LEGISLATIVE FISCAL ESTIMATE TO

[First Reprint]

ASSEMBLY, No. 1590

STATE OF NEW JERSEY

DATED: April 1, 1996

      Assembly Bill No. 1590 (1R) of 1996 provides for the funding of the Health Care Subsidy Fund at $400 million in calendar year 1996 and thereafter. Of that amount, $300 million will be allocated for charity care subsidies to hospitals, $50 million for the Health Access New Jersey subsidized insurance program, and $50 million to the Hospital Health Care Subsidy account for the State match for Medicaid. Revenue for the Health Care Subsidy Fund through the year 1999 will come from increasing annual appropriations from the General Fund and decreasing amounts from the payroll taxes paid by employers and employees in lieu of contributions to the Unemployment Compensation Fund. Beginning in calendar year 2000 no further payroll taxes will be imposed on employers and employees for the purposes of the Health Care Subsidy Fund; all revenues will come from an annual appropriation from the General Fund. Table 1 summarizes the proposed funding by calendar year:

TABLE 1

CALENDAR YEAR FUNDING FOR THE

HEALTH CARE SUBSIDY FUND

($ millions)

                                                            Employer/

                                    General           Employee 

      Calendar               Fund               Payroll 

      Year                      Approp.          Contrib.          Total   

      1996                       $13                 $387              $400

      1997                       68                 332               400

      1998                       168                 232               400

      1999                       268                 132               400

      2000                       400                 0   400

      The bill does not establish the amount of funding to be provided to the Health Care Subsidy Fund on a fiscal year basis, affording some flexibility with respect to the appropriation of General Fund revenues and utilization of employer and employee payroll tax contributions.

      In addition to establishing the sources of funding for the Health Care Subsidy Fund, the bill also provides up to $10 million in FY 1997 and $20 million in FY 1998, and each succeeding year, for community-based residential and inpatient drug abuse treatment services. Revenues, if any, for these services are to be generated from a series of third-party liability revenue recovery projects.

      Lastly, the bill appropriates $1.5 million from the General Fund to the Department of Health to conduct certain feasibility studies with respect to the delivery of uncompensated health care. The findings of these studies are to be reported to the Governor and the Legislature within specified time periods.

IMPACT ON THE UNEMPLOYMENT COMPENSATION FUND:

      As described above, the bill provides for a declining schedule of payroll tax contributions to the Health Care Subsidy Fund during calendar years 1996-2000. These contributions by employees and employers to the Health Care Subsidy Fund are in lieu of contributions to the Unemployment Compensation Fund, and are retroactive to January 1, 1996. Any employee contributions from the tax on the unemployment compensation wage base (equal to .14 percent in 1996; .12 percent in 1997; .09 percent in 1998; and .05 percent in 1999) and any employer contributions, as provided in section 15 of the bill, which are in excess of the amounts required to be deposited in the Health Care Subsidy Fund will revert to the Unemployment Compensation Fund.

       The OLS notes, based upon information provided by the Department of Labor, that given projected total taxable wages, employer and employee payroll tax contributions should be more than sufficient for the purposes of funding the Health Care Subsidy Fund. Further, the OLS anticipates that the declining schedule of employee and employer contributions would, under most foreseeable economic conditions, leave Unemployment Compensation Fund balances sufficiently high so that: (1) the Unemployment Compensation Fund reserve ratio would remain above 4.0 percent and (2) there would be no change in the unemployment insurance employer tax rate schedule over the next five years. That is, employer tax schedule "C," which is currently in effect, is expected to remain operative during the period of declining payroll tax contributions covered by the bill. However, the OLS further notes that the department has indicated that if the "diversion" of funds from the Unemployment Compensation Fund to the Health Care Subsidy Fund were permitted to expire effective December 31, 1995, pursuant to the "Health Care Reform Act of 1992," P.L. 1992, c.160, the Unemployment Compensation Fund reserves would grow steadily, resulting in a lower-rated employer tax schedule, schedule "B," becoming effective by the year 1999, barring a prolonged recession.

      While the unemployment tax rate schedule applied to employers is expected to remain unchanged in the near term, the OLS notes that individual employers may experience "bracket creep," or a higher individual contribution rate as a result of the bill, even if no benefits are paid from the employers' individual accounts. In particular, small businesses and businesses which have recently established an experience rating could be adversely affected in this regard, since their individual experience ratings will reflect disproportionately the reduction in unemployment compensation contributions. Moreover, the OLS notes that any excess funds which revert from the Health Care Subsidy Fund to the Unemployment Compensation Fund will be credited to the overall fund balance but will not be reflected in the accounts of individual employers.

IMPACT ON THE GENERAL FUND:

      As outlined in Table 1, the bill authorizes the use of $917 million in General Fund revenues through the year 2000, and $400 million per year thereafter for the purpose of funding the Health Care Subsidy Fund. The OLS notes that the General Fund contribution of $13 million indicated for calendar year 1996 is not included in the Governor's FY 1997 Budget Recommendation. Enactment of this legislation would imply the need for an appropriation of approximately $47 million in FY 1997 ($13 million applicable to calendar year 1996 and one-half of the $68 million applicable to calendar year 1997).

      The OLS further notes that the bill also authorizes the use of revenues recovered from third party liabilities to fund community-based residential and inpatient drug abuse treatment services. While not a direct appropriation of General Fund revenues, the establishment of a dedicated funding source for these programs represents a loss of potential income to the State, since these revenues would otherwise be due to the General Fund.

      The bill also appropriates $1.5 million from the General Fund in the current fiscal year, FY 1996, for feasibility studies to be conducted by the Department of Health.

      This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

This fiscal estimate has been prepared pursuant to P.L.1980, c.67.