By Rod Hirsch

High on Gov. Chris Christie’s “to do” list is finding a way to replenish the battered

state Transportation Trust Fund (TTF), the overdrawn bank account that helps drive

New Jersey’s economy.

The TTF is dangerously close to bankruptcy, threatening to throw up a fiscal roadblock for any new transportation infrastructure projects as well as day-today

commerce that fuels everything from employment to tax revenues.

According to transportation experts and politicians on both side of the aisle, the

greatest threat to the TTF is the fund’s debt, which has been incurred by state leaders over years of dipping into the fund for various reasons not related directly to transportation.

Revenue from the state’s 10.5-cent per gallon gasoline tax and 13.5 cent diesel fuel

tax is expected to raise an amount sufficient to cover the estimated $895 million in debt owed in 2011 by the TTF, which also relies on tolls and borrowed money for funding.

However, there would be nothing left to fund any bridge, highway or mass transit projects or improvements to the transportation infrastructure, all critical to the

well-being of the state.

Years of borrowing, refinancing and budget gimmickry have taken its toll on the TTF, created in 1984 to finance the costs of “planning, acquisition, engineering,

construction, reconstruction, repair, resurfacing, and rehabilitation of the state’s

transportation system.” Legislators have raided the TTF to help balance the state

budget year after year, dating back to the Kean administration.

However, as he stated throughout his campaign, Christie continues to resist taking

the easy route to rescue the TTF – raising taxes or imposing tolls.

During a Feb. 1 press conference at the Statehouse Christie rejected recommendations for any tax increases or new tolls outlined by his transportation

transition panel. The report of the Subcommittee on Transportation, released

Jan. 22, had recommended tolls be imposed on several interstates – Routes 78, 80,

195, 287 and 295. The subcommittee also suggested a referendum to consider an

increase in the gasoline and diesel fuel taxes.

“I don’t favor tolls on roads where we don’t currently have them and I do not favor

and will not sign an increase in the gas tax,” Christie said. “When people are struggling – that is not the time to raise taxes and fees.”

However, then-Gov.-elect Christie agreed with the Corzine administration’s decision

to borrow another $1.2 billion to keep the TTF afloat just three weeks before the transportation subcommittee report was released. The additional $1.2 billion

was needed to pay for projects through June 2010. This followed the Corzine

administration’s borrowing of more than $6 billion in 2006, when the TTF was facing

insolvency, to extend the fund through 2011 – with interest payments on that borrowing extending through 2041.

There is a lot riding on the roads, bridges and railways of New Jersey. Jeff Bader, president of both Golden Carriers of Hillside and the Association of Bi-State

Motor Carriers that represents 128 trucking companies working primarily in Port Elizabeth, said he was surprised by Christie’s steadfast opposition to hike taxes, tolls or both.

“Right now, he’s saying no increases and no new taxes,” Bader said. “I don’t know where he is going to come up with the money but we’ll support what

makes sense to our members…I just hope he can do it in time to save the

economy of the state of New Jersey.”

Christie faces a daunting task. As the economy continues to sputter – truck traffic has dropped 17-20 percent in the past year, according to Gail Toth, executive director of the New Jersey Motor Truck Association – collection of gas tax revenue has declined dramatically.

Beyond tax revenue, New Jersey’s trucking industry is a big wheel in driving the state’s economy. Truckers, longshoremen, warehouse workers and other laborers account for 300,000 jobs in New Jersey, according to Bader.

“Transportation is enormously important to New Jersey,” said Toth, whose association has 775 members, including the 10 largest trucking companies in the United States. “It’s the second largest employer in the state.”

Both organizations say the trucking industry is more than willing to pay their fair share to ensure New Jersey’s highways are well maintained.

“You need to have good roads,” Toth said.

According to Toth:

 • New Jersey is a “through” state – containers delivered by ship to Port Elizabeth are transferred to trucks and driven into New England and through Pennsylvania, Ohio, Indiana and as far west as Chicago;

 • 65 percent of the food in New York City comes through New Jersey and is delivered by truck;

 • 75-80 percent of the freight that moves in New Jersey moves by truck;

 • New Jersey has the largest consumer population in the world per square mile.

“People wouldn’t have the variety of products that they do if we didn’t have a great

transportation network,” Toth said.

Bader’s organization favors an increase in fuel taxes.

“Provided the money that is generated is dedicated to infrastructure improvements where trucks get benefits,” he said. “We understand the need for funding for it and we have no problems paying our fair share.”

John Kruse, president and owner of J. Way Trucking in Hillside, agrees.

“The key to making this work is a dedicated fund,” he said. “There’s plenty of money there until they raid it. One of the issues I have with the state government is misappropriating all this money that is supposedly dedicated. It doesn’t make sense to raid the Transportation Trust Fund to build bike paths and things like that.”

Any tax or toll increases would not cut into truckers’ profits, according to Toth, as those costs would be passed on to the consumer through higher shipping fees, but that could cause even more long-term damage and short-term angst.

“If push comes to shove we’d go with the fuel tax increase,” Toth said. “But as a consumer I hate to say that. Because the added costs of moving the product will be passed on, the end-user will pay. I don’t want to see my grocery bill and other prices go up. It’s a real hard situation, a real difficult one.”

Bader added, “We don’t want to put any more pressure on the economy, but we’d have to pass on any increases to our customers. At the end of the day we have to be realistic.”

Herbert Gishlick, a professor of economics at Rider University and director of the school’s Office of Regional Economic Analysis, also cautions against any toll or tax increase.

“I am not a big advocate of increasing the tax burden,” Gishlick said. “New Jersey already has a reputation of being a high-tax state with an unfavorable business climate. What is really remarkable is that we aren’t in worse shape than we are, and that’s only because we are in an ideally located spot, the center of a populated area accessible to a network of vital roadways.

“The Port of New York and New Jersey has to be served. The roadways that serve the port and New Jersey are critical to the regional economy. A tax or toll increase would serve as a disincentive. Any increase in the net tax burden in New Jersey may create unseen effects and prove to be more detrimental to the probability of the state recovering from the general recession.”

© Bombadil LLC 2010

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By Jonathan S. Chester, Esq.

You might be hearing among your family and friends or in the media that when it comes to estate taxes, 2010 would be a good year to die. Although there is some cheeky humor in putting things this way, the reality is that the 2010 one-year estate tax repeal may actually create more problems than it solves.

The estate tax craziness started in 2001, when Congress passed a law purporting to “repeal” the estate tax. What Congress actually did, however, was pass a law that gradually reduced the estate tax by lowering the tax rate while simultaneously increasing the estate tax exemption (the amount a person can leave free of estate tax).

In 2001 the exemption was $675,000, and the top tax rate was 55 percent. By 2009 the exemption had grown to $3.5 million and the top rate had dropped to 45 percent. The law called for estate tax repeal in 2010, followed by reinstatement in 2011 – with only a $1 million exemption and a maximum tax rate of 55 percent.

For the past 10 years estate planners have been waiting for Congress to resolve the

problem of the “now you see it, now you don’t...now you do again” federal estate tax.

However, as the New Year approached, Congress once again failed to act and, as a result, the estate tax expired on January 1.

Of significance to those who have made estate plans are the unintended consequences of many of the common estate planning techniques that the tax “holiday” will have on their plans in 2010 and beyond.

For example, many people have established “bypass trusts” in their wills, which use a formula clause designed to leave the exemption amount in a trust for the surviving spouse and/ or children and the balance of the estate to their spouse. The idea is to shelter the maximum amount from tax by using the exemption of each spouse.

However, under the new law, depending on how the will or trust was written, the bypass trust might get all the assets or none of them.

In either case, this is not the intended result. If there is no estate tax (and no exemption) in 2010, is the bypass trust funded? If so, in what amount? If the trust is not funded, and the tax is reinstated in 2011, is the ability to use the exemption forever lost?

Another potential landmine in this year’s estate-tax repeal concerns a longstanding tax break known as the “step-up” in cost basis. Cost basis is what you paid for an asset, plus or minus certain adjustments such as improvements made to real estate.

Under the old rules, when a person died, the cost basis was “stepped up” to the fair market value on the date of death. When the asset was later sold by the heirs, only the difference between the sales price and the date-of-death value was taxed.

However, under the new law, the heirs would receive ownership of the property with the decedent’s (typically lower) cost basis. This could lead to a significant capital gains tax for the heirs, especially for real estate, stocks or a family business which may have been owned by the decedent for many years.

The step up in basis rules used to apply to all the assets in the estate. However, for

someone who dies in 2010, heirs can apply the step-up in basis to only $1.3 million worth of appreciation. An additional $3 million in appreciation can pass to a surviving spouse. In addition, record keeping nightmares will be commonplace, as heirs attempt to verify the cost basis of assets that may have been purchased years or even decades earlier.

Another issue to consider is the possibility that Congress might impose an estate tax retroactively to 2010, or do nothing and let the estate tax come back (with only a $1 million exemption) in 2011.

What’s Next?

The unlimited step-up in basis is scheduled to return in 2011, along with the estate tax and the $1 million exemption. Estate planning professionals are hoping for answers before then.

Will Congress act? Will congressional action be retroactive to January 1? Will that retroactive action be held constitutional?

No one knows for certain. In order to be prepared this year and in anticipation of the

reinstatement of the estate tax in 2011, we strongly advise that you meet with your estate planning attorney and financial advisors to review your current estate and business succession plans and discuss possible modifications.

Jonathan S. Chester is a trust and estates partner with the law firm of Lindabury, McCormick, Estabrook & Cooper, P.C. He works in their Summit, NJ, office and can be reached at jchester@lindabury.com.

Inside Views

When Scott Brown was elected to the U.S. Senate several weeks ago, the sigh of relief heard around the country was almost audible. It is amazing how fast something as important as health care reform became so frightening to so many.

Now you can feel the steam going out of the process. Many believe we will be left with status quo, just like we were when there was an attempt to reform social security a few years back. This would be unfortunate.

Misguided though both the Senate and House versions of health care reform

were, there is a pressing need for substantial change.

The big problem with what is now on the table is that it has been foisted upon us by just one party. And it has been foisted on the members of that party by some of their most radical elements. It missed the boat on reforming health care and resulted primarily in just spending more on the present failed system.

Perhaps now that the issue can no longer be forced, calmer heads will prevail and ideas that truly address the main problems will be discussed. This of course will take both sides and I only hope that the Republican members of Congress will be up to the task of being constructive. There are things more important than just winning the next election.

Over the past year we have all been inundated with ideas, claims and counter claims on both the problems and solutions facing health care. I have come to realize that there are a few key elements that must be realized if we are to both control costs and provide better health care in this country.

First and foremost, everyone needs to participate. This means that like car insurance, if you want to drive, you have to have insurance. Many of the so called “uninsured” are uninsured not because they can’t get or afford health insurance, but rather because they are young and realize that the cost/ benefit ratio is far too high. Why spend thousands of dollars a year when you are likely to have only hundreds of dollars in expenses? The reason is because this broadens the pool and makes insurance more affordable for everyone. It also provides for that sudden unexpected illness that we think will never happen to us.

Second, we need to modernize our medical information systems. In his book, The Healing of America, T.R. Reid examines health care systems from around the world and discusses at length the advances that have been made in France and Germany in particular by issuing smart cards to everyone. With these cards, all the paperwork and the people who process the huge volumes of documents that our system

requires are eliminated. The savings in overhead for the insurance industry as well as the doctors and hospitals is huge.

Third, we need a lot more doctors, and doctors who are not saddled with hundreds of thousands of dollars in education debt. Ours is the only country where this happens, and the result is fewer doctors who can charge more because there are fewer of them. When you add to this that expanded coverage is going to result in expanded demand, unless we have many, many more doctors, we can expect prices to skyrocket. This is an area where a relatively minor government investment can make

a big difference.

Fourth, doctors in other countries pay a small fraction of the malpractice premiums that U.S. doctors pay. The cost of this insurance is a huge expense for doctors. Perhaps this is something that can be nationalized. For those who want a single-payer system, this is the place to do it. Let the government pay the outrageous malpractice claims that are often filed.

But the real solution to health care is staring us in the mirror. Just look sideways. Until we lose weight and start taking care of ourselves, all these other things are band aids.

James Coyle

President

Football coaching legend Bill Parcells once complained that not being empowered to select the players that make up his team is like being asked to cook dinner without being allowed to shop for the groceries. If Parcells were a mayor in New Jersey, the state would make him pay for the food, as well – while cutting his salary and tying one hand behind his back.

That is the task the state’s mayors and municipalities face in 2010 as the impact of the recession continues to bludgeon both state and local budgets. With New Jersey facing a $2 billion shortfall for the current budget year and projecting an $8-11 billion deficit for the coming year, the state’s municipalities are bracing for considerably less state aid than they had hoped for, even with lowered expectations.

Local governments will once again scramble to find ways to run operations, provide services and meet financial obligations while keeping budget increases to a capped 4 percent and not raising property taxes beyond the barest minimum.

One step the state can take to help towns and cities through this crisis is to address the issue of state mandates on municipalities, something Gov. Chris Christie has promised. These mandates require cities and towns to meet certain requirements imposed by the state in areas such as police and fire department salaries, affordable housing, pension contributions, environmental regulations and training yet provide no funding for the municipalities to help them do so.

In addition, state mandates impair or eliminate the ability of local government to govern in these areas, thereby further reducing residents’ ability to hold elected officials accountable for expenditure of their tax dollars.

Essentially, mandates require municipalities to cook the dinner and pay for the food, yet deny them the right to buy the groceries or set the menu.

For example, municipalities are mandated to adhere to binding arbitration for salary disputes with police and fire personnel, as these essential employees are precluded by law from going on strike.

While the theory is sound, the application has become flawed to the point that arbitrator-awarded raises are routinely outpacing the 4 percent budget cap municipalities must live with. According to the New Jersey League of Municipalities, while salary increases have averaged 4 percent since 2000, the real impact on municipal budgets averages between 6 and 10 percent due to administrative

calculations.

While the collective bargaining rights of police and firefighters should be protected, the process of binding arbitration must be reformed before mandated salary increases become unsustainable.

Another state mandate suffocating municipalities relates to affordable housing. Under regulations administered by the Council on Affordable Housing (COAH), townships and cities are required to provide a certain amount of affordable housing for qualified residents and must present plans demonstrating compliance, which cost taxpayer money. Yet according to the League of Municipalities, COAH assessments often conflict with other state planning priorities and also regularly face legal challenges, often resulting in additional planning expenses for the towns.

A bipartisan bill recently introduced in the Legislature calls for the elimination of COAH to allow municipalities to administer their own affordable housing programs and compliance. This may or may not be a good step, but eliminating or reforming COAH mandates on municipalities as they currently exist is a necessary step at this time of budget trauma.

Other state mandates: result in significant and often unnecessary delays in development due to environmental protection permitting that costs municipalities tax revenue; preclude municipalities from negotiating pension matches that could save taxpayer money; impose various training requirements for police personnel regardless of need; and require municipalities to take extraordinary – and costly – measures relating to storm water management, such as annual notices to residents of management practices and labeling of catch basins.

In a state that prides itself on home rule these mandates remove local control over too many areas that significantly impact a municipality’s ability to govern and residents’ ability to hold elected officials accountable. While many of these mandates are well intended – such as protecting the rights of lower-income residents, seniors and people with disabilities to have access to housing in

quality communities – many have become excessive in application and impact.

When a township is unable to build a needed ball field because there is no money left after funding the plethora of state mandates, something is wrong with the formula.

With budget crises gripping both state and local governments, there must be a change. The current recipe makes this dinner impossible to swallow.

On February 11 1 presented to the Legislature and people of New Jersey detailed solutions to address our current fiscal-year deficit of more than $2 billion and set the stage for overcoming a gap of more than $11 billion for the fiscal year that begins on July 1. The actions we will take are designed – finally – to reform our spending habits, lower taxes and encourage job growth, reduce the size and scope of government and fund our obligations responsibly. There can be no more deficit-expanding gimmicks that have propped up previous budgets and gotten us into the situation we confront today.

I encourage your participation in the public discussion of why these strong fiscal actions are so important if we are to succeed in eliminating crippling budget deficits and high taxes that stymie growth and job creation.

We know that you will hear from opponents of reform who are more concerned with maintaining the status quo than with growing and attracting business to New Jersey and creating jobs. Some will argue that not extending the prior administration’s high marginal income tax on those earning more than $400,000 benefits only high-income earners. What they are overlooking is that many of those individuals are small  business owners, struggling to expand payrolls to prerecession levels and return to growth.

Consider these facts:

  • The higher marginal tax rate imposed by the prior administration impacts small business owners in addition to individual taxpayers because many small businesses, such as S Corporations, LLCs or partnerships, pay taxes through the owner’s income. That made the higher tax rate a small business tax increase – bad for job creators and bad for New Jersey during a recession.

  • Higher income residents (many of them small business owners) are key contributors to a healthy, growing economy through higher levels of consumer spending and resulting tax revenue, business investment, real estate transactions – and job creation.

  • Higher income taxpayers are leaving New Jersey: a Boston College study1 released last week found that approximately 302,780 households left New Jersey between 2004 and 2008 and took $70 billion in wealth with them.

The average net worth of those departing households was about 70 percent higher – at $618,330 −than households moving into the state.

  • In response to those findings, James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, said, “That’s probably why we have these massive income shortfalls in the state budget, especially this year.” Without change in the tax structure, he said, “We’ll probably see a continuation of the trend, until there are no more high-wealth individuals left.”2

  • New Jersey’s top marginal income tax rate – 10.75 percent in 2009 – was among the highest in the nation. Neighboring states, including New York and Pennsylvania, had top marginal rates lower than New Jersey’s, with Pennsylvania’s at only 3.07 percent.

  • Just more than 1 percent of New Jersey income tax filers earned more than $500,000 in 2007, yet paid approximately 46 percent – $4.6 billion of a total $10 billion – of the total in collected income tax. Add the now-expired higher marginal tax rate, and it’s no wonder higher earners and small business owners have left New Jersey – and would continue to do so with new taxes.

I encourage you to lend support to our goals to lower taxes, create jobs and make New Jersey a home for growth. Thank you for your support, and we look forward to working with you in the years ahead.

                                                          Very Truly Yours, Chris Christie, Governor

1 Boston College’s Center on Wealth and Philanthropy; by John Havens, Associate Director

2 Star-Ledger, Feb. 4, 2010 by Leslie Kwoh

One might well ask why anyone would want the job of governor of New Jersey. True, it is one of the most powerful governorships in the county and an honor to be 55th in a line of governors that goes back to colonial days.

According to Governor Chris Christie, it is an office where one person can make a difference.

However, the new governor will be required to spend inordinate time trying to close

unprecedented financial gaps in this year’s $29 billion state budget and the budget for the next fiscal year, beginning July 1. To add to the challenge, he will be working with new legislative leaders from the other party. Their degree of cooperation is uncertain.

In trying to make New Jersey work as a place to reside and do business, Christie confronts an estimated state budget deficit of at least $9 billion dollars, $1 billion this year and $8 billion in the next. Put another way, Christie will have only two-thirds of the revenues necessary to balance the state budget at its present level and virtually no reserves.

How much of a difference then can Christie make in “fixing” the Garden State? Will he be able to achieve the goals he envisions? What criteria might residents use in judging his performance?

New Jersey’s budget problems result in part from the current recession. State revenues – more volatile here than elsewhere because of our income tax’s hit on high-income earners – have decreased significantly. But the reasons behind the $9 billion shortfall run deeper.

Governors since Jim McGreevey have faced significant deficits of $3-5 billion when taking office. The Whitman tax cuts of 1994, additional spending by administrations and one-time revenues have created a persistent “structural” deficit.

Then, too, New Jersey has borrowed excessively and failed to properly fund its pension systems. Over half the state budget goes immediately back to school districts and municipalities that the state has failed to control. Even when the economy and revenues start to rebound, serious financial problems will remain.

In the end, a new state budget will be finalized, one hopes in time to avoid a repeat of the 2006 standoff that closed the state. The question is how and at whose cost?

Christie views the present situation as a spending rather than a revenue problem. He has pledged not to raise the income tax, to reduce corporate taxes and to resist increasing the gasoline tax. On the spending side, he has indicated broad support for school funding, although with more of that money going to charter schools and vouchers. State agencies will be cut but they represent only about a third of the budget. While Christie has repeatedly expressed concern for high property

taxes, cuts in school funding, municipal aid and rebates seem inevitable. Without raising taxes, virtually all state-funded programs are on the chopping block. Cuts will be severe.

If Christie is be successful as Governor he needs to be perceived as fair in making New Jerseyans share the pain until the economy recovers. He may have to accept modest tax measures, like an extension of the controversial millionaire’s tax – not without its own risks. He needs to articulate his plans clearly and inspire confidence through straight talk, skills his predecessor lacked, so as to build public trust and support.

As he makes tough financial decisions, he needs to challenge public corruption by expanding ethics laws and enforcement, reduce the influence of special interests like the NJEA, and rein in pet projects and questionable policies like farmland preservation. He also needs to increase performance audits of public agencies; consolidate educational and municipal services; promote transparency by greater oversight over special (shadow) authorities; and reform long-recognized problem areas, like the pension system with too many part-timers and unsound practices for

calculating benefits.

If Christie can do so, he will leave a positive mark on the state.

Stuart Koch is associate professor and chair of the Political Science Department at The College of New Jersey.