In 1844, New Jersey recovered from a six year economic collapse as bad as the Great Depression of the 1930’s. It also divided America as much as the slavery issue. It inspired Stephen Foster’s still popular song “Hard Times Come Again No More”.
Although some blamed President Andrew Jackson, most agreed out of control corruption, spending, and borrowing by state governments caused the disaster. That was because in 1841, the Federal government had total debts of $5.25 million. Meanwhile, the 26 state governments had total debts of $198 million!
Banks failed during the “Panic of 1837” when state governments throughout America could no longer pay back the money they borrowed. The roads, canals, and other “economic development” projects they had built on credit failed to generate revenues they had projected. This is because many of the projects were overpriced and poorly planned. Bribes and politics determined who could form a corporation, what was built and who got the contracts.
Nine states defaulted on interest payments, and four others simply refused to pay their debts. When this happened, banks failed and people lost their life savings. Other states, including New Jersey, added new statewide property taxes to pay back their debts. This caused people to lose their homes, farms, and businesses.
In 1844, New Jersey approved a new state constitution designed to fix those problems. Atlantic County’s delegate to that convention was Dr. Jonathan Pitney.
Dr. Jonathan Pitney was the visionary who worked with Sam Richards of Hammonton to build a railroad from Camden to a deserted barrier island to create Atlantic City ten years later.
The new state constitution they wrote was a remarkable success. It quickly helped transform New Jersey into a prosperous, debt free, low tax, economic powerhouse.
Economic History Professor John J. Wallis observed that New Jersey’s new state constitution had “simple” and “ingenious” solutions to control the twin problems of systemic corruption and unsustainable debt.
“First, states eliminated the pressure to create special corporate privileges by enacting constitutional provisions requiring legislatures to pass general incorporation laws allowing unlimited entry into corporate status via an administrative procedure. Second, states passed constitutional provisions requiring that all state borrowing required a bond referendum mandating that the higher taxes necessary to service the bonds be approved by voters before the bonds were issued. Third, most states forbade state and local investment in private corporations”.
By 1902, New Jersey had eliminated its bonded debt and abolished its state property tax. (Property taxes to fund public schools and county and local governments, of course, remained.)
New Jersey did not have a state sales tax until 1963. It did not have a state income tax until 1976. It had the lowest motor fuels taxes in America until 2017.
In 1963, New Jersey adopted a new 3% state sales tax “to make real state taxes affordable”. Starting in 1968, the New Jersey Supreme Court approved what Columbia Law Professor and state constitutional expert Richard Briffault called “evasive techniques*” and “backdoor financing*” to borrow large amounts without voter approval. One technique was creating dozens of state, county, and local “authorities” such as the “NJ Transportation Trust Fund Authority” and the “Casino Reinvestment Development Authority”.
By 2008, even Democratic Governor Jon Corzine, previously CEO of Wall Street powerhouse Goldman Sachs, publicly said that New Jersey’s state government debt was unsustainable and needed to be addressed.
In 2008, Democratic Gov. Jon Corzine warned that New Jersey’s state government debt was so high, we had to mortgage or “monetize” our toll roads to pay it down. Today, that debt is ten times higher. (Photo by Cape May Herald).
In his State of the State address that year, Corzine complained, “Although our State Constitutions have explicitly barred borrowing without voter approval. . . (s)omewhere along the line, the meaning of that requirement got totally lost”.
New Jersey state government had $32 billion in bonded debt when Governor Corzine gave that warning. Today, New Jersey government has more than $234.7 billion of public debt! That includes roughly $200 billion in unfunded pension and retiree medical benefits.
Last month, Governor Murphy and his Democratic Party majority in the legislature approved a plan to borrow $9.7 billion more. Liberty and Prosperity and several Republican leaders filed suit to stop them unless they put the issue on a Ballot Question in November, and get the approval of voters.
Last month, Republican State Senator Michael Testa, the NJ GOP, Assemblyman Jay Webber and GOP candidate for Governor filed suit to enforce the New Jersey Constitution and stop the borrowing. We at LibertyAndProsperity.com and Michael Smith, one of our members, participated in that lawsuit as an Amicus Curiae (Friend of the Court). We also filed a separate lawsuit which also challenged Governor Murphy’s “no layoff” deal with 40,000 state employees represented by the CWA at a time when the Governor’s shutdowns of “non-essential” businesses crippled tax collections. The New Jersey Supreme Court heard arguments on the case on August 5, 2020, and is expected to announce its decision shortly.
Click below link to read the brief that we filed with the court:
Click below link to view the August 5, 2020 oral argument before the NJ Supreme Court:
Seth Grossman, Executive Director
453 Shore Road
Somers Point, NJ 08244