created, how much they pay, whether those jobs are full- or part-time and whether they include health coverage. The state Treasury Department has never produced this report, despite being required to do so by legislation passed in 2007.

After claiming for several years that it was in the works and would be forthcoming, Treasury changed course in 2014, telling the Office of Legislative Services that the report would require information that the state can’t share due to “agreements with the Internal Revenue Service respecting the safeguarding and sharing of confidential taxpayer information.”[16]

Legislation passed by the Assembly Budget Committee in October 2016 would make some important tweaks to the 2007 law, and – it appears – would allow Treasury to move forward with the production of this annual report. This bill current awaits a floor vote in the Assembly; it’s companion bill in the Senate is currently awaiting a hearing from the Budget and Appropriations Committee.[17]

Alternatively, the Economic Development Authority – which should have much of the information required by the statutorily-required report – should start producing a similar document each year on its own. Under pressure from advocates and lawmakers, the Authority has taken steps in this direction in the past year – but more robust reporting is still needed.[18]

In addition, New Jersey ought to create and sustain a robust, independent evaluation process to determine if these tax breaks are having the desired effect, or if they are falling short. The Garden State is one of 23 states identified as “trailing” when it comes to evaluating its subsidy programs, according to the Pew Charitable Trusts, which is widely recognized as the nation’s leading authority on evaluating tax breaks.

Despite making “billions of dollars in incentive commitments in recent years,” New Jersey “has not adopted a plan for regular evaluation of tax incentives,” Pew notes. While New Jersey has contracted with the Bloustein School at Rutgers University to undertake an evaluation of the state’s current subsidy offerings, Pew suggests more regular evaluation is required to “answer the questions that are most relevant [to the policy] debate, such as to what extent incentives influence business decisions as opposed to rewarding what companies would have done anyway, and how incentives are affecting net economic activity.”[19]

Last but not least, New Jersey lawmakers ought to require a more regular and longer-term forecasts of the budget impact of already-approved subsidies. Currently, the Economic Development Authority estimates the fiscal impact to the state for the current fiscal year and the next four, as part of the annual budget hearings process. (This forecast is the basis for the $3.3 billion in lost revenue figure cited earlier.)

First, this is a woefully short – and therefore incomplete – forecast, since nearly all approved tax breaks have a 10-year or even 20-year lifespan during which state revenue will be lost and since most projects receiving subsidies take a few years to come online and begin receiving their tax breaks. Second, this is in no way required by law; if the Office of Legislative Services decided to cease asking this question of the EDA, policymakers and the public would no longer get the information.

Lawmakers should require the EDA to provide 15-year forecasts, updated quarterly and posted on the EDA’s website. Alternately, the EDA should take the initiative and do this on its own. We recognize that the more years a forecast goes out, the less reliable the estimate is. But given the design of these tax breaks, the public and other interested parties deserve to know the best estimate of future revenue loss over the long term.

Fix the Net Benefits Test

Policymakers need to follow the lead of the Economic Development Authority and begin restoring some semblance of financial integrity to what’s known as the “net benefits test.” This is the statutory formula the EDA uses to estimate the economic benefits of any proposed tax break, using the number of proposed jobs, their promised wages and other factors. When designed properly, this is a basic taxpayer protection that ensures the state isn’t losing money on a subsidy deal. But in too many cases under the Economic Opportunity Act, the test offers little or no taxpayer protection.

Before 2013, to be approved for a tax break, most tax break projects had to deliver a benefit to the state of at least 110 percent – in other words, 10 percent more than the dollar value of the subsidy – over the same period (usually 15 years) that the company was committed to keeping the jobs in-state. If the corporation didn’t meet those promised obligations, it would receive less of a tax break, or none at all.

But under the Economic Opportunity Act, some projects receiving subsidies in Camden need only deliver a 100 percent benefit – in other words, break even – over 35 years. And the corporation is obligated to deliver the proposed jobs and economic activity for, at most, only 15 years. After that, it can move, slash its workforce, cut pay across the board, or threaten to move in order to receive yet another tax break – and the state would have no recourse to claw back any of the tax credits that had already been claimed. Moreover, think how far off projections made in 1982 about how business would be conducted and where by 2017 – think what besides driverless cars might be around the corner to affect how business everywhere is conducted.

As a result, when taken together, the 26 Grow New Jersey projects approved for Camden so far actually come with a risk to the state of losing $206 million, according to the EDA’s own internal numbers.[20] That stands in stark contrast to the “net benefit” of $777 million that is officially on the books and created by this implausible and unrealistic economic estimating formula.

And Camden isn’t the only area where a corporation could receive an incredibly lopsided benefit. In the four other cities the state considers to be most distressed – Atlantic City, Passaic, Paterson and Trenton – a project’s benefits must equal 110 percent of the tax break but are estimated over 30 years, which still creates a significant imbalance between taxpayer and corporate interests. So, an EDA-approved Atlantic City call center can collect $33 million in tax breaks over a 10 year period, shut its doors and move offshore after 15, with New Jersey taxpayers absorbing a $11 million loss and the state defenseless to do anything about it.

This winter, the EDA took an important step toward reducing risks by changing the rules of this “net benefits test.”[21]

Under the changes, which officially went into effect in April, the net benefits test would eliminate most – but not all – of the estimated economic benefits in the so-called “out years” (ie, the years when there is no guarantee a corporation will still be in New Jersey). And there is a window in which a corporation can ink an agreement with the EDA promising to stay beyond the official commitment period and still receive the larger subsidy. While this is not ideal, we are glad to see the proposed changes also include a clawback provision, by which the state can recoup some of the subsidy it’s already awarded if the corporation breaks a promise to stay beyond the official commitment period.

Tax break applicants will be subject to the new formula starting in July of this year. The change will not apply to the $1.5 billion in subsidized projects already approved in Camden.[22]

The EDA is to be applauded for its actions, but the real reform must come from the legislature and governor, as they write the law that governs these subsidies.

When it comes to this net benefits test, the legislature should follow the EDA’s lead and restore some fiscal responsibility and realism to the test. The easiest and most sensible way to do so would be to ensure that the net benefits test covers only the number of years the corporation is committed by statute to stay in the state, as legislation introduced by Assemblyman Troy Singleton would do.[23]

Eliminate, or Develop More Stringent Standards for, Subsidies for Existing Jobs

The practice of rewarding companies that threaten to leave New Jersey is short-sighted, as is the state’s increasing use of this “strategy.” Ideally, policymakers would eliminate state subsidies to “retain” existing jobs, but if they aren’t willing to take this common-sense step, they should at least develop more stringent standards that would limit subsidies for jobs supposedly at risk of being moved to another state.

One of the few positives of 2013’s subsidy overhaul was that it took a first step in this direction by finally treating retained jobs differently than new jobs. First, these jobs are now only eligible for 50 percent of the gross amount of tax credits that a new job at the same facility would be. Second, the number of jobs that must be retained for a company to be eligible for a subsidy is higher than the number of new jobs required at a firm that is relocating. For example, a company moving here from Connecticut must bring only 10 new jobs to qualify for a subsidy, while a company already here would have to keep 25 existing jobs to be eligible for the same award. (There are, however, loopholes that effectively eliminate any difference between new and existing jobs in certain situations.[24])

In addition, the Economic Development Authority adopted new regulations that would help ensure that professional-service jobs (accountants, attorneys and the like) and their support staff aren’t eligible to be deemed “at-risk” jobs.[25] This makes a lot of sense, because much like your local pizza parlor, accountants and other professionals with local customer bases and expertise about Jersey-centric laws and regulations aren’t going to leave New Jersey in pursuit of lower taxes in other states.

But policymakers should do more. They should build on this progress by placing a cap on the percentage of subsidy dollars that can go to existing jobs. Ideally, this cap would reflect the minimal economic growth created by retaining jobs, as well as the obvious fact that not all threats to leave the state are real – we suggest 10 percent of gross tax credits as a good place to start.

Other Reforms

New Jersey policymakers should also:

Put Subsidies in the State Budget: Approving a lucrative tax credit program for corporations is an easy choice for policymakers when they don’t have to appropriate any money and can point to their efforts as having done something to help the economy (even if that’s not the case). It needs to be a harder choice. Putting all of New Jersey’s subsidy programs into the budget process – even if only by making legislators specify the dollars to be spent on tax credit redemptions each year – would promote a better debate about the best ways to best to foster broad prosperity in New Jersey.

Restrict Corporations’ Ability to Redeem More in Credits Than They Owe in Taxes: New Jersey allows subsidy-receiving corporations to sell their tax credits to an entity that owes the state taxes. This enables the sellers to receive far more money in subsidies than they actually owe in taxes, which is overly generous and violates the spirit behind tax breaks. In New Jersey, businesses were approved to transfer or sell $247 million in tax credits between 2013 and 2016.[26] Some states are considering putting an end to this practice “as a way to keep costs under control,” according to the Pew Charitable Trusts.[27] In New Jersey, even nonprofit corporations – which are exempt from state corporate taxes to begin with – receive subsidies and boost their own revenues by selling those tax credits to taxpaying businesses. This practice should be ended, and soon. Barring corporations from selling excess tax credits is a common-sense step New Jersey policymakers should take to rein in excessive costs.

Ensure Fair Wages: A key positive provision of the Economic Opportunity Act of 2013 bill would have ensured that custodial, security and building maintenance workers on any project or development that received tax credits be paid no less than the prevailing wage for that industry or sector. Unfortunately, this was the only provision of the original legislation that the governor conditionally vetoed, and it never became a reality. As a result, New Jersey is at risk of subsidizing employers who offer unlivable wages related to many of these projects.

Prevent Extra Rewards for Known Federal Tax Dodgers: New Jersey should not allow corporations that take advantage of “inversions” – the tax-avoidance scheme of a larger U.S. corporation merging with a smaller foreign company to avoid U.S. taxes – to also receive state tax breaks. Under current law, the state is at risk of a double whammy: a company’s federal tax avoidance produces a lower state tax base, which is again reduced by generous tax breaks handed out by the Economic Development Authority. While New Jersey policymakers can’t change federal tax policy on inversions, they can take small but important steps to protect New Jersey’s tax base and limit the state’s rewards for bad corporate behavior.

Include Automatic Sunset Provisions:The Economic Opportunity Act rightly includes an automatic expiration – or sunset provision – for both active subsidy programs. This is important because it forces policymakers to reconsider the tax breaks to see if they are meeting their goals, rather than allowing the subsidies to continue without further examination. When considering future subsidy programs, the legislature should be sure to include this provision. Or, better yet, the state could adopt umbrella legislation that would place an automatic sunset on all subsidy programs.

Cooperate With, Rather Than Compete Against, New Jersey’s Neighbors: Instead of operating in a vacuum that ends at New Jersey’s borders, policymakers and leaders should develop a mutually beneficial subsidy policy with our neighboring states rather than competing with them to move jobs back and forth, as their colleagues in the Kansas City area are trying to do.[28] Doing so could allow the entire region to move forward with an economic-development strategy that would benefit all partners, rather than benefiting one state at the expense of another and doing nothing for the region as a whole.

Endnotes

[1] Good Jobs First and the Iowa Policy Project, Selling Snake Oil to the States, November 2012.

[2] See, for example, Area Development magazine’s annual survey of corporate executives. In 2016, “highway accessibility” (ie, location) and “availability of skilled labor” were ranked the top factors for site selection. “State and local tax incentives” and “corporate tax rate” were ranked fifth and sixth, respectively. http://www.areadevelopment.com/Corporate-Consultants-Survey-Results/Q1-2017/highway-accessibility-tops-list-Charles-Ruby-Deloitte-Tax.shtml

[3] Urban Institute, State Economic Development Strategies: A Discussion Framework, April 2017.

[4] Main Street Alliance, Voices of Main Street, October 2015.

[5] NJPP analysis of 2015 US Census Bureau American Community Survey data.

[6] New Jersey Policy Perspective, New Jersey’s Sluggish Recovery Hurting Working Families, September 2016.

[7] New Jersey Policy Perspective and Economic Policy Institute analysis of Bureau of Labor Statistics employment data.

[8] NJPP analysis of New Jersey Economic Development Authority public data, accessed via the EDA website’s “Incentives Activity Reports” in late April 2017. The data is up-to-date through the April 2017 EDA meeting.

[9] New Jersey Economic Development Authority, Response to Office of Legislative Services Questions in Fiscal Year 2018 Budget Hearings, May 2017.

[10] New Jersey Economic Development Authority, Completed and Certified Incentive Projects, April 2017.

[11] New Jersey had 194,184 firms in 2013, the most recent year for which data is available from the U.S. Census Bureau’s Statistics of U.S. Businesses. http://www.census.gov/programs-surveys/susb.html

[12] See W.E. Upjohn Institute for Employment Research, Cost-Effectiveness of Alternative Economic Development Policies (September 2009), Urban Institute, State Economic Development Strategies: A Discussion Framework (April 2017) and Good Jobs First, Smart Skills versus Mindless Megadeals, (September 2016).

[13] Politico New Jersey, GOP Lawmaker Aims to End Economic Incentives She Supported, February 2017.

[14] Pew Charitable Trusts, Reducing Budget Risks, December 2015.

[15] Good Jobs First, Smart Skills versus Mindless Megadeals, September 2016.

[16] New Jersey Office of Legislative Services, Treasury Department Response to Questions, May 2014.

[17] The bills in question are A-301 (http://www.njleg.state.nj.us/2016/Bills/A0500/301_R2.PDF) and S-2744 (http://www.njleg.state.nj.us/2016/Bills/S3000/2744_I1.PDF)

[18] New Jersey Policy Perspective, A Step in the Right Direction: EDA Adds Some Results to its Tax Subsidy Reporting, May 2015.

[19] Pew Charitable Trusts, How States Are Improving Tax Incentives for Jobs and Growth, May 2017.

[20] NJPP analysis of New Jersey Economic Development Authority “net benefits tests” for each Camden deal; obtained via the Open Public Records Act.

[21] New Jersey Register (Volume 49, Issue 8), Rule Adoptions – Economic Development Authority – Adopted Amendments: N.J.A.C. 19:31-18.3 and 18.10, April 2017.

[22] Ibid 9

[23] Assembly Bill Number 328, http://www.njleg.state.nj.us/2016/Bills/A0500/328_R1.PDF

[24] New Jersey Policy Perspective, New Jersey’s Subsidy Overhaul: One Step Forward, Five Steps Back, August 2013.

[25] New Jersey Register (Volume 49, Issue 1), Rule Adoptions – Economic Development Authority – Adopted Amendments: N.J.A.C. 19:31-18.3 Eligibility Criteria, January 2017.

[26] Ibid 9

[27] Ibid 14

[28] New Jersey Policy Perspective, Kansas & Missouri Work Towards Tax Subsidy Ceasefire, August 2016.

Raising the Minimum Wage to $15 by 2024 Would Boost the Pay of 1.2 Million New Jerseyans

Posted on May 1, 2017October 10, 2020 by Brandon McKoy

By Brandon McKoy, Policy Analyst, New Jersey Policy Perspective and David Cooper, Senior Economic Analyst, Economic Policy Institute

To read a PDF version of this report, click here.

Increasing the minimum wage to $15 an hour by 2024 would boost the pay of 1.2 million New Jersey workers – or 28 percent of the state’s workforce. The wage increase would help a diverse group of workers who aren’t paid enough to make ends meet, improving their chances of getting by – and, often, providing for their families – in high-cost New Jersey.^[1]

New Jersey’s current minimum wage of $8.44 an hour is woefully insufficient. At that level, a full-time single adult minimum-wage worker barely earns two-thirds of what it took to scrape by in the state in 2014, according to the United Way of New Jersey’s latest cost-of-living analysis.[2] For a household budget that’s slightly more sustainable (and includes modest amounts for higher-quality housing, transportation and some savings), a full-time single adult worker would’ve needed to earn $18.94 per hour – or $39,393 per year – in 2014.[3] While raising the wage to $15 is necessary, it’s important to note $15 in 2024 is equivalent to $12.46 in 2016 dollars,[4] showing a significant erosion of value as the wage slowly phases in.

Last week, the Raise the Wage Act of 2017 – which would increase the federal minimum wage to $15 by 2024 – was introduced by Senators Bernie Sanders and Patty Murray, and Representatives Keith Ellison and Bobby Scott. The 1.2 million New Jersey workers helped by this bill include 688,000 who would be directly affected by the increase and 481,000 who would be indirectly affected (these are workers who earn as much as 15 percent more than the new minimum wage and would likely see their pay increase as well).

Over the phase-in period of the increases, the rising wage floor would generate $4 billion in additional wages, which would ripple out to the families of these workers and New Jersey communities. Because lower-paid workers spend much of their extra earnings, this injection of wages would help stimulate the economy and spur greater business activity and job growth.

Younger workers and some disabled workers would also see a significant increase in their take home earnings as the bill phases out both the youth minimum wage – which allows employers to pay workers under 20 years of age a lower wage for their first 90 days of work – and the subminimum wage for workers with disabilities that allows some employers to pay disabled workers a lower wage.

The bill would raise the minimum wage in eight steps until it reaches $15 in 2024. Then, starting in 2025, the minimum wage would be tied – or “indexed” – to the national median wage so that future adjustments would be based on growth in the median wage. The Raise the Wage Act of 2017 would also slowly increase the tipped minimum wage until it reaches the same level as the minimum wage for all other workers.

Endnotes

^[1] Economic Policy Institute analysis of 2016 Current Population Survey Outgoing Rotation Group microdata. Note: The total workforce is estimated from the CPS respondents who were 16 years old or older, employed, but not self-employed, and for whom a valid hourly wage is either reported or can be determined from weekly earnings and usual weekly hours. Directly affected workers would see their wages rise as the new minimum wage rate will exceed their current hourly pay. Indirectly affected workers have a wage rate just above the new minimum wage (between the new minimum wage and 115 percent of the new minimum). They would receive a raise as employer pay scales are adjusted upward to reflect the new minimum wage. For more on the methodology, visit http://www.epi.org/publication/15-by-2024-would-lift-wages-for-41-million/

[2] United Way of Northern New Jersey. 2016 ALICE Report. Fall 2016.

[3] NJPP Analysis of 2016 ALICE Report, calculating average of annual stability budget for single adult across all counties in New Jersey.

[4] Economic Policy Institute, Raising the minimum wage to $15 by 2024 would life wages for 41 million American workers, April 2017. Figure A.

MacArthur Amendment to American Health Care Act Would Cause Even More Harm to New Jersey

Posted on April 26, 2017October 10, 2020 by Raymond Castro

To read a PDF version of this report, click here.

Rep. Tom MacArthur of New Jersey’s 3rd Congressional District – the only member of the state’s Congressional delegation who supported the first iteration of the American Health Care Act – has now resurrected the bill with a new amendment that retains all the worst elements of the original plan to repeal and replace the Affordable Care Act and sharply reduces protections for pre-existing conditions and other health benefits.^[1]

New Jersey Still Harmed Much More Than Most Other States

Because the MacArthur amendment leaves most of the previous bill intact, in New Jersey the proposal would still cause:

About a half million New Jerseyans to lose their health insurance^[2]
The phase-out of the Medicaid expansion, which would eliminate coverage for 562,000 residents and sharply reduce federal funds for the state’s budget
Reduced health care for up to 1.8 million New Jersey seniors, people with disabilities and children due to a permanent cap on federal Medicaid funds that would reduce funding to New Jersey by 20 percent, the largest reduction in the nation
An average $2,740 increase in out-of-pocket health care costs for 250,000 residents who have purchased insurance through the Marketplace, which would end coverage for many of them^[3]
Increased income inequality due to major tax cuts for 164,000 of New Jersey’s highest income households, including millionaire and billionaire residents
The loss of tens of thousands of jobs with the loss of over $30 billion in federal funds over ten years
A major financial threat to New Jersey’s hospitals

Amendment Also Guts Protections for Pre-Existing Conditions

The MacArthur amendment to the bill poses an even greater threat to New Jersey because it eliminates key protections for people with pre-existing health conditions and marks a return to the highly-flawed, discriminatory pre-ACA individual insurance market.

In practice, the amendment means that millions of people with pre-existing conditions could no longer afford coverage, women would likely be charged more than men for insurance, and plans could once again come with annual and lifetime limits on coverage – violating promises President Trump and many Republican legislators have repeatedly made to maintain these protections.

In New Jersey, there are an estimated 3.8 million non-elderly residents with pre-existing conditions. These New Jerseyans are found throughout the state, with hundreds of thousands in every Congressional District – including 307,100 in Rep. MacArthur’s district alone. In fact, a slightly higher share of Garden State residents in districts with Republican representatives (52.4 percent) have pre-existing health conditions than residents in districts with Democratic representatives (51.1 percent).^[4]

Of these 3.8 million New Jerseyans, nearly half a million (476,800) are children – that means about one of every four Garden State kids (24 percent) have a pre-existing condition.

High-Risk Pools Haven’t Worked in New Jersey or Other States

Dropping these protections for people with pre-existing conditions would lead to exorbitant premium increases for many New Jerseyans. The MacArthur amendment proposes the establishment of a federal or state high-risk insurance pools – which combine the sickest people and provide a public subsidy to the insurer to partially reduce cost sharing – to address this problem. But in reality, these pools would do little to help.

The experience of many states shows that these pools frequently do not work, and often allow the sickest people to fall through the cracks. These pools have come with enrollment caps, long waiting lists, unaffordable premiums, exclusions for pre-existing conditions, high deductibles, benefit caps and annual and lifetime limits on coverage. Moreover, they covered only several hundred thousand people nationwide and weren’t sustainable over time because they pooled sick people with even sicker people.^[5]

High-risk insurance pools haven’t worked in New Jersey, either. In the first year of the ACA, the state created a pool (called NJ Protect) with the help of a $140 million federal grant. In the end, the pool ended up enrolling less than half of one percent of New Jerseyans who were estimated to be eligible (1,500 of 256,000 New Jerseyans)^[6].

And high-risk pools aren’t even intended to help people with many of the most common pre-existing conditions like asthma, hypertension, or depression. These New Jerseyans would be left to navigate the individual market, where insurers could once again charge them higher premiums, offer them subpar coverage or some combination.

Amendment Also Allows Waivers That Could Harm Millions

The other dangerous changes the MacArthur amendment makes are through the state waivers process: the proposal would allow states to move forward with potentially damaging waivers with practically no oversight. In fact, states would receive automatic approvals for these waivers within 90 days, just by attesting that their purpose is to lower premiums, improve coverage levels, or “advance another benefit to the public interest.”

The first type of waiver allowed under the amendment would allow states to opt out of the ACA’s “community rating” requirements – which prevent insurers from charging people higher insurance premiums based on their health – so long as they create or participate in a federal high-risk pool.

This means insurers could once again discriminate against people based on their medical history. Insurers could increase premiums without limits for anyone with a history of cancer, hypertension, asthma, depression or other conditions. While insurers would still be required to offer coverage, the so-called protection would be rendered meaningless since insurers could offer coverage with such arbitrarily high premiums that the effect would be to deny coverage outright.

The amendment would also allow states to waive the ACA’s “Essential Health Benefits” requirement that requires individual and small group market health plans to cover essential services like inpatient, outpatient and maternity care, prescription drugs, mental health and substance abuse treatment.

The result would be to effectively end protections for those with pre-existing conditions by allowing insurers to drop coverage for everything from cancer treatment to high-cost drugs. This would discourage more sickly persons with high-cost health problems from enrolling. So the more than 130 million Americans – including nearly 4 million New Jerseyans – with pre-existing conditions often wouldn’t be able to find individual market coverage that covers their needs at any price, much less an affordable one.^[7]

On top of that, waiving Essential Health Benefits would mean:

Women could again be charged more for coverage than men. While proponents claim that the MacArthur Amendment preserves the ACA’s ban on gender discrimination, eliminating Essential Health Benefit requirements means that women would have to pay more for plans that include maternity care and other key services – if they could find plans with those benefits at any price.

Plans could impose annual and lifetime limits on coverage – including for people who get health coverage through their jobs. The ACA prohibits plans from imposing annual or lifetime limits on coverage – but only on coverage for Essential Health Benefits. Plans can still impose annual or lifetime limits on services not classified as essential. If states are allowed to eliminate Essential Health Benefits standards, plans could once again impose coverage limits on anything from emergency services to inpatient care to prescription drugs.^[8] This would also effectively end the ACA’s cap on annual out-of-pocket costs, as that limit is based on the services that are covered by the plan.

Before the ACA, 3.3 million New Jerseyans with private health insurance – most of whom had employer-based plans – had policies that imposed lifetime limits on coverage. Repealing Essential Health Benefit requirements could mean going back to a time when millions of people with health coverage were one major illness away from medical bankruptcy.

Amendment Offers No Protections for People with Pre-Existing Conditions, Just Smoke and Mirrors

Despite Rep. MacArthur’s claim that his amendment maintains some protections for people with pre-existing conditions,^[9] in practice it clearly doesn’t.

Exorbitant premiums and coverage exclusions are no different than coverage denials. While insurers wouldn’t be allowed to deny coverage altogether to people with pre-existing conditions, they could offer plans that charge premiums of tens of thousands dollars per month and offer no coverage for hospitalizations, prescription drugs or various other basic health services.

Pre-existing condition protections would once again rely entirely on state options. While states could keep or impose protections if they choose, they have always had this option – but few exercised it prior to the ACA. And many states are likely to opt out if they can. Since the AHCA would sharply increase consumer costs by eliminating the individual mandate and slashing subsidies, states would be under substantial pressure to seek waivers.

High-risk pools are an inadequate substitute. High-risk pools have not worked in the past, and don’t even apply to people with the most common kinds of pre-existing conditions.

Endnotes

[1] The following is a summary of the amendment as reported by Politico: http://www.politico.com/f/?id=0000015b-8ab0-df96-a9db-dff115c30001

[2] New Jersey Policy Perspective, The ‘American Health Care Act’ Would Cause Nearly Half a Million New Jerseyans to Lose Health Coverage, March 2017.

[3] Center on Budget and Policy Priorities, House Republican Health Plan Would Mean More Uninsured, Costlier Coverage in New Jersey, April 2017.

[4] Center for American Progress, Number of Americans with Pre-Existing Conditions by Congressional District, April 2017.

[5] Kaiser Family Foundation, High-Risk Pools as Fallback for High-Cost Patients Require New Rules, January 2017.

[6] Rutgers Center for State Health Policy, Data for Planning a Temporary High Risk Health Insurance Pool In New Jersey, May 2010.

[7] Center on Budget and Policy Priorities, If “Essential Health Benefits” Standards Are Repealed, Health Plans Would Cover Little, March 2017.

[8] Brookings Institution, New Changes to Essential Benefits in GOP Health Bill Could Jeopardize Protections Against Catastrophic Costs, Even for People with Job-Based Coverage, March 2017.

[9] Rep. Tom MacArthur, About the MacArthur Amendment, April 2017.

The ‘American Health Care Act’ Would Cause Nearly Half a Million New Jerseyans to Lose Health Coverage

Posted on March 21, 2017October 10, 2020 by Raymond Castro

To read a PDF version of this report, click here.

As House Republicans rush to “repeal and replace” the Affordable Care Act (ACA), it has become clearer how much their proposal would harm New Jersey. The non-partisan Congressional Budget Office analysis of the American Health Care Act projects a major increase in the number of uninsured Americans, deep cuts to Medicaid, higher insurance premiums and tax cuts for the wealthy and corporations.

The best way to understand the American Health Care Act is to see it as a vehicle to shift income from working and poor families to the wealthy and as part of the plan to shift federal spending from a broad range of domestic services to the military budget.

In fact, the proposed cuts in the Medicaid expansion and the marketplace alone would reduce or eliminate health coverage for millions, including half a million New Jerseyans in just the next three years. Meanwhile, 250 New Jersey millionaires would see their federal taxes reduced by an average of $57,000 a year – a $14 million break, all told – while thousands of low- and middle-income New Jerseyans would face 30 percent tax hikes as support for their health care premiums would shrink or disappear.

Republicans are doing more than replacing the ACA with this legislation: Their plan is to enact a radical agenda that will dramatically change how Medicaid is funded, with the eventual result of big cuts to medical assistance for seniors, people with disabilities, working parents and children.

Nearly Half a Million New Jerseyans Would Lose Health Coverage

By 2020 under the American Health Care Act, about 476,000 fewer New Jerseyans would have health insurance than in 2015, due to the almost-certain end of the Medicaid expansion and other changes in the insurance marketplace, like a one-third reduction in premium tax credits for low-income New Jerseyans. (2015 has the latest and most reliable data for the uninsured, as supplied by the U.S. Census.) If anything, using that year underestimates the numbers of uninsured by 2020 since marketplace and Medicaid expansion enrollment increased in 2016 and 2017.

The result would be more New Jerseyans lacking insurance in 2020 than in 2013, before the ACA began insuring more residents – because there are 172,000 New Jerseyans who were on Medicaid before the ACA but would no longer be eligible since the state is in no financial condition to replace federal funding for Medicaid expansion with state dollars.

Number of Uninsured Would Spike in All Congressional Districts

All New Jersey Congressional districts would see major increases in the number of uninsured residents under the American Health Care Act. But the largest percentage increases would be in districts currently represented by Republican Congressmen (New Jersey has no Republican Congresswomen).

Taken together, the number of uninsured constituents by 2020 would increase by 74 percent in New Jersey’s five districts with Republican Representatives, a significantly higher jump than the increase of 58 percent in the state’s seven districts with Democratic Representatives.

The largest percentage increase in the number of uninsured would be in District 3, where their ranks would almost double (94 percent increase). In that district, 34,350 additional residents would become uninsured by 2020 on top of the 36,539 residents uninsured in 2015. The smallest increase was in District 8.

The main reasons for this difference are:

Democratic districts tend to have more residents who live below the federal poverty line who were already covered by Medicaid prior to the expansion
The marketplace includes more residents who work and have modest incomes who are disproportionately in Republican districts
Republican districts have lower uninsurance rates than in Democratic districts, so they see a bigger percentage increase when their residents are dropped from Medicaid and the marketplace

New Jersey’s Successful Medicaid Expansion Would Be Jeopardized

The latest House Republican plan to replace the ACA includes drastic cuts in federal funding for the Medicaid expansion. This cut would likely result in many New Jerseyans losing their health coverage. If New Jersey’s economy and financial condition were stronger, the state could continue the expansion starting in 2020. However, if it were to maintain it at current eligibility levels, New Jersey would be on the hook for an additional $8.8 billion over the next decade. By 2027, New Jersey’s annual match would be five times higher ($2.1 billion instead of $461 million) than it would if the Affordable Care Act were continued. And these estimates are conservative since they assume no increase in enrollment over that time, such as would occur with the onset of another recession (inflated health care costs are factored in).

Radical Restructuring of Medicaid Funding Would Harm New Jersey

The index’s increases will likely fall below what high-cost states like New Jersey need, helping to generate the federal savings needed to offset revenues lost by tax cuts to the wealthy and corporations. Most states will likely fall below the index in some years and above it in others. The Congressional Budget Office projects that the index for health costs will increase on average by 3.7 percent annually from 2017 to 2026, compared to a 4.4 percent increase for Medicaid costs – or a 19 percent higher rate. From 2000-2011, average per capita increases in New Jersey exceeded the CPI-M level for adults (7 percent) and children (5.1 percent). Using national averages almost always puts high-cost New Jersey at a disadvantage.

Since this is a national price index, it would not respond to state-specific health crises and patterns, like an infectious disease outbreak like Zika, a medical breakthrough or an opioid addiction crisis. In addition, while federal funding under a per capita cap would increase when additional residents were served – such as during a recession – the rate of federal reimbursement would be lower than a state would receive today. In other words, if more residents needed services during a recession it would still cost the state more - at the very same time when federal payments to states would be reduced.

Since states will not know their level of federal funding until the year before, long range planning will be very difficult, if not impossible. The federal government could also decrease the caps at any time. With federal Medicaid funding uncertain, states would likely spend less to stay within the caps, or cut services and/or reimbursement rates when the caps are exceeded. Because the caps are based on 2016 federal Medicaid expenditures, states would likely curtail Medicaid expenditures as soon as the bill is signed into law to avoid exceeding the caps in 2020 when they take effect. For example, if the state continues to expand services to opioid addicts, it runs the risk of increasing the average per capita cost for adults covered by the Medicaid expansion. Thus, by 2021 the state might easily exceed its cap with the state on the hook for all additional costs.

Currently there are more federal optional services (28) than required services (15). New Jersey has very comprehensive benefits and has opted for nearly all the services that are permitted. Some of these optional services that could be eliminated to reduce per capita costs include:

Prescription drugs
Home and community based services
Private duty nursing
Dental
Case management
Physical therapy
Hospice
Institutional services for the developmentally disabled and children

Reduced access to services

If a state decides to make up for steadily declining federal grants, it may focus its cuts on the most costly enrollment groups, thus putting New Jersey’s seniors and the disabled in the crosshairs since these two groups generate about three-quarters of all the state’s Medicaid spending. On the other hand, if the state decides to make the cuts based on the largest enrollment groups, children would be put at disproportionate risk, as they comprise over half of total enrollment.

Instead of viewing Medicaid as an investment, the state would view it as threat to the budget and other priorities. Since total Medicaid funding would in effect become a shrinking pie, different groups in Medicaid would have to compete with each other for diminishing resources.

In addition to eliminating services, the state could also reduce reimbursement rates for services, some of which are already some of the lowest in the nation despite New Jersey’s health costs being among the nation’s highest (it should come as no surprise that just 38.7 percent of New Jersey doctors accept Medicaid patients, the lowest rate in the nation).

New Jersey would be penalized for its efficiencies in Medicaid

Proponents of capping federal Medicaid funding claim that states would have more flexibility to initiate efficiencies that would absorb any loss in federal funds. However, any additional flexibility in Medicaid in New Jersey would probably not help, because the state already implemented the most promising efficiencies under the flexibility of the current Medicaid program. Unfortunately, the federal dollars New Jersey has saved will be subtracted from the 2016 base year that will be used to calculate the state’s Medicaid funding in the future. In other words, the state would permanently lose those funds because it tried to make Medicaid more efficient and effective.

The following are some of the efficiencies that have been implemented—many with waivers approved by the federal government– which might not be available to New Jersey to absorb any future loss in federal dollars due to Medicaid caps:

New Jersey saved $2 billion in federal funding over five years under a comprehensive waiver that, among other things, placed the elderly in communities rather than nursing homes.
New Jersey is ranked sixth highest nationally in the percent of it Medicaid population in managed care (95 percent).
New Jersey operates three Accountable Care Organizations that focus on patient-centered quality and cost of care for Medicaid participants, one of the highest numbers in the country.
New Jersey is ranked 49^th lowest nationally in fees to providers (mostly primary care physicians).
New Jersey is ranked ninth nationally in medical home participants.
New Jersey spends only about seven percent of its Medicaid dollars for administration, far lower than in the private insurance sector.

Methodology

Increase in the uninsured

The estimated number of uninsured in New Jersey in 2013 and 2015 is from the American Community Survey. The 2020 estimate assumes that the state would not opt for the Medicaid expansion because of the high cost to the state and that, therefore, all of the 550,000 New Jerseyans currently enrolled in the expansion would lose their Medicaid.

The estimate that 172,000 of those New Jerseyans were participating in New Jersey Family Care prior to the Affordable Care Act is based on the New Jersey Department of Human Services’ response to the Office of Legislative Services for the 2017 budget. It is assumed that they would all become uninsured if made ineligible for Medicaid.

For the remaining individuals in the expansion it was estimated that 51 percent of them would not find alternative health coverage and therefore would become uninsured consistent with a 2015 RAND study (Trends in Health Insurance, 2013-2015) which estimated the number of individuals in the Medicaid expansion who did not have insurance prior to the Affordable Care Act.

To determine the number of the uninsured resulting from proposed changes in the insurance marketplace, New Jersey’s share of the national marketplace is applied to the Congressional Budget Office (CBO) national estimate for the number of individuals who will lose their coverage in the marketplace in 2019 and 2020. That number was reduced on the assumption that half of them would be able to find coverage elsewhere. The CBO national estimates of the number of uninsured from the marketplace decreases by 2027 which would also lower the number of the uninsured in New Jersey in that year. The projected increase in uninsured New Jerseyans is conservative because it does not take into account the likely decrease in employer-based coverage and other changes in the House Republican plan.

Congressional district impact

The share of adults enrolled in Medicaid in each district was calculated based on enrollment data for public insurance in the American Community Survey, which was applied to the number of persons statewide that would become uninsured as a result of the House Republican plan as described above. The share of adults in the marketplace in each district was calculated based on data provided by the Kaiser Family Foundation, Interactive Maps: Estimates of Enrollment in ACA Marketplaces and Medicaid Expansion, February 28, 2017 which was applied towards the statewide total of uninsured due to changes in the marketplace caused by the House Republican plan as explained above.

State cost for new Medicaid expansion

To determine the cost to New Jersey of maintaining Medicaid expansion should it elect to maintain coverage for those enrolled via Medicaid expansion, the total cost of the Medicaid expansion as estimated by the New Jersey Department Human Services for state fiscal year 2018 was increased by 4.4 percent annually as projected nationally through 2027 by the Congressional Budget Office cost estimates, American Health Care Act, March 13, 2017. Federal funds were calculated based on the 90 percent matching rate under current law. To determine federal funds under the House Republican plan, the federal funds were reduced to take into account the attrition rate for all individuals that were grandfathered in the expansion based on the attrition rate estimated by the Center and Budget and Policy Priorities. The remaining federal funds were calculated based on the 50 percent federal matching rate. The state matching rate under current law and the proposed House Republican plan were compared to calculate the additional state cost.

As written, the American Health Care Act appears to require that if New Jersey wants to continue receiving a higher federal match for individuals in the Medicaid expansion as of 2020, the state must also accept all newly eligible individuals at the lower match of 50 percent. Our cost estimates assume that scenario. However, if the state decides that it cannot afford the lower match it could also decide not to elect the Medicaid expansion in which case everyone would become ineligible in 2020 and the state would lose about $3 billion annually it currently receives in federal funds.

However, the current interpretation is that the intent of this legislation is to allow the state more flexibility in this option and allow it to 1) not accept any new enrollees and let the grandfathered cases remain in Medicaid at the 90 percent federal match until they leave; or 2) accept a narrower category of new enrollees. For example, New Jersey could make eligible the 172,000 parents and childless adults who were eligible for Medicaid prior the ACA. However even with this more liberal interpretation, it would cost the state hundreds of millions of dollars depending on how they define this new eligible category.

Blueprint for Economic Justice & Shared Prosperity

Posted on March 10, 2017October 10, 2020 by NJPP Staff

From the President

For more than 20 years, New Jersey has been on a downward economic and financial slide. Our middle class is shrinking. Poverty is rising. The state government is effectively bankrupt. We’re dangerously close to hitting rock bottom.

The next governor is New Jersey’s last, best chance to slow the state’s collapse, restore its stable financial foundation and rebuild its enterprising, job-creating, wealth-producing economy.

How did we get here?

The Jersey Slide began with a familiar false premise: cut taxes, and the savings will stimulate economic activity and increase state revenues. Hence a 30 percent cut in income tax rates in 1994, which produced immediate declines in state support for property tax relief and set off a two-decade chain reaction of gimmicks to hide the damage.

Gimmicks like slashing the state’s payments for public employees’ pensions and retiree health benefits enough to make up for revenues sacrificed to the tax cuts. Like granting local governments a pension payment “holiday” to keep property taxes from spiking.

And, in a damning blow, borrowing almost $3 billion to cover the state’s share of pension costs for two or three years – sticking unknowing future taxpayers with the very large repayment bill.

Along the way, a bipartisan cast of governors, legislators and justices ignored the urgent warnings of financial experts, and violated state constitutional protections intended to safeguard against precisely these types of abuses. Because the constitution is clear: you can’t spend money in the annual budget that isn’t raised in the same year, and you can’t borrow money long term without voter approval.

Now the chickens are coming home to roost. The games and gimmicks must stop. It’s time for truth telling, and courageous action.

I understand the challenge. I’ve run for office five times and participated in numerous campaigns. Not once has someone come up and asked: “Gee, my taxes are pretty low, can you do something to raise them?”

But people’s concerns about the taxes they pay often mask concerns about how their taxes are spent:

• “Potholes cost me $800 for new tires.”
• “I thought public colleges were supposed to be affordable.”
• “The high school cut my kid’s band class.”
• “The district said it’s not safe for my kid to drink water from the tap.”

These complaints lay bare a fact that’s been too-long neglected by our political leadership: Residents want New Jersey’s enviable assets to be properly maintained. People understand that investments in the assets we all share are paid for by the taxes we all pay – taxes that should be levied in a fair and equitable way.

The idea that the state needs to protect and invest in its assets is what drove New Jersey’s thriving economy from the 1960s into the early ‘90s. Those were the years when the state invested strategically in public transportation; in public colleges and universities; in preserving open space; in protecting the environment; and beyond. The state’s robust opportunities and vibrant communities attracted striving immigrants from around the world, who in turn fostered further economic growth. The result: New Jersey transformed itself from a fading industrial state into an enterprising, prosperous and stable state with a robust middle class and a plentiful opportunity.

That was then. The picture is starkly different now. After ten credit downgrades in seven years, New Jersey ranks 49th among the 50 states for creditworthiness. Our once robust biotech and pharmaceutical industry is being lured to states that are accelerating – not slashing – public investments in innovation centers like university hubs. Inequality is at historic highs. In this high-cost state, which never bounced back from the Great Recession, New Jersey’s working families are finding it harder than ever to make ends meet and give their children opportunities to advance.

Here’s the good news: New Jersey still has enviable assets. And it’s not too late for new leadership to stop the state’s downward spiral. No candidate should promise that it’ll be easy or painless to restore New Jersey as an engine of enterprise and opportunity. Nor should anyone suggest that one term as governor or as a legislator will be sufficient.

But big ideas, carefully planned and plainly explained, are the starting point.

That is the work of New Jersey Policy Perspective, and specifically, this Blueprint.

– Gordon MacInnes, President

To read the Blueprint, click here.

Repealing the Affordable Care Act Would Devastate New Jersey

Posted on February 21, 2017October 10, 2020 by Raymond Castro

Imagine, in 2019: 58,000 Hudson County residents losing Medicaid coverage. 19,000 Ocean County residents losing access to Marketplace insurance plans. 22,000 Bergen County seniors losing invaluable prescription drug coverage. $350 million in lost federal funds in Middlesex County. 48 deaths in Union County.

In county after county, the numbers are clear: repealing the Affordable Care Act (ACA) without an adequate replacement would devastate New Jersey.

The greatest harm would be caused by repealing the Medicaid expansion, which would terminate health coverage for about 550,000 low-income New Jerseyans and cost the state about $3 billion in federal funds each year. Despite threats by Congress and the President to end the Medicaid expansion, participation increased by another 12,000 in the enrollment period ending last month, demonstrating the urgent need for this coverage. In addition, up to about 300,000 New Jerseyans who signed up for a plan in the Marketplace would lose their coverage, and with it a billion dollars in federal funds that pay for premium subsidies to make insurance affordable. That is a total $4 billion loss to New Jersey which would result in an estimated loss of about 86,000 jobs and 84 deaths due to lack of insurance.

Both of those cuts affect mostly working New Jerseyans who are struggling to get by in a state with one of the highest costs of living in the nation, but the elderly would also be harmed by the proposed repeal of the ACA. For example, seniors have benefited from the closing of the gap in prescription drugs in Medicare, often referred to as the “donut hole.” Over 200,000 seniors would lose this assistance that enables them to pay for prescriptions that are often life-saving. If this benefit is eliminated the average senior would have to pay $1,241 more each year which would force them to choose between paying for their medications or rent.

Click here for the impact in each county:

Methodology

Medicare Donut Hole

Each county’s share of annual enrollment for all Medicare prescription drugs from The Centers for Medicare and Medicaid Services’ Yearly Medicare Enrollment Counts State and County (2015) was applied towards total persons receiving Medicare donut hole coverage in New Jersey and the total federal expenditures in New Jersey from the U.S. Department of Health and Human Services’ Compilation of State Data on the Affordable Care Act (2015).

Marketplace

Total enrollees taken from the U.S. Department of Health and Human Services’ Plan selections by County and Zip Code in the Health Insurance Marketplace (March 2016), and lost federal funds were calculated based on total subsidies received (adjusting for inflation) using the March 2015 and March 2016 Centers for Medicare and Medicaid Services’ Effectuated Enrollment Snapshot, applied towards the number of estimated participants in the Marketplace for each county.

Medicaid Expansion

Number of adults enrolled in the expansion taken from New Jersey’s Division of Medical Assistance and Health Services’ NJ FamilyCare enrollment website (January 2017), and the prorata share of enrollment in each county was applied towards the total federal funds for the Medicaid expansion estimated for state fiscal year 2019 by the New Jersey Department of Human Services in Discussion Points prepared for the Office of Legislative Services for the fiscal year 2016 Budget, adjusted to take into account higher enrollment in January 2017.

Jobs and Deaths

To estimate the number of jobs lost, the county share of total federal funds lost was applied to the estimated total jobs lost in The Commonwealth Fund’s Repealing Federal Health Reform: Economic and Employment Consequences for States (January 2017). The death rates for uninsured are based on Health Insurance and Mortality in US (December 2009), with the death rate applied to the total number of uninsured due to ACA as estimated in the same Commonwealth Fund report. Estimated deaths are over a 12-year period (consistent with the Health Insurance and Mortality in US report). Deaths for each county were calculated by applying the share of persons losing benefits in the Marketplace and Medicaid in each county applied towards the total deaths in the state.

More Than Half a Million New Jerseyans Would Lose Coverage by 2026, Spiking the Uninsurance Rate by 50 Percent

Number of Uninsured Would Swell in All Congressional Districts

One in 10 New Jersey Adults Would Lose Coverage Due to the Effective End of the Medicaid Expansion

The AHCA Shifts Billions in Federal Costs to New Jersey

Maintaining Medicaid Expansion Would Cost New Jersey Billions

A Permanent Cap on Medicaid Would Threaten the Health of 1.6 Million New Jerseyans

Premium Tax Credits Would be Reduced by $7 Billion Over 10 Years

Health Care Cuts Being Used to Free Up Money for Big Tax Cuts for Wealthy Americans

Proposal Would Disrupt New Jersey’s Economy and Cause the Loss of Thousands of Jobs

Methodology

Endnotes

Restoring New Jersey’s Estate Tax

Strengthening New Jersey’s Inheritance Tax

Taxing Inherited Wealth Has Little Impact on Retiree Interstate Moves

Endnotes

Cuts to Health Care

Cuts to Food Assistance

Cuts to Cash Assistance

Cuts to Heating Assistance

Cuts to Rental Assistance

Endnotes

Funding New Jersey’s Early Childhood Education and Care System

Determining Quality Through a QRIS

A Fair and Effective Reimbursement Rate Schedule: Two Versions

Looking to Other States: Three Case Studies

The Path Toward a Robust Tiered Reimbursement System

Endnotes

An Unproven Strategy With Poor Results

Subsidy Programs Have Become Unaffordable

Common-Sense Reforms Would Put Help New Jersey Back on Track

Endnotes

Endnotes

Amendment Also Guts Protections for Pre-Existing Conditions

High-Risk Pools Haven’t Worked in New Jersey or Other States

Amendment Also Allows Waivers That Could Harm Millions

Amendment Offers No Protections for People with Pre-Existing Conditions, Just Smoke and Mirrors

Endnotes

Nearly Half a Million New Jerseyans Would Lose Health Coverage

Number of Uninsured Would Spike in All Congressional Districts

New Jersey’s Successful Medicaid Expansion Would Be Jeopardized

Radical Restructuring of Medicaid Funding Would Harm New Jersey

Methodology

To read the Blueprint, click here.

Methodology

Affiliations

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Links