Budget Deal Ends Shutdown On July 4

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A last night deal between the two branches of the Legislature ended a budget stalemate late July 3 in time for state parks and beaches to reopen for the July 4 holiday.

A three-day government shutdown that seemed to come out of nowhere ended in the wee hours of the Fourth of July after Gov. Chris Christie struck a grand budget bargain — his last — with the Democratic leaders of the Legislature.  Interestingly, holding up the $34.7 billion spending plan for fiscal 2018 wasn’t aid for schools or even a once controversial lottery proposal which sought to dump the asset into the pension funds.  Rather, it was a controversial piece of legislation to overhaul the state’s largest health insurance company, Horizon Blue Cross Blue Shield.

School Funding Changes

Central to the budget agreement reached by Christie and Democratic leaders in the state Senate and Assembly was an additional $150 million in school funding as follows:

  1. An increase in $100 million for schools currently below ‘adequacy’ above the Governor’s flat funding proposal;
  2. An increase in $25 million for pre-school expansion that will go to 17 districts with at-risk concentrations and sufficient bandwidth to begin work this year; and
  3. An additional $25 million in Extraordinary Special Education funding

Smaller sums were also added for a variety of other programs including: $23.8 million in non-public school aid for security, nursing services, and other programs; $4 million for adult education in the state’s county vo-tech schools; and $3 million for vo-tech partnership grants.

The changes also attempt to move New Jersey back to the state’s school funding law.  And, while the additional money is a small fraction of the estimated $2 billion gap between what the state’s school districts receive and what the law calls for, one has to acknowledge that the total amount of funding for schools is close to a third of the total state budget.

But, the changes also come with pain.  More than 100 districts will lose money under the deal.  Specifically, these districts will see a decrease in the amount of state aid allocated because they are ‘above adequacy.’

Thankfully there was some movement during budget deliberations on how these districts are affected (down from the initial Sweeney/Prieto proposal of $46 million in cuts to $31 million.  The revised budget document modified the cut ‘methodology’ from a cap of not more than 1.5 percent of a district’s total budget to ‘no more than 20 percent of excess funding, 1.5 percent of a district’s budget or 2 percent of state aid, whichever is lower.’   Unfortunately in these things, timing is everything and cutting districts this late (post levy due date of May 19) may prove problematic.  Luckily, the adopted budget also establishes an ‘emergency fund’ that will allow districts critically underfunded to take out a loan.   

And, the budget also seeks to address the underfunding of over 300 of the State’s most underfunded districts – and some of the amounts are not inconsequential.


So what makes Horizon unique and exactly what was driving the impasse with this year’s budget?  Horizon isn’t a typical insurance company.  Rather, it is the state’s only not-for-profit “health insurance corporation,” created under state law “as a charitable and benevolent institution.”  This doesn’t mean it doesn’t pay taxes (it paid $543 million last year).

During his budget address in February, the governor called on Horizon executives to “establish a permanent fund…through their abundant surplus…to support our most vulnerable population who access Charity Care and Medicaid.” 

Specifically, Christie wants $300 million from Horizon’s surplus to pay for his opioid treatment program. But, he needs a change in state law to try to force the company to hand over the money.  Specifically, he is asking for a change in governance and a stipulation on how much surplus the entity can have to effectuate his goal.  Initially lawmakers were not inclined to cooperate.

However, when legislative leadership brought their proposed budget to Christie, which contained significant revisions to the school funding formula, an expansion of preschool programs, funding for legal services for the poor, among other items, Christie asked for some minor changes, but agreed he would sign-off if legislative leadership could deliver a bill that he said made Horizon ‘more accountable and transparent.’ 

Senate Democratic leaders said yes; Assembly Democratic leaders said no.  And witness to that difference, on June 29, the Senate passed (S-4), sponsored by Sen. Joseph Vitale (D-Middlesex). 

S-4 did several things:

  • It made Horizon as “the insurer of last resort,” meaning it would not be allowed to reject any customers who cannot find coverage elsewhere (Horizon has not held this status since 1992, when the company became nearly insolvent);
  • It empowered the state insurance commissioner to create a process determining how much surplus Horizon could retain, and if the amount exceeds that level, direct Horizon to devise a plan on how it would spend down the funds by either returning it to policy holders or contributing it to a public health fund; and
  • It required three of Horizon’s 11 appointees to the 15-member board of director to be elected by policyholders.

The Speaker initially said the Horizon changes shouldn’t happen as part of the budget process, particularly in light of potential changes come with the repeal of the Affordable Care Act, the potential precedents set, as well as an insufficient time to review the changes.   Senate President Stephen Sweeney (D-Gloucester) was concerned that without approval of the Horizon legislation, the additional funding priorities that were added by the Legislature, and agreed to by the Governor, including additional state aid for schools, are in jeopardy.  The Governor outright said that on Friday – indicating he would cut all legislative priorities with the approval of the concomitant Horizon legislation.

The final pathway came late July 3 when the parties agreed to modify the plan to replicate Pennsylvania’s surplus structure, eliminated the provision that required Horizon be the insurer of last resort, and added 2 new appointments by both the Speaker and Senate President respectively.  Within 10 hours, the stalemate was over and state government reopened.