In reversal, Christie to continue NJ’s income-tax agreement with Pennsylvania

Commuters from both New Jersey and Pennsylvania who cross the Delaware River to work can rest easier: Their income taxes aren’t changing in New Jersey.

Gov. Chris Christie announced Tuesday that the income tax reciprocity agreement with Pennsylvania won’t be scrapped Jan. 1, as he had announced would happen in September. He said the move had been needed to generate money for the budget but that he and lawmakers had since identified other savings.

Specifically, Christie on Monday signed a bill into law that changes the way the state contracts with pharmacies to buy prescription drugs for members of its health plans.

Those savings could amount to $200 million. They come on top of $100 million in savings approved in September by the panel that designs the State Health Benefits Plan, which covers many public workers, though not teachers.

Those savings exceed the $250 million in additional spending on healthcare costs in this year’s state budget, so Christie has reversed course.

“This action will save state taxpayers hundreds of millions of dollars in health care benefit costs, and I’m proud my administration was again able to work with elected officials from both sides of the aisle and many labor union representatives to achieve these savings,” Christie said in a news release.

“By addressing a potential $250 million budget deficit from growing healthcare costs, we are now able to save an income tax reciprocity agreement with Pennsylvania that protects tens of thousands of hard working New Jerseyans from having to pay more income taxes,” he said.

Roughly a quarter-million people commute across the Delaware, roughly equal numbers from Pennsylvania and New Jersey.

Low- and middle-income New Jersey residents who work in Pennsylvania faced tax hikes because Pennsylvania’s flat 3.07 percent income tax rate is higher than the low-end brackets in New Jersey’s graduated tax structure, which has rates ranging from 1.4 percent to 8.97 percent. The tax hikes would have been particularly acute for people working in Philadelphia, which charges an extra wage tax.

“We appreciate the governor recognizing that ending a 40-year tax agreement would have caused a lot of pain to a lot of working-class people in New Jersey,” said Senate President Stephen Sweeney, D-Gloucester.

According to estimates from the U.S. Census Bureau’s American Community Survey, derived from surveys done from 2009 to 2013, nearly equal numbers of residents of each state commute to jobs in the other – slightly fewer than 125,000 from New Jersey, slightly over 125,000 from Pennsylvania.

Three-fourths of the New Jerseyans who work in Pennsylvania live in Burlington (26,000 people), Camden (nearly 43,000) and Gloucester (24,000) counties. More than 15 percent of all workers who live in those counties have jobs in Pennsylvania.

The state stood to gain upwards of $180 million a year from making the change because many high-income Pennsylvania residents work in New Jersey.

Jersey-bound commuters from Pennsylvania are most prevalent in jobs in Mercer County – nearly 26,000, holding almost 12 percent of jobs in the county. Pennsylvanians also hold 23 percent of jobs in Warren County and 14 percent in Hunterdon County.

Even though the state could use the money, the proposal wasn’t equitable, said New Jersey Policy Perspective vice president Jon Whiten.

“Single New Jerseyans earning less than $61,000 a year who work in Pennsylvania dodged a bullet, and if you’re a married couple filing jointly and your income is less than $113,000, you dodged a bullet as well,” Whiten said.

Sweeney is among the sponsors of the pharmaceutical-spending reform law Christie signed Monday.

It allows the state to use a reverse auction to hire a pharmacy benefits manager. Sweeney said it will lead to savings on the prices the state gets from pharmacies on prescription drugs – a tab of around $2 billion a year.

If that is cut by 10 percent, the savings would be $200 million. Sweeney said Fortune 500 companies and the University of California system have saved 12 percent to 17 percent using that approach.

“By creating a reverse auction, we wind up getting better pricing, and we get the best price for the pharmaceuticals,” Sweeney said. “We spend $77 million every two weeks on paying for prescriptions.”

Sweeney said unions had pushed for the cost-cutting plan for contracting with pharmacies because it represents a way to reduce costs without reducing benefits.

“A lot of times they’re demonized,” Sweeney said. “The unions were willing to make changes to help reduce the cost of health care, and it turned out to be a great collaborative between the administration, the workers and the Legislature.”

“So it’s a win all the way around for taxpayers and workers, and it enables us to wind up with enough savings that the reciprocal agreement could be put back in place,” he said.

Sweeney said in recent years, unions have also agreed to other prescription changes and the development of a patient-centered medical home program program that begins next year.

“Now that everyone’s paying, everyone’s conscious about trying to control costs,” he said.

New Jersey: Decoded cuts through the cruft and gets to what matters in New Jersey news and politics. Follow on Facebook and Twitter.

Michael Symons is State House bureau chief for New Jersey 101.5 and the editor of New Jersey: Decoded. Follow @NJDecoded on Twitter and Facebook. Contact him at michael.symons@townsquaremedia.com