BLUEPRINT FOR A PROSPEROUS NEW JERSEY
New Jersey’s economy has gone from bad to worse in 2008, and analysts say there is little cause for optimism in 2009.
Since Gov. Jon Corzine took office, New Jersey residents have been caught in the grip of an “affordability crisis.” They found it increasingly difficult to make ends meet, and many had no recourse but to flee to states with lower taxes and a lesser economic burden. According to the New Jersey Business and Industry Association, the economic slowdown in New Jersey began in earnest in 2006. As the cost of living and doing business in the state rose to record breaking levels, sales, profits and employment growth fell markedly.
When turmoil engulfed Wall Street, resulting in a credit and banking meltdown unseen since the Great Depression, for residents of the Garden State it was no longer an “affordability crisis” but a “survivability crisis.”
The misguided tax, spending and borrowing policies of three consecutive Democratic administrations set the stage for an economic catastrophe in New Jersey that would far exceed the financial distress felt by just about every other state in the nation.
The Rutgers Economic Advisory Service forecast that was released in January 2008 cautioned that New Jersey’s economy will perform worse than the rest of the nation through at least 2017. The report blamed the bleak outlook on the state’s high cost of living and high cost of doing business in New Jersey.
Since then, economic indicators have confirmed that New Jersey is heading in the wrong direction and the consequences for taxpayers and businesses are distressing.
HIGH TAXES:
- In 2008, New Jersey taxpayers had the heaviest state and local tax burden in the country – for a third consecutive year. The Tax Foundation, a Washington, D.C.-based organization that analyzes fiscal policy, said state residents pay 11.8 percent of their income in state and location taxes, exceeding the national average of 9.7 percent.
- New Jersey has the worst tax state business tax climate in the nation. According to The Tax Foundation’s 2009 State Business Tax Climate Index, New Jersey also has the highest property taxes, the second highest personal income tax, sixth highest corporate income tax, and the ninth highest sales tax in the country.
- Gov. Corzine continues to press for higher tolls on the New Jersey Turnpike, Garden State Parkway and Atlantic City Expressway, The financial impact on commuters, consumers and the environment will be enormous. Trucks will avoid toll roads and clog local streets. The cost of goods and services will escalate as higher transit costs are passed on to consumers. And some Democrats in the Legislature are still calling for a higher gas tax.
- When the new year began, more New Jersey employers were pessimistic rather than optimistic about the outlook for the state economy, and they remained troubled by the high costs of doing business here and the role of state government in perpetuating these conditions. Only 22 percent of those responding to the New Jersey Business & Industry Association's 2008 Business Outlook Survey had a positive view of Gov. Corzine’s performance in handling economic matters. Only 19 percent considered New Jersey a good place to expand business facilities, a near record low, and large majorities believed New Jersey does a worse job than other states in controlling taxes, regulatory compliance costs and government spending.
- New Jersey was judged one of the top five worst states in which to do business in 2008, according to a national survey of U.S. corporate executives conducted by DCI, a New York-based firm specializing in economic development and tourism marketing. When asked the reasons why New Jersey ranked so low, the executives said high taxes, soaring costs and an onerous regulatory system combine to create a severe anti-business climate in the state.
- U.S. Census figures confirmed that New Jersey homeowners pay the second-highest costs in the nation to maintain a house with a mortgage, while the median price of a rental unit, including utility and fuel costs, was the third-highest.
- A study by the Federal Reserve Bank of New York revealed that New Jersey’s ratio of subprime mortgages in foreclosures was the fifth highest in the nation, exceeding the national average. Overall, the number of New Jersey homes in some state of foreclosure was nearly 50 percent higher in August than it was at that time the previous year, according to RealtyTrac Inc., which monitors foreclosures nationally.
- State Banking and Insurance Commissioner Steven Goldman acknowledged on October 6, 2008 that home foreclosures are rising – from 23,000 in 2006 to 34,457 in 2007. If the trend holds, he said New Jersey would hit 50,000 foreclosures in 2008, which would be double the level of growth over just a two-year period.
- Two weeks later, it was learned that for the first time since the onset of the housing slump, the rate of foreclosure filings in New Jersey outstripped the national average. RealtyTrac, an Irvine, Calif.-based data tracking firm, reported U.S. foreclosure filings for the three months ending September 30 rose a whopping 71 percent, year over year. During the same period, however, New Jersey filings climbed 95 percent. Nationally, New Jersey ranked eighth in rate of filings for September.
- In August 2008, New Jersey’s unemployment rate shot to a five-year high, according to the state Department of Labor and Workforce Development, with government officials and economists predicting things would only get worse.
- A report by Rutgers University economists James Hughes and Joseph Seneca ranked New Jersey 46th out of 50 states in total job growth in the first half of 2008, even though its total employment base is the 11th largest. The state was 21st in job growth in 2006. When Corzine and Gary Rose, a former colleague of his at Goldman Sachs who became the state’s economic czar, took over, they set a goal of creating 70,000 new jobs a year – but that they would settle for 40,000. New Jersey only gained 4,700 jobs in 2007 and lost 16,000 in the first eight months of 2008.
- In the midst of September’s Wall Street meltdown, Moody’s Economy.com, based in West Chester, PA, predicted New Jersey would lose at least 20,000 financial activities jobs. The financial activities sector accounts for 260,000 jobs in New Jersey, about eight percent of the state’s private sector job market.
- Rutgers University Economist James Hughes examined the entire employment picture in New Jersey and sounded a more pessimistic note. He told the Assembly Labor Committee on September 22, 2008 that if a “worst case scenario” unfolds, the state could lose as many as 100,000 jobs.
- In October, Hughes painted an even bleaker picture during an appearance before a legislative committee. He said the state lost nearly 19,000 private-sector jobs since January. If history is any indication, New Jersey may lose 67,300 more private-sector jobs if the recession continues to March 2010 and 246,300 jobs if it extends to February 2011, Hughes stated.
- In November, a forecast by Hughes and Seneca in the Sitar-Rutgers Regional Report warned New Jersey could end the decade with fewer private sector jobs than when the 2000s began, a situation it has not experienced since the Great Depression.
- New Jersey lost more than 98,000 manufacturing jobs between 2000 and 2006, twice as many as it lost in the prior 10 years, and the loss continues in a sector the state once dominated.
- In 1990, New Jersey accounted for a 20 percent share of all pharmaceutical jobs in the nation. Today our share is less than 13 percent.
- The largest area of job growth has been in the public sector, not private.
ANTI-GROWTH POLICY:
- Earlier this year, Gov. Corzine signed into law a bill that Steven Malanga, a senior fellow at the Manhattan Institute, calls “one of the most astonishingly stupid and anti-growth pieces of state legislation anywhere.” It imposes a 2.5 percent fee on the assessed value of new or expanding commercial development in the state. It further requires municipalities to build one unit of subsidized housing for every 16 jobs generated by new development. To comply, towns will have to tax developers and raise property taxes.
For an alarming and growing number of poor and middle class families, the financial burden created by the ill-advised policies of the Democratic administrations has reached the breaking point. Economists at Rutgers University say an estimated 70,000 New Jerseyans are leaving the state annually. They are migrating to states where housing is less expensive, property and sales taxes are lower, the overall cost of living is cheaper and employment prospects are brighter.
This is disturbing news that should be a source of real concern for government leaders. But Gov. Corzine’s response demonstrates he just doesn’t get it. Ignoring overwhelming evidence that New Jersey is in dire economic trouble, Corzine seized on a report by Princeton University sociologists, which his office funded, that supposedly disputes the contention that high taxes are chasing people out of the state.
The Princeton report indicated the number of households in the state making at least $500,000 a year grew by an average of 4,500 per year between 2002 and 2006, despite the fact that a higher income tax rate took effect in 2004 for the states top earners, and the state is retaining and attracting college graduates and people with advanced degrees.
Corzine seized on the report’s conclusion and claimed the outward migration from New Jersey “is a byproduct of prosperity and not tax policy.” He chose to ignore evidence that the increase $500,000 income households could be connected to the fact the stock market rose from a low of 7,286 on October 9, 2002 to a high of 14,164 on October 9, 2007.
Assembly Republicans believe the actions of the Democrat-controlled Legislature and Executive Branch over the last seven years are primarily responsible for the severity of New Jersey’s economic ills.
Since Democrats took control in January 2002, they have imposed over 100 taxes at a cost of $6.3 billion to taxpayers and the business community. The state has increased the sales tax from six to seven percent and expanded the list of items subject to the tax that were previously exempt; assessed a four percent surcharge to companies based on their tax liability; and enacted or increased taxes on goods and services such as motor vehicle registrations, membership fees, real estate, litter, and even filing for a divorce.
This is in strong contrast to the record of New Jersey Republicans when they controlled the Governor’s Office and the Legislature in the 1990s. Republicans cut taxes, created incentives for businesses to locate here and didn’t stifle economic growth with excessive fees and regulations. During this period, New Jersey was one of the leading states in the nation in which to do business. Between 1994-2000 the state had a 12.4 percent increase in jobs (435,000 new jobs). The unemployment rate dropped 42 percent from 1994 to 2001. The 3.6 percent unemployment rate in posted in February 2001 was the lowest in 30 years.
Republicans advocate a different approach to deal with the economy. As part of our Common Sense Plan for an Affordable New Jersey, which we unveiled in May 2008, we recommend a number of pro-active steps that would reduce taxes, improve stimulate the economy, create jobs and bring New Jersey’s budget under control.
REBUILDING THE STATE ECONOMY
- Expand economic incentives to attract new, high paying jobs.
- Establish a preference program that guarantees a percentage of government contract work will be set aside just for New Jersey businesses.
- Consolidate all job creation programs under the Economic Development Authority so there is just one, streamlined agency in charge of growing the state economy.
- Expand an existing tax credit program to attract capital investment and new jobs to all towns that have railroad stations.
- Enact regulatory reforms that reduce the time it takes to get approval for economic development projects.
- Allow state certified environmental consultants to oversee the cleanup of brownfields so they can be put to productive use.
- Achieve $1.32 billion in identified budget savings by eliminating waste and questionable spending.
- Limit budget increases to the rate of inflation.
- End “one-shot” gimmicks.
- Bank excess revenue for use in real emergencies or to reduce property taxes.
- Mandate a continuous audit of all government operations.
New Jersey isn’t to blame for Wall Street’s problems. However, as the Asbury Park Press astutely observed in an editorial on October 8, 2008: “Gov. Corzine and the Democratic-controlled Legislature are fully deserving of the blame for the nation’s highest taxes and the state’s unwelcoming business climate and eroding job base.”
In an earlier editorial on October 3rd, the newspaper said the best thing the Legislature can do during these troubled economic times to help is “by leaving taxpayers with more money in their pockets.”
