M E M O R A N D U M
TO: Members of the Senate Budget and Appropriations Committee
FROM: Christina M. Renna, President & CEO, CCSNJ
RE: FY2021 State Budget
DATE: March 12, 2020
The Chamber of Commerce Southern New Jersey (CCSNJ) is the region’s largest and most influential business organization representing businesses in the seven most southern counties of New Jersey, as well as Greater Philadelphia and northern Delaware. The CCSNJ has more than 1,100 member companies, approximately 85 percent of which are small businesses that employ less than 50 people. Thank you for the opportunity to comment on the FY2021 state budget as proposed by Governor Murphy.
The nearly $41 billion FY2021 state budget sees record high spending and with little being done to address the affordability issues facing the state. This year’s budget includes an 18 percent increase in spending from just three years ago and is the largest spending plan in state history. Though a $1 billion tax revenue windfall was just announced by the state treasurer as revenues exceed expectations in all of the major tax categories – most of which impact business in some form or fashion - the CCSNJ was disappointed to hear the Governor irresponsibly propose to again increase taxes on businesses and residents of New Jersey.
Obtaining feedback from CCSNJ members is of paramount importance to our Chamber and is what sets us apart as a business organization. We receive feedback from members not only via surveys, but also through conversations at our 150 events and meetings that we hold throughout the year. An important gauge of our members’ attitudes toward doing business in the state is our Annual Membership Survey, which we conduct every fall, and the responses drive the CCSNJ position on New Jersey’s budget proposal each year.
According to CCSNJ members, the most important issues facing the state are: number one, “the expense of living in New Jersey;” number two, “New Jersey’s taxation structure;” and, number three, “identifying a skilled/trained workforce.” All of these issues are intertwined and should be at top of mind to the Governor and Legislature as they work to finalize the FY2021 state budget. However, as proposed, the budget does little to address the struggles in these three areas.
Every year, the Small Business & Entrepreneurship Council’s Small Business Policy Index ranks the states according to their climate for economic growth and job creation and in 2019 the Index moved New Jersey’s ranking from 49th to last place behind California. More concerning is our competitiveness compared to our neighbors: Pennsylvania and Delaware’s rates, 33 and 30 respectively, are much better which positions them as an attractive alternative for South Jersey-based businesses that are merely a bridge away.
Regardless of those findings, one of the largest revenue generators in the Governor’s FY2021 budget comes from increasing the rate of taxation on incomes in excess of $1 million from the current rate of 8.97 percent to 10.75 percent, which is projected to generate raising $493.8 million in FY2021. It is important to note once again that this tax is a tax on business, as more than 90 percent of businesses (sole proprietorships, partnerships and S Corporations) file their taxes through the personal income tax.
Increasing taxes on the wealthiest in our state is unsound public policy that has the potential to greatly impact future revenue from income taxes. Reality is that high earning individuals have the great flexibility and can afford to relocate themselves - and their business - to another state. The loss of as few as 15 very high-income individuals could have an appreciable impact on the state government’s treasury. New Jersey’s highest earners pay the majority of the taxes that fund programs to support the middle class and low-income population in the state; therefore, policymakers should proceed with great caution when considering any measure that would incentivize top earners to leave New Jersey.
Also of note, New Jersey’s income tax is the most progressive, and our top rate of 8.97 percent is the highest among the states in our region. Shifting the top rate to 10.75 percent – a nearly 20 percent increase - will once again put New Jersey at a significant competitive disadvantage with our neighboring states: Pennsylvania with a flat gross income tax rate of 3.07 percent; Delaware with a gradual income tax rate that tops out at 6.6 percent; and, New York which also has a gradual income tax rate that tops out at 8.82 percent.
The CCSNJ also opposes the so-called “Corporate Responsibility Fee” on businesses with more than 50 employees. As proposed, the fee applies to both employees and dependents, and is set at $325 for employers with 50 to 250 employees covered by Medicaid, $525 for 250 to 500 covered employees, and $725 for employers with more than 500 covered employees. This proposal is modeled after a failed Massachusetts initiative enacted in 2017 with the goal of stopping the migration of people from commercial insurance to MassHealth, the state subsidized health care coverage. As with last year, the CCSNJ argues this will be impossible to police as some employees chose to go on state coverage, although they are offered benefits by their employers – and, employers have no way of knowing this information either way.
In addition to these new taxes, the Governor further proposes an increase in the cigarette tax to $4.35 and levying new assessments on opioid drug manufacturers and distributors, among others.
New Jersey’s battle to remain competitive with other states is a very real problem, even more so as taxes continue to increase. This is why the CCSNJ respectfully encourages the Governor and Legislature to resume discussions to create new tax incentive programs geared toward attracting and retaining business to the state, which would replace those which expired last year.
Political rhetoric aside, these programs, although imperfect, brought success and economic vitality to the South Jersey region, especially in our regional “bookend” cities – Camden and Atlantic City. The need for incentives in our state is undeniable, especially in light of the tax and spend increases seen in this budget. Programs like Pennsylvania’s “Keystone Opportunity Zone,” Delaware’s low cost of living and favorable business tax climate make the fight to attract and retain businesses in our region even more difficult. The CCSNJ remains optimistic that a solution to the tax incentive debate can be identified – one that drives economic development and job growth to New Jersey while putting additional safeguards in place for abuse and mismanagement.
As previously mentioned, the third most important issue facing businesses according to CCSNJ members is “identifying a skilled/trained workforce.” It is true that New Jersey’s historically low unemployment rate is a driver of this issue. However, it would be naïve to ignore that the state’s high cost of living is also a factor causing young adults to leave upon graduation, taking their education with them. Unfortunately, the FY2021 state budget does nothing to address this issue.
Earlier this month, Rutgers Business School’s Institute for Corporate Social Innovation stated that New Jersey has had a net loss of more than 200,000 young people over the past decade. Additionally, according to the National Center for Education Statistics, the state continues to have the largest net loss of first-time degree/certificate seeking undergraduates while 43 percent of New Jersey’s first-time postsecondary students receive their education in a different state. Once these students leave, many never return to New Jersey to help drive the state’s economy and strengthen the workforce.
There was one important difference in the CCSNJ’s Annual Membership Survey results from the fall 2019 versus the previous year. Similar to 2018, when asked what the number one issue facing members’ business was, number one was “finding skilled/qualified workers,” followed by “health insurance costs.”
However, for the first time in the CCSNJ’s history “labor costs” was ranked as the third most important issue facing business. Although this is new, it should not be surprising. With the passage of numerous new labor mandates, such as the $15 minimum wage, earned sick leave, expansion of New Jersey’s Paid Family Leave Act, a restrictive and confusing equal pay mandate, a new wage theft mandate and pending “Fair Work Week” Act – just to name a few - businesses are struggling to manage the new costs associated with them, as well as the costs to comply.
These measures come on top of the fact that New Jersey has the highest property taxes in the nation, highest Corporation Business Tax in the nation, the second highest top marginal personal income tax rate in the nation and a slew of other taxes and fees that impact business operations. CCSNJ members continue to struggle with the challenges of operating in an extraordinarily high-cost, high tax and heavily regulated state and the FY2021 budget disappointingly doubles down to assure there is no relief in sight.
Since 2002, there has been 159 tax or fee increases and this does not include the six additional taxes included in the FY2021 state budget. This, along with increased labor mandates, are pushing businesses in New Jersey to the breaking point. If state government wants New Jersey to be competitive and affordable for business, residents and students entering the workforce the trends seen in the FY2021 state budget must be reversed.
However, the CCSNJ was pleased to see Governor Murphy identify an additional nearly $400 million in departmental savings and approximately $174 million in proposed health benefits savings. Still, the CCSNJ believes more can be done to produce even greater savings. CCSNJ was happy to see progress made with controlling the cost of public-worker health-insurance and pension benefits with the proposed “New Jersey Educators Health Plan”, but there is still more work to be done. We respectfully urge the Governor and Legislature to continue to consider the proposals contained in Senate President Sweeney’s Path To Progress report, specifically shifting all public sector workers and retirees from a “platinum” level plan to a “gold” level health plan. The experts who comprised the Economic and Fiscal Policy Workgroup estimated this measure could save approximately $1.4 billion over a four-year period, or $350 million per year.
The CCSNJ looks forward to continuing to review the details of several of Governor Murphy’s budget and encourages the Legislature to think creatively about new avenues for cost savings as the FY2021 budget negotiations continue.
Thank you for the opportunity to present our position on Governor Murphy’s proposed Fiscal Year 2021 State Budget.