Budget season is underway in New York and New Jersey. On this episode of Policy Outsider, guest Andrew Sidamon-Eristoff, a former New Jersey State treasurer, joins Rockefeller Institute President Bob Megna to discuss spending plans in the Garden and Empire State. The conversation covers what is included and excluded from reported budget numbers and how differences in budget formulation make it difficult to do apples-to-apples comparisons between states.
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Joel Tirado 00:04
It’s budget season in New York in New Jersey and on today’s show, we invited a former New York State Budget Director and New Jersey State Treasurer to discuss what gets included and what is excluded from the big budget numbers we see in each state. Guest host Bob Megna, president of the Rockefeller Institute and former New York State Budget Director, and guest Andrew Sidamon-Eristoff, a longtime public servant, who has served as New Jersey State Treasurer, Commissioner of the New York State Department of Taxation and Finance, and Commissioner of the New York City Department of Finance. The conversation piggybacks off of a recent piece published by Andrew in NJ Spotlight News, which highlighted the challenges inherent in comparisons of state budgets. A quick note before we jump into that conversation, Alex Morse, Policy Outsider’s host for the past four years has taken a new position at the New York independent system operator. Among his many other duties at the Rockefeller Institute, Alex kept the Policy Outsider conversation happening through 75 episodes, through a pandemic, and out the other side. We’re really grateful to have had his leadership, thoughtfulness, and curiosity at the helm of the podcast. Alex, thank you, and best of luck with your new venture. With that, I’d like to welcome you all back to Policy Outsider. I’m Joel Tirado, the institute’s Director of Communications, and I’ll be one of the voices you’ll hear more of moving forward, introducing conversations, and leading others. I’m excited for the next chapter of Policy Outsider, as we continue to cover a broad range of policy issues impacting New York state and the nation. Episode 86, what’s in a number is up next.
Bob Megna 01:39
Hi, today, we have as a guest for this podcast. Andrew Eristoff. And again, Andrew, I’m gonna ask you to talk a little bit about your bio. I got to know you when you were in New York State. And you were the tax commissioner in New York State. But you also played a bigger role, I think in terms of finance in New Jersey. And why don’t you talk a little bit about your background, and then we can jump in?
Andrew Sidamon-Eristoff 02:14
Well, thank you. And thank you for inviting me to participate today. As you know, I served as New Jersey State Treasurer overseeing New Jersey state budget and state tax administration, along with a number of statewide administrative services from 2010 to 2015. Before that, I oversaw taxes administration for both the city and the state of New York. And before that, in ancient times, I served on the New York City Council representing a portion of Manhattan in the in the early and mid 1990s. So
Bob Megna 02:52
you’ve dedicated a big chunk of your professional career to the issues we’re going to talk about today, which are, you know, taxes, and how what, how do we judge what the burden of taxes we’re facing in New York, New Jersey around the country? And I think you just wrote an interesting piece. And I’d like you did talk about it a little bit, which is, you know, often, our friend said Citizens Budget, for example, just came out with a report that talked about tax burdens in New York State. And a lot of people. And this is, again, they do wonderful work at Citizens Budget Commission. So it this is not about that. But often people lead us to this path where we judge a tax system by one number. And that can often be misleading. Why don’t you talk a little bit about what you tried to do in your piece?
Andrew Sidamon-Eristoff 03:58
Basically, I sought to provide some context for folks who follow the politics of budget making, both in New Jersey and in New York. And let me just begin with a brief overview of the piece. So both states are in or soon will be in, you know, the full budget season mode. And you know that that comes with legislative hearings and advocacy organizations cranking up to lobby and the governor’s in full negotiation mode. And, you know, in advance of that, and also to provide a little bit of context. I sought to compare the size of New Jersey’s and New York State’s state budgets, as published and commonly understood on an apples to apples basis. So, if you read the newspapers, the differential is huge. Just by the headlines New York spends more than four times as much as New Jersey. But of course, you know, New York’s population is more than twice New Jersey’s but just correcting for population isn’t enough to make a fair comparison, you have to make a series of adjustments that reflect the fact that the governor’s budget proposal in New Jersey doesn’t include major categories of spending, such as spending supported by federal funds and bonds. And I’m writing mainly for a New Jersey audience. And I wanted to tease out some of these distinctions for their benefit. Now, after making the adjustments, I found that New York state spends about 19% more per resident than New Jersey. And that’s, that’s a significant differential. But again, that’s only part of the overall picture. In part, because the two states also take very different approaches to apportioning programs and fiscal responsibilities to local government. For example, unlike New York, New Jersey, at the state level, covers the cost of teachers pension plans, rather than having the local districts cover that expense. So, you know, people have asked since reading this piece, you know, why did I write it and what was I trying to accomplish? And, you know, again, I wanted to offer some context. As you know, Governor Hoko, recently unveiled a $227 billion proposal for fiscal 25. and New Jersey, Governor Murphy will soon introduce a budget at the by the end of this month, which will likely be about 55 billion. And, you know, by any standard, those numbers are huge, and frankly, they’re almost meaningless to most people. So I thought a state to state comparison might help, especially since, you know, we’re generally in the same media market. And we and our states share many of the same sort of financial and demographic, economic characteristics. So, you know, I think the piece in the end, you know, delivered several sort of key takeaways, you know, first state budgets, as you know, are complicated. And, you know, if you’re going to be an informed observer, you need context, you need to understand how this fits into a larger system. And that brings up a second point, which is, you know, states are important, but only one major player in a much larger fiscal system. That includes the federal government, as well as local governments. And then finally, you know, if you’re tracking the political debate over state budgets, you need to be aware that a lot depends upon how tax and spending issues are framed, you know, are the legislators fighting over state, federal and or capital funds? In New Jersey, for example, most of the political tension is focused on spending supported by state revenues. But that leaves almost 40% of the total that is actually spent by the state of New Jersey, free to fly well below the radar. And I think people should know that it should, people should be aware that there’s a lot more going on than May 1 Meet the eye.
Bob Megna 08:49
Yeah, no, I thank you. I thought your piece was interesting by trying to get at these things in a more subtle way. I mean, I think in New York, you have additional difficulties, because the city of New York again, you talked about being a tax official in the city of New York, is so big and such a big part of New York state’s finances and has a very complicated tax system as well. And I think often, again, a wise man once told me to that, you know, whatever summaries, the test sticks you look at that often you have to really get down to who are the people? And who are the businesses or what part of the state is it that you want to actually compare New York to maybe another jurisdiction like New Jersey or even within New York State? And that gets incredibly complicated. You know, I I don’t know how to judge what the impact that New York City corporate taxes, for example, have on something like a per person, or a per capita overall number. But those are the kinds of things you have to grapple with, or am I missing something? No,
Andrew Sidamon-Eristoff 10:21
I think you’re, you’re, of course dead on. And you have long experience in, in thinking about these issues over an incredible, incredible and accomplished career. You know, my answer to the casual reader of my piece and others is to say, you know, my sort of takeaway, I guess, for you would be, you know, it would depend upon whether you’re a New Yorker or living in New Jersey, you know, if you’re in New York, and you’re concerned about things like taxes and spending. You know, I think you have a little bit more ammo now to make the point that New York does indeed spend a lot of money compared to New Jersey, a neighbor, which has many similar demographic and economic characteristics. And so it’s fair to ask whether or not you’re getting your money’s worth, you know, as the Citizens Budget Commission reports you noted earlier said, you know, is the value proposition still there? Are New York’s expensive services such as education, transit, health care? Are they materially better than the New Jersey equivalent? And if not, why not? And so, you know, I know it’s a little bit of a cop out to sort of answer a question by offering up another question. But the thing is, I want people if I can, to start asking questions like this. And then, of course, if you’re in New Jersey, and you’re also concerned about spending, you know, it might be small comfort to know that, you know, it’s a little worse in New York. But, you know, I think I’d like some people to start asking legislators here in New Jersey to step up, and maybe do a better job of exercising budget oversight. Because right now, you know, the annual fuss and fury over the budget, pretty much leaves aside about almost 40% of the budget. And, and, you know, if you’re, if you believe there’s value in legislative and ultimately democratic oversight over these kinds of decisions, you know, people need to be aware that there’s a lot more going on than they might have thought.
Bob Megna 12:51
Yeah, no, I agree with that. But again, I think it’s certainly been my experience that, you know, often if something is not talked about, people are a little reluctant to bring it out. Only because, you know, people do want one sentence summaries, they do want one number summaries of what’s going on. And I think those things are always an issue. To go backwards to something you said, though, which I, I think I take all your points, I think it’s right to be thinking about it this way. I always come back in a state like New Jersey, and New York, you know, northern New Jersey. I don’t think property tax burdens for schools are materially different than they are going across the border to Westchester and Rockland County, in New York. And I think that’s what I was trying to get at before sometimes it gets complicated because like something like schools, it’s hard to disentangle what you’re paying for from the service, you get folks choose to live in those school districts, they usually know what they’re getting themselves into. And that’s a big chunk of the taxes they end up paying. I think it’s harder. So that part becomes a little bit more complicated for me to to piece together. To your point, though, I think when you’re talking about corporate taxes, and you’re talking about the income tax, it’s a little harder to do those kinds of, well, you get what you pay for arguments, right? And I don’t know what you think about that and how you factor that.
Andrew Sidamon-Eristoff 14:49
Well, in this particular piece focused on on the budget, in a particular what I call the headline budget, which is As you know that the number that is, you know, that frames the public debate and dialogue every year. And those are really big numbers. And in my experience, though, most people, even people who follow this stuff on a semi regular basis, don’t really know how to put that into context. So I hear what you’re saying about trying to put the sort of the various components of the tax system into into appropriate context on a comparative basis. And, interestingly enough, I’m working on another piece that will do just that, in respect of income tax, state income tax. But you know, I think everybody needs to understand that when you’ve zero in on, say, corporate income tax, you’re only looking at a very limited component of the overall fiscal system. You know, and in particular, with respect to corporate tax, as you well appreciate, you know, the corporate tax over time has become a less dominant player in the taxation of business enterprise. So the over the last two or three decades, you know, we’ve seen the rise of pass through entities like LLC, it’s really take over. And so it if you really wanted to understand business taxation in New York, and in New Jersey, you need to focus on how those pass through entities are taxed. And that is unbelievably complicated. In both states, but but I, you know, it would be a worthy project, to look at two representative small, smallish businesses, and to compare how they they would do.
Bob Megna 16:56
No, I agree not to interrupt. I think, you know, one exercise I think that would be worth doing. And I think you just talked about it. I think both states, I think, have sophisticated analysts who look at the income tax structures in each state in a pretty complete way. I think one of the ways to really put a point on what you’re saying is, if you took the New Jersey tax code and imposed it on New York taxpayers, you know, what, what would it look like? I think you’re right, it would generate less New Jersey’s code on New York would generate less money. But it’s interesting to me, where would that be true in the income distribution? Would it be true for wealthy taxpayers? Probably not so much, but it would certainly I think, be true for for kind of middle income taxpayers, then you have low income taxpayers, and New York has a very generous, for example, earned income tax credit. So I keep coming back to the same theme. And I know I’m boring people with it. But I think a lot of this is looking at trying to focus in on the taxpayers, you’re concerned about, your point about the overall budget is well taken. I think you can look at that and say, Okay, what is New York kind of doing? What is New Jersey kind of doing? I think, when you want to get more into the specifics of the tax piece, I think then it might make sense to get a little bit more micro and and look at different aspects of the code. By the way on the corporate tax. You’re 100%. Right. Here’s what I would say. tax departments probably in both states spend a disproportionate amount of their time analyzing corporate taxes, given how much revenue they bring in. Right. Which, to me is almost a resource issue, too.
Andrew Sidamon-Eristoff 19:08
So some, some cynics might might point out that, you know, a large reason why states like New York and New Jersey maintain a corporate tax is to have something against which to apply, you know, tax incentives. And and because the the numbers on the on the incentives side are huge in relation to the actual amount of revenue net revenue raised by each of the states. I
Bob Megna 19:38
have a proposal. I’d love your opinion. I believe it the Feds put in a 5% tax add on tax to the US corporate tax and divvied it up to states based on population on the condition that the states gave up their corporate taxes. It would be a windfall for the states. Especially those states that don’t impose a corporate.
Andrew Sidamon-Eristoff 20:03
Yeah, they’re, I think five or seven states that don’t even have a corporate tax now. But I think that’s, that’s a very attractive idea. And and it would get us out of, you know, the mishegoss, if you will, of, you know, trying to bid one state against the other. The state of New York tax department just commissioned a study, looking at the effectiveness of various tax incentives. And the takeaway there was that, you know, it’s, it’s an uneven record of the fact that minutes on things like the film production credits arguably don’t don’t actually yield a positive return. Some other programs may be yes, but that it would be a great service to everyone, if we could get ourselves out of that kind of race to the bottom competitive dynamic that really, frankly, does little other than employ an awful lot of lobbyists and lawyers and consultants these days. But
Bob Megna 21:03
I’m glad you got that last part in. So what do you think, you know, again, I would advise all of our listeners to get a hold of the piece that you wrote, and maybe you can tell people where they can find it. But in thinking beyond that, what where do you think, what do you think it tells policymakers about what they should be thinking about, but in both states?
Andrew Sidamon-Eristoff 21:31
Well, I think it should tell policymakers that the way they present their budgets, and they talk about budgets in the public space impacts, frankly, the politics of budget making and ultimate policy decisions. They probably already know that. But I think it’s healthy, if more people who are concerned with or monitoring the process are aware of that dynamic. So I keep harping back to the fact that the neat New Jersey public budget debate only covers, you know, about 60% of the total amount of money that actually flows through the state government. From one perspective, the reason that is maintained is that it enhances executive power in New Jersey, the governor in New Jersey has already enormous institutional powers compared to say the governor of New York, for instance, the governor currently controls revenue estimates in in New Jersey, whereas New York governors don’t enjoy that privilege. Although interest interestingly, the New York City mayor has that role, which is a very important point of leverage. Anyway, I digress. If you can narrow the confines of debate, you have really exercised a great deal of influence over the end result. And you know, I’m constantly frustrated, but never surprised at the fact that access to information is uneven, even in the best informed public space. Those of you who live in New York, you know, should take comfort in the fact that there are a lot of independent groups, like the Citizens Budget Commission that are doing excellent, independent, analytic work to help policymakers and the public evaluate, you know, public policy decisions and budget decisions along with them. In New Jersey, that’s frankly, not the case. We don’t have the same kind of civic infrastructure. And so there are a few organizations that are you know, laboring as hard as they can. But it’s an uphill battle and internal to government. There’s also a great disparity New Jersey doesn’t have the same culture of analytics within the government. It’s not because folks in state government are any less capable or educated. It’s just, it’s just not the culture in in New Jersey. And, you know, I think it’s been changing slowly, but it’s a continuing challenge. So I don’t know that that was a direct answer to your question about what what are the public policy implications are messages for public officials, but I think the more they know that more people understand the mechanics and the context, I think the better for everyone.
Joel Tirado 24:41
Thanks again to Andrew Sidamon-Eristoff for joining us on the show. If you want to read his opinion piece in NJ spotlight news, go to NJ spotlight news dot o RG or click on the link in the episode Description.
Alexander Morse 25:01
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