>> From NJ PBS studios, this is NJ Spotlight News with Brianna Vannozzi.

>> Hello, and thanks for joining us tonight.

I'm Joanna Gaggis, in for Brianna Vannozzi.

A few stories we'll get into later in the broadcast.

Governor Mikey Sherrill joins us here in the studio, fresh off her first budget address.

We'll talk about her plan to put the state on the right fiscal track.

Plus, we get reaction from business and community leaders on what they think of what the governor's proposed.

And later, we keep hearing about it, the school funding formula.

What is it?

How is it calculated?

And how should it be reformed?

We'll break it all down.

But first, travel has gotten a lot trickier these days, whether you're taking to the roads, the rails, or the skies.

Gas prices are soaring as the war between the US and Iran continues to expand across the Middle East.

The conflict took a more recent turn after Iran targeted several cargo ships in the Strait of Hormuz.

Now, a fifth of the world's oil supply is circulated through that passageway, and Iranian leaders have said they plan to cut off all transit through Hormuz as a retaliatory effort against the U.S., Israel and our allies.

While to help stabilize gas prices, the International Energy Agency agreed to release 400 million barrels of oil from their reserves.

But even still, here in New Jersey, we've already passed $3 a gallon at the pump and costs aren't coming down anytime soon.

At the same time, air travel has been impacted twofold from the rising jet fuel prices and the partial government shutdown of DHS that's left TSA workers once again missing paychecks.

And there's no end in sight there either.

Robert Sinclair of AAA Northeast sees the higher gas prices continuing for weeks, possibly months saying that even if the conflict in Iran were to end today, it would take that long because of all the damage that's been inflicted on the facilities in the Middle East.

Well certainly the price of gasoline is hurting drivers in New Jersey right now we're at $3.49 a gallon.

That's up five cents since yesterday up 48 cents in the past week and up 58 cents in the past month.

So it's it's been a very volatile situation that affects drivers very profoundly.

For those that are flying it seems the biggest problem is going to be the price of jet fuel because that's made from petroleum as well.

And that's going up significantly.

So that will impact prices.

Coming up we hear from Governor Mikey Sherrill following her first budget address.

She joins us right here in the studio.

Major funding for NJ Spotlight News is provided in part by NJM Insurance Group serving the insurance needs of residents and businesses for more than 100 years.

Governor Mikey Sherrill outlined a record 60 point seven billion dollar budget proposal Tuesday in Trenton even as the state is facing a multi billion dollar structural deficit and a shrinking surplus.

So how does the governor intend to rein in spending while still expanding services.

She joins us now to talk it through as part of our Under the Dome series.

Governor Sherrill welcome to the show.

Thanks so much for being with us.

Six 60 point seven billion.

You've talked about the deficit that the state is facing.

It was three billion.

You've knocked it down to I believe one point six billion.

You say it's the most structurally sound budget that the state's seen in a while.

Why not get to a zero budget deficit.

Why not.

I would love to.

And but what we've done with this budget is to account for some of the cuts that we're seeing from the federal government over a billion dollars in cuts making sure that we're presenting the most fiscally responsible budget this state has seen in years.

We have the structural deficit.

We've cut two billion dollars in spending.

We still fund our pension debt.

And at the same time we don't raise individual taxes on anyone.

In fact over the past eight years we've seen our budget go up on average by six point eight percent.

This budget only goes up one point six percent.

That's actually under inflation.

So really focusing on driving down costs for people here in New Jersey.

How do you see.

Obviously you're just getting a hold of the first budget.

But I wonder if you've projected forward the way that I see it.

You've extended the surplus now maybe three and a half years based on the spending.

If nothing increases next year is this something where you intend at some point to increase that surplus or is staying flat here the goal.

Well in the near term what I want to make sure we do this is you know I've seen this as sort of a two year budget to start with.

So in the next year I'd like to see us get to no structural deficit and then we can talk about getting a surplus because in that way we can have the ability to loan out money for building housing that people can afford and different programs.

Sometimes there's matching funds that we can unlock federal dollars if we have state dollars to spend.

Right now we're just kind of captive to these bad spending decisions that have been made historically.

As I said in my budget address if we had just paid our bills over the past 30 years instead of spending seven billion a year on this pension debt we'd only be paying one billion.

I have to ask you about that.

Your speech in some ways felt like a reprimand to this legislature that passed the budget.

Some of them at various points, including the leadership, the assembly and senate leadership, didn't seem too thrilled with some of the things you were proposing.

Did you discuss your plans to trim back, especially when it comes to stay NJ, property tax rebate program for seniors?

Did you discuss that with them in advance?

I reached out or my team reached out.

We have touched base with every single member of the Senate and legislature.

We were discussing what their focus was and what I heard from them was a real desire to get a hold of this budget.

Like I said so many of the decisions have been made over decades.

We didn't get to this point in one session alone.

So I have heard from people who've proposed different ways of moving forward for years.

And I think many members of our Senate and our Assembly are really excited to move forward in a way that is going to invest in the future.

Do you think they share your vision for where to cut.

I think some do.

And when they don't I said come to me.

You know if you think we've made some bad decisions then tell me where we've made the bad decisions but also tell me how we are going to continue to drive down cost.

I have to ask you you also in many ways took aim at the business community focused largely on big business in this state.

You want to see more contributions to health insurance.

You want to end the alternative business calculation.

But some from the business community say don't don't ask business to balance the budget of the state.

It's just driving them out.

Do you disagree with that.

I certainly believe deeply in businesses and I think sometimes Trenton hasn't really appreciated how important our businesses are.

And so no I didn't take aim at them.

In fact my save you time and money agenda was built on the things I've been hearing for over a year now from the business community.

How hard permitting and regulatory requirements are for them.

How you know they go from the Department of Transportation to the Department of Environmental Protection and see different regulations and rules and have a really difficult time.

They don't know how long a permit is going to take.

So we built the permitting dashboard.

We've cut down on the registration fees.

What I've also done though is some of our tax programs were meant to help small businesses.

And because the federal tax plan has changed they were suddenly opened up to a lot of different businesses.

So what we've done is close some of those loopholes so they really can't focus on that diner or the mechanic down the street or our small businesses, which are really the lifeblood of our communities.

Just finally, youth mental health is a big focus for you.

You're going to put some dollars behind that, really looking at youth safety online.

That seemed to get a lot of bipartisan support.

Do you think that that's going to be an area where you can move legislation?

Every parent knows that we are failing our kids when it comes to social media.

And the devastating impacts are seen throughout our communities.

This is so key.

And government has failed here.

The federal government.

But New Jersey we are going to take strong steps to protect our kids.

And we have been contacting people across the country who have innovative programs.

I want New Jersey to be a leader in this space.

It's why we're setting up the social media observatory because big tech has canceled any studies because they know how bad it is.

We are going to do our studies and we are going to protect our kids and give parents the resources that they need to better understand this with the development of a research center that you intend to roll out.

Exactly.

All right.

We've got to leave it there.

But Governor Mikey Sherrill thank you so much for the time today.

Thank you.

Under the Dome is made possible in part by the Corporation for Public Broadcasting a private corporation funded by the American people.

We just heard from the governor on a few of the key components of her budget proposal for the upcoming fiscal year.

But how are community advocates and industry leaders responding to the governor's proposed cuts and increased spending plan.

To break it all down I'm joined by Michelle Sikirka president and CEO of the New Jersey Business and Industry Association and Peter Chen senior policy analyst at New Jersey Policy Perspective.

Welcome to the show.

Both of you Michelle I'm going to start with you.

Just give me your initial kind of 30 you know 30000 foot view of the governor's proposal.

What do you make of it.

Well this budget proposal was definitely intentional with a lot of transparency and attentive to issues around So for that we're very happy.

Explain what you mean when you say intentional.

Absolutely.

Well first of all when I talk about transparency right a few weeks ago the governor gave us a preview that she was well aware of the fiscal cliff that we were facing which we've been talking about for some years now.

So we were actually relieved to hear that recognition before just coming in yesterday with her budget presentation.

So she kind of sent the cue.

I'm telling you what I'm seeing.

This is So when I come in, there's not going to be a lot of surprises.

The other thing that we think is better than days gone by is she didn't just look to fill the gaps that are there all on the business community.

Now, there are some challenges in there that I know we'll get to, right?

But she did look at spending cuts, responsible accountability areas on spending cuts, while at the same time, there are still some challenges in there for the business community.

We are going to get into that.

She said, though, that there are $2.6 billion in budget solutions, and she cut $2 billion in spending, although the budget is not balanced.

We did talk to her about that.

But Peter, give me your bird's eye view.

What did you like?

What did you not like about it?

What's your take?

So certainly in New Jersey policy perspective was glad to see that the governor confronted some of the challenges that Michelle talked about head on and addressed both revenue side solutions as well as responsible cuts to programs like stay in New Jersey which was challenging but was necessary given the fiscal state of the state budget.

Obviously there are still some areas where we think that there could be more revenue growth as opposed to spending cuts especially not knowing what some of those spending cuts are.

What could that revenue growth look like.

Well as we've seen in the global economy over the last five six years since the pandemic a lot more wealth has been concentrated in the hands of a very small group of individuals and businesses and you know state governments are going to have to work harder to try to ensure that all that wealth that's being extracted out of the state is being pulled back in to help pay for the services that make the state great.

You know there's a lot to break down there at the at the federal level.

Right.

There's a lot of conversations about integral integral excuse me.

I'm not going to try to say it.

There's a lot of conversations at this federal level about companies really having monopolies and what that looks like.

But here in New Jersey the governor can only go so far.

She did look at big business and she did look at some I guess tax rateables that had been given back to business at the business that she wants to call back the alternative business calculation she says was never meant for big business only small.

Do you agree with that Michelle.

I mean on the one hand she's saying she wants to better support our Main Street businesses.

On the other hand do you see this as a negative.

You know let's start with the fact that we have the largest corporate business tax in the whole nation and by a lot and that our two regional competitors New York has the lowest in the region and Pennsylvania has the second lowest both below 8 percent and we're at eleven point five.

So we are the highest earning companies right.

Otherwise it's 9 percent.

It's nine point five which is still amongst the highest still amongst the highest.

So the important thing here is number one those are not corporate loopholes.

Those are very intentional tax policies.

Tax policies incredibly complicated and the tax policies around the net operating loss as well as the alternate tax.

Those were intentionally done to help to close some of this gap that we have for the fact that we're the highest corporate business tax in the nation.

So we always take issue when you say loopholes because it's like well they shouldn't really have it's like it was a handout and it was never a handout.

It was to help to level.

When we talk about wealth in the state be it business wealth or individual wealth we need to be competitive.

We are not regionally competitive.

We do an analysis every year.

We take seven factors over six regional states.

We come in dead last every year.

We're at the top and all these taxes income tax sales tax corporate tax.

I can go down the line property tax.

So we need to ensure that we're being regionally competitive so that people are not leaving and that we keep the wealth in this state so that we have the benefit of taxing that wealth.

Over the last 15 years, we've lost close to $40 billion of adjusted gross income in the state of New Jersey.

That's money that we don't get to tax here.

So while you want to see a balanced budget do you think that it's the right move to reduce the eligibility level for those who would qualify for stay NJ keeping seniors in the state.

I do because we thought when the policy first can't let me step back and say number one when it comes to property taxes we should be talking about reform and if we want to take up an agenda for long-term sustainability we should all get around the table and say how do we reform how property taxes are calculated in the state of New Jersey because rebate checks don't work every time you run out of money we don't get them when stay New Jersey came in the program was the eligibility requirements were way too high like way too high and I agree with that.

I think it's important to understand that the state is going to have to work with the legislature.

We don't know where this ends up.

We know that the assembly speaker has always fought for that stay in J program.

Not sure where he stands at this moment.

Health care, another big challenge.

She says that the state is going to help fill the gaps for those who could potentially lose with the federal cutbacks to Medicaid.

Was that the right move for the state to fill in that gap.

Can we afford to fill in that gap.

Really the state can't afford not to fill in the gap.

Higher uninsured rates lead to higher health care costs across the board for all residents and can really put pressure on health care providers that could potentially close.

We're already seeing cost pressures on hospitals throughout the state.

And so the state needs to commit, frankly, even more resources to try to ensure that people do not get bumped off of health insurance when January 2027 rolls around.

We're already seeing some cutbacks for folks who are on the exchange plans.

And to go back to an earlier point about, you know, the tax environment, you know, we -- I think one challenge that the state faces and that all states are facing is the wealth that's being generated off of New Jersey residents is not staying in New Jersey.

It's going to foreign tax havens.

It's going to, you know, some trust somewhere.

And states are going to have to use more sophisticated tools, tax tools, to try to get at some of that wealth.

You know, the ABC and the operating losses, you know, loopholes, and I will call them loopholes, that are being proposed to be closed in this budget, you know, they're only a small step in the very complex web of taxes that many large corporations, and we say large corporations, they don't have to be based in New Jersey.

They just do business in New Jersey.

Amazon, Apple, you know, Facebook, they're not based in New Jersey, but they pay our corporate business tax because they want to sell goods and they want to sell their services to New Jersey residents.

And as long as that's the case New Jersey should be looking at how to ensure that they are paying their fair share instead of hiding behind you know you know credits and loopholes and other kinds of tax avoidance.

Do you agree with the governor calling on those companies to cover the health insurance costs of their employees.

You know we have concerns about this particular proposal.

We think it's well intentioned.

Obviously companies that are not paying their employees enough to afford basic services and who are not covering their employees health insurance are not doing a service to the state.

But we're concerned about potentially discouraging companies from hiring people who are on Medicaid as well as discouraging potentially people from using the state insurance program because they're worried that that might make them less employable.

So you know obviously the devil's in the details with these kinds of proposals.

But we have concerns and believe that there are other ways to try to address that gap and strengthen the Medicaid program that we need.

Michelle what are your thoughts.

I do think that this is a policy that is not going to address what we think the underlying concern is.

If the goal of this policy is to get people off of Medicaid and onto employer sponsored plans, a lot of these companies already have employer sponsored plans.

The challenge is a lot of this workforce is not working the eligible hours in order to be on those plans.

These plans are all trusts, the law guides that, right.

I know employers each and every day that I talk to that want to give more hours to the workforce to come in and be eligible for these plans.

These folks want to stay on Medicaid.

And that's not the reason why they want to stay there is because they're concerned about if they leave this job or they go somewhere else, they're not gonna be able to get back on.

Number one.

Number two, this population, they have challenges in potentially working more hours than they can.

They have childcare challenges.

They have transportation challenges.

They have housing challenges.

And people are stringing together part-time jobs for flexibility.

So we're laying this at the feet of an employer already on as we discussed a very high increase in health care costs in the state of New Jersey on an assessment that we don't think is fair because we don't think we're going to get to the policy end that is meant by it.

You do both share some of the concerns do you share the agreement that this is a different type of process than we've seen in recent years.

I mean I would say it's certainly been transparent and the governor has laid out I think her intent to stop some of the last minute spending and changes to the budget and present the public with a full plan.

We saw that you know with her own press conference weeks before the budget address.

But in the end this is a process that does involve the legislature.

And the constitutional boundary of June 30th is usually still the sticking point.

And it has come to the end every year.

We'll see if it's any different this year.

Michelle Sikirka Peter Chen thank you both for your insight.

Appreciate it.

Thank you.

Thank you.

We didn't hear much from the governor in her budget address about reforming the school funding formula although it's something Democrats and Republicans alike agree need some updating.

It's a complicated formula but our next guest is here to explain it.

He's Tony Trong.

Executive director of Great Schools of New Jersey which represents high needs school districts.

Trong is also the former head of the New Jersey Association of School Administrators and a former superintendent in Melville.

Tony it's so great to have you on the show.

You are consummate educator.

No matter what you're doing you understand the kind of nitty gritty of what it means to run a district.

I just want to ask in kind of layman's terms can you explain how this formula is calculated.

A lot of folks have a problem with it.

But how does it calculate the needs per student per district.

OK Joanne and thanks for having me.

We'll talk about the adequacy budget and the word budget confuses people because it's not a budget it's just the theoretical cost for education educating kids in that particular school district.

So they look at enrollment.

They look at free reduced lunch.

They call it at risk children.

They look at E.L.L.

English language learners.

They look at a combined English language learners and free reduced lunch.

They look at special ed.

And then they look at speech.

And that's the accuracy budget.

They multiply the number of students in each category by a number.

And the commissioner uses a consumer price index to multiply it.

And it comes out of the machine as a number.

For and for instance there was a district when you multiplied it all out it was almost 40 million dollars.

That's what it cost to educate children in that district.

And it was about a district of 2000 students.

Now there's a second.

Go ahead.

Go ahead.

No go ahead.

There's a second step.

And it's actually putting money to that theoretical piece.

And so it's so you look at the adequacy budget and what what the state Department of Ed along with the Treasury what they do is they figure out what it costs.

What's the what's the ability for the local municipality to pay for that education.

Right.

So based on this rateable right.

That's based on on what folks pay in property taxes and other income that the municipality has.

Correct.

Correct.

And so you look at those rateables and it's equalized valuation and then also the district income of that municipality.

They put it together.

It's a 50/50 split.

But I'll interject there and say that's part of the problem right now the volatility of the property value.

But they figure out boom at a 40 million dollar budget where it's theoretically what it costs.

It's going to cost 30 million dollars of the local economy, the local municipality to pay towards that 40 million dollars.

And then the state will make up the balance, right?

The state steps in and makes up the balance.

You know, folks have said that this is a political process.

We've heard it from countless districts that were on the losing end.

You say no.

Explain.

No.

Well, you got to go back to 1976 when Brendan Byrne put in the gross income tax because there was a legal issue going on.

It was Cahill versus Robinson.

Then it was Abbott versus Burke where the state needed money to provide districts and municipalities that did not have the ability to raise local taxes to provide a fair and efficient education.

So hence the gross income tax in New Jersey started in 1977 and the monies went towards a needs based education for students.

Let me ask you this Tony.

We've seen districts on the winning end districts on the losing end.

Those on the winning end have been underfunded for years based on enrollment numbers not getting the amount of state aid.

Those on the losing end were getting overfunded even though their enrollment was dropping.

And yet they say that the amounts of loss and gain haven't been fair.

Would you.

Are there any changes you would make to the formula right now that many agree does need to be re-evaluated.

What would that change look like?

Well it would be the equalized valuation, the property value, because there lies the volatility where a district like the district I talked about went from a 30 million dollar obligation to educate their kids to 34 million dollars in one in one school year from one year to the next four million dollars that that municipality they didn't get they didn't get the wealth in their pocket of four million dollars so therefore they got shorted because it subtracts from the adequacy budget four million dollars less than next year right so in other words they're they're seeing the value of the home property although property taxes can't increase by more than two percent and if the property owner hasn't sold that property there's no additional revenue for the municipality?

Do I have that right?

Yes.

Yes.

So my friend is a teacher.

Makes $80,000 a year.

He moved to Ventnor.

He bought the house for $300,000.

Now four years later that house is worth a million dollars.

He did not get a increase in his salary of three times.

Like he's not seeing the wealth of his property commensurate to his salary working as a teacher.

And so therefore neither is the municipality.

But what what would you do to update this formula?

How would you make a change there?

I would put in circuit breakers where if a district had a significant increase because of their property value, that district would be held harmless for a certain amount.

That's what I would do at first to kind of stabilize what's going on there.

And then the other piece is you do have to look at the adequacy budget to see exactly what those costs are for that district because it's been -- it hasn't been revised since 2008-2009.

So it's a bifurcated piece here.

It's look at the property value and put some circuit breakers so that you mitigate the volatility.

But then we do have to look at the cost of educating students in New Jersey in 2027-28.

And of course we know that health care costs increase.

We know that transportation costs have skyrocketed, especially since the pandemic.

Are you having any conversations?

Have you reached out to the governor's office?

Do you know if these conversations are going on with her office or the legislature?

Yes, I've been, you know, a champion for education has been Senator Bingo Paul.

And then I talked to his office.

And I also talked to the governor's office.

And also, the new commissioner's office has been very obliging to all educators meeting with h the various stakeholder groups to get our input.

And that is the big word right now is input from the practitioner about what's going on in the field.

Yeah.

And of course, there's going to be an ongoing process as the budget plays out.

We know we have until the end of June.

A lot to happen before then.

But Tony Trongone, thank you so much for the insight.

Always appreciate talking to you.

Thank you.

And that's going to do it for us tonight.

I'm Joanna Gagas for the entire team here at NJ Spotlight News.

Thanks for being with us.

We'll see you right back here tomorrow.

New Jersey Education Association.

Making public schools great for every child.

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