State Budget Impasse Moves NJ Into Shutdown Mode
With a failure to pass a budget by 12am on July 1, New Jersey government shutdown for the first time in 11 years. The shutdown will continue until a spending bill is approved and signed by the Governor. But, what funding the budget will contain – for everything from schools to state parks – depends on, at least at this juncture, the passage of legislation related to Horizon.
So what makes Horizon unique and exactly what is 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).
The bill does several things:
- It makes 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 empowers 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 requires three of Horizon’s 11 appointees to the 15-member board of director to be elected by policyholders.
The Speaker has 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) is 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.
So now the Senate President and Governor have squared off in one corner and the Speaker is in the other corner with the State’s budget in jeopardy. Democrats in the Assembly are divided in light of the issue – with only a portion voting for the budget when the Speaker brought it to the floor June 29 and June 30. The Senate refused to move the budget in their house, absent the approval of the Horizon legislation. The pathway forward is simply unclear – particularly in light of the heightened tension that has amped up after the June 30 budget approval deadline was missed.
State Funding for Schools In Question
What is clear, however, is that the Governor has indicated that absent receipt of the Horizon bill he plans to cut the additional state aid approved by the Legislature’s budget committees late last week. So what does the budget bill actually include for students and schools?
The $34.7 billion spending plan came with some improvements over the Governor’s initial February proposal and legislative leadership’s initial school funding proposal as it relates to education funding. Among these are the following:
- An increase in $100 million for schools currently below ‘adequacy’ above the Governor’s flat funding proposal;
- A decrease in the amount of state aid being reallocated from districts ‘above adequacy’ from the initial Sweeney/Prieto proposal (from $46 million as initially proposed to $31 million (changing a cap of 1.5 percent of a district’s total budget that was included in the Democratic leaders’ plan 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’);
- 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
- An additional $25 million in Extraordinary Special Education funding
So what now?
A State Budget in Jeopardy & Government Shutdown
When the Legislature failed to present a budget to the Governor for signature by June 30 in light of this divide – government was forced to shutdown (the State Constitution requires adoption of a budget by June 30). Now, only essential services, which does not include state beaches, the motor vehicle commission, or even casino regulators, can operate absent approval of a state budget.
Adding to the complexity of the situation is also Prieto’s future as speaker when reorganization comes up in January.
The attacks have gotten nasty with the Governor and Speaker tweaking each other on social media and signs appearing on state buildings assessing blame for the state shutdown. Hence the continued impasse.
NJSPA has been on the ground in Trenton throughout the budget showdown and will continue to provide updates as the situation unfolds.