Thursday, July 29, 2010

State Pension Reality Check

Cross-posted at PolitickerNJ.

Numbers matter. Poll results, budget deficits, health statistics. Attach a number to any issue and it becomes reality. But sometimes a reality check is in order.

When this year’s budget was first unveiled, the administration touted the closure of a nearly $11 billion structural budget gap. There was some debate over that claim because it involved spending that had not been appropriated for years. The front office switched gears later in the budget process and focused on the their reduction of state expenditures by $3 billion from the prior year – a widely accepted fact that is certainly worth crowing about.

The grander claim of an $11 billion deficit solution continued to surface, though, driven perhaps by the national media’s interest in New Jersey’s Republican governor. I believe such a claim is basically “untrue,” because it implies that the structural issues contributing to this gap have been solved. They haven’t.

Indeed, a recent analysis by the non-partisan – and well-regarded – Office of Legislative Services estimates that next year’s budget deficit could top $10 billion. They arrive at that conclusion by looking at the same “on-the-books” programs and obligations that were used to estimate the current year’s $11 billion gap. So, it was more than a little interesting when Governor Christie said the OLS numbers were “completely fake.”

State treasurer Andrew Sidamon-Eristoff clarified the administration position. He said the OLS figures were “wildly inflated” because they assume “that New Jersey is going to return to its spending habits of 2008 and 2009. Those spending commitments were frankly unsustainable and out of control.”

The treasurer added that all parties “need to come to terms with the fact that fiscal ’11, the budget plan that we just adopted, represents a new baseline for New Jersey.” Fair enough.

The problem is that OLS includes those commitments in its fiscal analysis because the programs are still on the books, a fact that the treasurer implicitly conceded in a later interview.

The OLS numbers are a reality check. Those statutory obligations still exist, which the governor was asked about in his first national Sunday morning television appearance on ABC’s This Week.. Specifically, host Jake Tapper asked Governor Christie whether he wiped these programs off the books via “executive fiat.”

Regarding the pensions, the governor said that he was “going to go after current employees” this fall. Ah – a new reality.

It is no secret that the pension obligation will continue to grow, even after a required $500 million contribution is included in next year’s budget. Furthermore, there is mounting evidence that the state will never be able to meet its retirement obligations for current employees. [Jason Method’s piece in the Asbury Park Press on this is a must read.]

The governor has signaled that he is going to tackle this head on before the next budget. The fight is not going to be easy, but win it and the OLS deficit estimates will almost certainly come down. Until then, the numbers are anything but “fake,” especially to the workers who expect to receive these benefits and to the generations of taxpayers who would have to foot that bill.

Friday, July 23, 2010

Adventures in Campaign Message Polling, part 1

Cross-posted at PolitickerNJ.

The political blogosphere recently took note of a poll in New Jersey’s 3rd Congressional district purporting to show first-term Democratic incumbent John Adler with a surprising 17 point lead over GOP challenger Jon Runyan. The poll was conducted for the Adler campaign by their own pollster, but even campaign pollsters have to produce reliable estimates if they want to stay in business. Regardless, this poll – or to be more accurate, the memo that described the poll results – raises some red flags.

First, only 3% of likely voters say they are undecided about their choice. Really? In June, when most voters probably cannot name either party’s nominee?. Second, the vote choice question was posed as a 3-way race, including Adler, Runyan and a third candidate running under the “NJ Tea Party” banner. This candidate – whose name recognition has to be near zero – received 12% of the vote in this match-up.

The poll memo reads more like a campaign fluff piece (e.g. “[Adler’s] record of independence and accountability has put him in an excellent position to win this race.”) than an insightful polling memo. Now, I’m not saying that the poll findings were fabricated. For one, the pollster, Greenberg Quinlan Rosner, is a well-known Democratic firm that is unlikely to jeopardize their reputation by generating poll numbers out of whole cloth. In fact, I’m inclined to believe the results were probably valid. The problem is that they were reported out of context.

Unless the Adler campaign has money to burn on conducting polls solely for the purpose of leaking them to the public, these results were from a longer poll that also tested all sorts of messages and strategies for the Adler campaign. The purpose of an early summer poll is to try out a variety of messages in order to identify the most effective ones for use in the campaign.

What we don’t know about this poll is at what point in the interview this three-way vote choice question was presented to respondents. I have my doubts that this was the first time in the interview that survey respondents were asked to name their vote choice. There were likely some questions about candidate characteristics that preceded this question.

So why does the order of the questions matter? Because questions asked later in a poll allow respondents to use information they heard during the course of the interview to inform their answers. At this point, the poll results no longer reflect the mind-set of typical voters because the poll respondents now have information – i.e. messages – that most voters don’t.

This is why message testing polls rarely get released to the public. Indeed, most reputable pollsters prefer it that way. Unfortunately, their concerns are occasionally overridden by a campaign manager who sees some strategic advantage in releasing the poll results.

One reason a campaign may release an internal poll is to demonstrate to potential donors that they have a viable shot at winning. Considering the healthy state of Adler’s campaign coffers, that’s clearly not a concern. So what advantage did the Adler campaign see in selectively releasing poll results?

First, we need to consider why the campaign even bothered to include an unknown, unfunded third party candidate in one of their vote choice questions. Especially since there will be three independents candidates on the ballot for this race in November. [Side note: There were four, but the state Democrats’ executive director, Robert Asaro-Angelo, successfully challenged Robert “Weedman” Forchion’s petition. This, of course, raises questions about Angelo’s contention that he never heard of the Tea Party candidate listed on that very same ballot.] [UPDATE: Rob Angelo contacted me re this statement. He admitted that he misspoke, since he obviously reviewed the names of all independent candidate filings in June.]

So, why did the Adler campaign only test the Tea Party candidate? Because it makes sense in the current political environment. While we can make a pretty strong guess as to the “Libertarian” candidate’s likely vote total in November, the impact of running under the Tea Party banner is a big question mark.

According to the Adler poll results, a Tea Party candidate may indeed peel off votes from the Republican nominee. But this is by no means a certainty. Why? To start, no one knows who the Tea Party candidate is.

And that gets us to why these numbers were released. Remember, these poll results represent one potential outcome in a context where Adler’s pollster had complete control over information presented to voters. In other words, the message testing effects measured in campaign polls do not always play out so neatly in the real world.

More importantly, a message will certainly not work if no one knows about it. And that is the case with the Tea Party candidate. So, what’s a good way to get a candidate’s name out? Show him exceeding expectations in a poll.

The message testing poll becomes the message! The Greenberg firm issued a memo to “Interested Parties” and sure enough, the story hits the internet, including The Hill, Chris Cillizza’s “The Fix” column in the Washington Post, the National Journal’s Hotline, and PolitickerNJ.

Interestingly, the poll memo was not released to newspapers, at least not to those in Adler’s district. Did the campaign think these media outlets wouldn’t be “interested?” Doubtful. The reason why the poll was released only to internet sites geared to the chattering classes was a strategic one. The intent was to let Tea Party-inclined voters “know” they have a viable option in New Jersey’s 3rd district Congressional race and to suggest to potential GOP donors that Runyan is a shaky investment. The internet is the best way to get that buzz spread with a less critical eye, especially with the burgeoning Tea Party community.

The chosen “interested parties” did their job and disseminated the campaign’s message, any caveats in their reports notwithstanding. Of course, this may backfire in the long run. Tea Party activists have been denouncing the candidate, with stories now focused on whether the Tea Party candidate is a plant. This poll is seen by some as part of a larger Democratic plot.

However, the question remains whether this poll – or more accurately the selective results in the campaign’s memo – should have been reported in the first place. When a campaign simply claims that their candidate is ahead by 17 points, no journalist in his right mind would report it. However, when a campaign has their pollster slap together a memo that purports to show a “51 to 34 percent” lead, suddenly the information is valid.

A good rule of thumb, no poll should be reported – in any venue – unless the pollster is willing to provide the entire set of questions and responses. Otherwise, it’s little more than propaganda, or worse. It’s a little too late for this poll. The Adler campaign achieved its intent – getting out a campaign message under the guise of hard fact.

Thursday, July 15, 2010

Homebuyer Credit or Taxpayer Gift?

So what’s the deal with the New Jersey homebuyer tax credit? This program would give homebuyers in the state a tax credit worth up to $15,000 spread over three years. The bill (A1678) passed the legislature with overwhelming bi-partisan support and landed on the governor’s desk on June 10. Yet, Chris Christie has yet to sign it.

On New Jersey 101.5’s “Ask the Governor” program this week, Christie said he likes the idea, but will only sign it if he can figure out where the money is coming from. Proponents of the bill say it will spur construction and create jobs, which will increase revenues in both the realty transfer fund and income taxes, which will offset the cost of the program. A look at the numbers behind the program casts serious doubt that this will be the case.

The program sets aside $100 million from the property tax relief fund as a tax credit for people who purchase a home after the program goes into effect. Of this amount, $75 million is set aside for the purchase of newly constructed homes and $25 million for existing home sales.

Wow! $100 million sounds like it will go far, doesn’t it? Not really. The program would give these purchasers a credit of $15,000 or 5% of the sales price, whichever is lower. For the sake of argument, let’s say that the typical home price is $250,000. That would give the average homebuyer a credit of $12,500.

The $100 million in the kitty would provide tax credits to just 8,000 homebuyers. Hmm, sounds less impressive now. It’s a shame the legislature didn’t know this before they passed the bill, you say. Actually, they did (or at least the Senate did). The Office of Legislative Services provided a fiscal impact statement in late May that laid out just such a scenario – in fact, theirs was even more conservative.

But wait, there’s more. Let’s see how this would actually work if the program was in place. Remember the pot is divided 75/25 between new and existing construction. Using my generous estimate, that equates to 6,000 purchasers of new homes and 2,000 purchasers of existing homes who would qualify for the credit.

There were about 12,000 building permits issued for new homes in New Jersey last year. Even if some went unsold, at least 10,000 new homes were purchased last year. There is some debate on the impact that the now-expired federal tax credit had on those sales numbers. Let’s make a hypothetical assumption that one-third of those sales were driven by the tax credit and two-thirds would have happened anyway because people needed to move. In other words, we could expect that about 6,500 newly built homes will be sold in New Jersey this year without any tax credit.

Now, proponents say that the availability of a state tax credit will spur more buyers into the marketplace and thus increase demand. Let’s accept that premise and estimate that demand doubles and 6,000 homes are sold within the first six months of the program.

Well, what happens after the credit program is shut down? Do those buyers stay in the market and keep housing demand high? If we look at the experience of the federal credit program, the answer appears to be “No.”

The numbers are even more astounding if we look at how the credit will apply to sales of existing homes. According to state figures, more than 110,000 existing houses were resold last year. That translates to about 300 a day. This means the $25 million pot for existing home sales tax credits will be snapped up within a week of the program going into effect. One week!

Considering how lengthy the sales and mortgage process is, a homebuyer’s likelihood of closing on their purchase within the seven day window this credit program is available will be more a matter of luck than planning. “Mr. and Mrs. Jones, here are the keys to your house, and congratulations - you just won $15,000!”

This analysis raises a number of doubts about the economic impact – or ripple effect – of the New Jersey homebuyer tax credit. First of all, if the purpose is to spur economic activity in the form of construction jobs, then why isn’t it limited to new home sales only?

But even if the entire pot was dedicated to new home sales, it doesn’t seem to be large enough to keep demand high for enough time to ride out the current slump in the housing market. If I were a builder, I don’t think I would be hiring more workers on the dubious potential of this program.

And finally, why is the program so generous at $15,000 a pop? The federal program gave an $8,000 credit for first-time homebuyers and a $5,000 credit for current owners. These amounts appeared to be adequate to keep the housing market from dipping lower than it did.

Of course, none of this says anything about whether a tax credit of any sort is particularly smart economics. Some analysts claim that the New Jersey housing market is still overvalued and that prices need to come down further before buyers will return. Basically, they argue that the tax credit program has interfered with the open market and delayed a necessary price correction. Perhaps that’s why the eight Assembly members who voted against the bill happen to be among the most ideologically conservative in the legislature.

In any event, it’s difficult to see economic benefit in taking $100 million dollars in taxpayer money and giving it to 8,000 homebuyers for doing what they would probably have done anyway. Given New Jersey’s current fiscal crisis, maybe the state would be better off using the money to build a few hundred houses itself and sell them for a profit.