“And You Will Pay” HOW A SPECIAL INTEREST DOMINATES NEW JERSEY POLITICS Part II of the Legal Corruption Series Mike Lilley OCTOBER 2017 AMERICAN ENTERPRISE INSTITUTE The Legal Corruption Series: Executive Summary ew Jersey is in a bad way. Our economy is weak children and future generations of New Jerseyans— Nand significantly underperforms other states. has been mortgaged for the benefit of the few over Our tax system is consistently ranked as the worst the many. in the nation. Our public-sector pensions are in the The purpose of this research is to inform New worst condition of any state, and our unfunded lia- Jersey’s citizens of what is really going on and how bilities are at least $202 billion—almost six times the we got into this position. Using published research, size of the $35 billion annual budget.1 We have the contemporaneous media accounts, and the NJEA’s second-lowest bond rating of any state—save broke own publications to ascertain the facts, this study Illinois.2 Businesses, taxpayers, and young adults are details the deliberate exploitation of New Jersey’s leaving our state in droves. Sadly, New Jersey’s future political system and the resulting consequences— looks even worse. to the benefit of the NJEA and the detriment of How did New Jersey get into this position? New Jerseyans. It was not happenstance. New Jersey is in this posi- There are five parts to the research: tion because its largest public-sector union, the New Jersey Education Association (NJEA), often work- • Part I. Follow the Money: The Real Money ing in concert with its public-sector union allies, has Behind the New Jersey Education Associa- rigged the system for its own benefit. The consum- tion’s Political Clout. Funded by hundreds of mate special interest, the NJEA has dominated the millions of taxpayer dollars, the NJEA’s severely state’s political system for decades. It structured a underreported political war chest dwarfs the legislative regime that allowed it to siphon off hun- competition. The NJEA spends many times dreds of millions of taxpayer dollars to spend itself to more on political action than is reported and is unmatched political clout. Predictably, New Jersey’s by far the most powerful special interest—and politicians—both Republicans and Democrats—have political force—in the state. Far too often, this succumbed to this clout and largely given the NJEA results in taxpayer dollars being used against what it wanted. Too often, New Jersey citizens and taxpayer interests. taxpayers have been left out of the discussion, and yet it is they who will foot the bill. • Part II. “And You Will Pay”: How a Special If New Jersey citizens and taxpayers knew what Interest Dominates New Jersey Politics. was really going on, they would be outraged. They The NJEA used its clout to influence politicians would be outraged that a special interest was able to of both parties and structure the political sys- control state government to their detriment. They tem to perpetuate its power and benefit itself. would be outraged that their highest-in-the-nation This extraordinary special-interest influence has taxes are flowing directly into union coffers to be shaped the current status quo in the state and used against their own interests. They would be out- threatens the state’s solvency. raged that the future of the state—and that of their 1 “AND YOU WILL PAY” MIKE LILLEY • Part III. Job Number One: The New Jersey initiation of New Jersey’s first sales and income Education Association’s Role in New Jer- taxes and continues to push for higher taxes to sey’s Disastrous Pension and Benefits Cri- this day. sis. Again using its money and clout, the NJEA created the broken benefit system we have today. • Part V. New Jersey Is Dying: A Special- While the NJEA seeks to blame the state, the Interest-Dominated Status Quo Is Hurting facts show that the NJEA structured the system the State’s Economy. High taxes and cost of to maximize benefits for its members and con- living have hurt the state’s economy. The tax sys- sistently fought reform efforts. It participated in tem renders the state inhospitable to businesses pension-asset raids and financing schemes that and uncompetitive with other states—particu- greatly damaged the soundness of the system. larly with neighboring New York and Pennsyl- It gained for its members premium-free, “Cadil- vania. Consequently, economic and job growth lac” health plans. Because it was politically con- are weak and significantly underperform both venient, it chose not to punish politicians for the nation and New York and Pennsylvania. Busi- underfunding the state’s retiree liabilities, thus nesses, taxpayers, and most ominously, young contributing to $202 billion in underfunding adults are emigrating to more favorable states. that threatens the future of the state. And it Reform and economic growth are the only way recently tried to lock this bankrupt system into out of this fiscal hole, but ourspecial-interest - the state constitution. dominated political system allows for neither. • Part IV. Talk Is Cheap, but Good Education New Jersey citizens and taxpayers must wake up Costs: The Truth About New Jersey’s High to what has happened in our state and why we are Tax Burden. Using its money and clout, the where we are. In the end, the best description of NJEA has consistently pushed for higher taxes. what has occurred is “legal corruption.” Our politi- At the local level, the NJEA consistently pushed cal system has been thoroughly corrupted—so much for higher education spending and higher prop- so that the corruption itself has been made legal. erty taxes. Once high property taxes became Either we change the system and root out the legal a political problem, it pushed for higher state corruption or it will bankrupt the state—along with education spending and higher state taxes. the future of our children and the next generations The NJEA was a major force behind the of New Jerseyans. 2 “And You Will Pay” HOW A SPECIAL INTEREST DOMINATES NEW JERSEY POLITICS Part II of the Legal Corruption Series Mike Lilley “ nd you will pay.” So threatened New Jersey Public Education Funding Is Political A Education Association (NJEA) Director of Government Relations Ginger Gold Schnitzer to Funding public education is part of the political pro- Democratic lawmakers over the 2017 budget vote.3 cess. Interested parties lobby elected representatives Schnitzer’s threat is just the latest example of the for spending allocations, budgets are negotiated, and NJEA using its unmatched political clout to intimidate taxes are decided. In New Jersey, these tax and spend- the state’s lawmakers. ing decisions are made at the local level by elected For more than 50 years, the NJEA has domi- school boards and at the state level by the legislature nated New Jersey politics. Indeed, the modern era and the governor. of New Jersey politics has been one continuous saga The NJEA has long recognized the political nature of the NJEA wielding extraordinary influence to of public education funding. Accordingly, it sees its serve its own interests. As detailed in Part I, it has political clout as a matter of survival. Back in 1969, constructed a system that automatically and annu- the NJEA stated: ally generates tens of millions in taxpayer dollars— and presently more than $120 million—funneled NJEA perceives politics and education as being directly into its coffers. These taxpayer dollars have inseparable. Public schools are part of the political permitted annual political spending that runs into domain and have to compete annually for a share the tens of millions of dollars and dwarfs all other of the funds used in the operation of the State gov- political spenders. ernment. NJEA directs its lobbying program toward Ninety percent of the NJEA’s endorsed candi- insuring [sic] education’s share of the distribution of dates routinely win in legislative elections. It has State monies.4 an army of political foot soldiers that reaches every district in the state. It can run multimillion-dollar To the NJEA, ensuring education’s share means media campaigns whenever it chooses and regularly working “to elect candidates who support our pub- stages rallies with thousands of protesters. It has lic schools and public school employees.”5 Essen- flipped legislatures, blocked reforms, and secured tially, the NJEA and its affiliates are electing their own legislation that locks in its dominant position. No bosses. Accordingly, success in local and state elec- other special interest—or political force—in the tions is the NJEA’s lifeblood. state comes close. Almost every aspect of the administration of public education—from instructional spending to salaries to 3 “AND YOU WILL PAY” MIKE LILLEY retirement benefits—derives from political decisions NJEA political spending was 10 times larger than the elected officeholders make. So, in addition to electing reported amounts, totaling $725 million and averag- friendly officeholders, persistent political power and ing about $43 million a year.10 This is a better indica- influence are essential for the NJEA. tion of the importance of political power to the NJEA Again, the NJEA is well aware of this. Reflecting and the amount of money behind its clout. this reality, in 1985 NJEA President Dennis Giordano This kind of money gets results. Throughout its his- called on his members “to maintain our efforts to be tory, the NJEA has been successful in getting a huge the preeminent political force in our state. The poli- share of “State monies” and the state tax increases ticians control much of what affects our careers now to fund it.