Chamber Supports Governor Christie's Proposed Budget
Tuesday, March 15, 2011

Good morning, Chairman Sarlo and members of the Committee. I’m Kathleen Davis, Executive Vice President and COO for the Chamber of Commerce Southern New Jersey. I appreciate the opportunity to submit our testimony on the proposed FY12 State Budget. As you may know, our Chamber is the largest business organization in Southern New Jersey, representing members from the seven southern counties, northern Delaware and Greater Philadelphia.

Our organization has a history of supporting initiatives that make operating a business in our state easier and less expensive, promote responsible government spending, and institute efficient government operations that better serve citizens and taxpayers. We believe this budget accomplishes goals in all three of these areas, while reflecting the economic conditions of our state.

Our Chamber partners with the Federal Reserve Bank of Philadelphia, which surveys our members every quarter to determine the economic outlook in our region. The Fed’s fourth quarter 2010 survey results reflect that there is improvement in economic conditions. Member companies indicated a perceived significant improvement in the regional economy, but there is still a strong sense of uncertainty that is constraining hiring. In fact, the second most frequently cited reason for restraint on hiring is government regulations and government policy; however, when reading comments offered, that uncertainty is about policies on the federal level.

That’s why it is so important for our State to give our businesses certainty and confidence. A State budget that decreases spending, improves the business climate through tax policy and insists that state agencies’ performance is measured we believe, will go a long way to build confidence and certainty among our members.

In addition to the Fed survey, we also conduct a membership satisfaction survey asking questions on a number of different matters, including the most important issues that face the members’ business. For the past several years, business taxes were rated in the top three most important issues facing business. This budget calls for business tax changes that will resonate with our members, three quarters of whom employ less than 50 employees, and fully half have ten or fewer employees.

The Chamber supports the business tax changes contained in the budget, including: Allowing small businesses to consolidate business income and to carry forward their losses consistent with Federal government treatment of these taxes; increasing the research and development tax credit from 50% to 100%; reducing the minimum tax on S-corporations by 25%; exempting from the sales tax the installation and support of electronically delivered business software from the sales tax; raising the threshold for the estate tax to $1 million; and allowing for the full phase out of the Transitional Energy Facility Assessment (TEFA), which was supposed to expire ten years ago. We also support doubling the funding for the Technology Business Tax Certificate Transfer program, maintaining the funding level of the BEIP program, and providing additional funding for the Brownfield Site Reimbursement Fund. All of these initiatives will make improvements in the business tax climate in our state, which is no longer #50 on the list!

While business taxes are indeed an important consideration of business, also important is a sound state budget and a stable fiscal environment. This again was reflected in our annual membership surveys. When queried on the most important issues facing our State, our members cited taxes, fiscal stability and unemployment. Taxes, the business climate, state spending, and the cost of doing business are on our members’ minds year after year.

It is no secret that the cost of providing public employee benefits has been a major driver in past fiscal year budget increases. Since 2003, our Chamber has been on record in testimony before both the Senate and Assembly Budget Committees sounding the alarm on the growing cost of providing pension and health benefits to state employees, and the fact that these increases were driving the need to increase taxes. That year, the state budget contained $357 million in increased taxes, fees and surcharges on the business community, diverted $325 million from the unemployment insurance fund, and cut $75 million from programs that benefitted the business community. These increases came on the heels of a $1 billion tax increase that was put into place to balance the previous year’s budget. Also in 2003, the Interdepartmental account, which consists largely of salaries and benefits, grew by 17.3% -- about $200 million.

In recognizing the trend of increased spending driving the need to increase taxes, our Chamber began to focus our efforts on providing a blueprint for government to reduce state government spending by adopting best business practices. In 2005, we issued our first Board Council on Responsible Government Spending report, which contained 43 recommendations for how state government could reduce spending by adopting best business practices in the areas of health benefits, fleet management, information technology, purchasing and property management. Our subsequent reports focused on the disparity of state employee benefits versus those received in the private sector and an examination of the obstacles to the efficient deployment of labor in state government.

A major theme throughout the first two reports was the need to bring state government employee benefits more in line with the private sector. This year’s reduction in the Interdepartmental Account marks the first time in at least a dozen years that this account will actually decrease based upon the reforms that the Governor is proposing.

The public employee benefits reforms contained in the Governor’s budget, and those proposed by Senate President Sweeney, are long overdue. There have been small, incremental and sensible changes over the last few years – changes that were vehemently objected to by public employee unions. Enacting the pension reforms contained in the Governor’s budget, including calculating pensions based upon the five highest earning years, raising the minimum retirement age, changing the pension benefit calculation to n/65 from n/55, have been supported by our organization over the years. And, we continue to support these reforms.

In fact, last February we offered testimony before the Senate State Government, Wagering, Tourism & Historic Preservation Committee on a package of bills that included changes to public employee health benefits. At that time, we recommended that public employees and retirees be required to contribute a percentage of premiums, versus a percentage of salary, toward their health benefits cost. Requiring employees to pay a percentage of health care premiums is in line with common private sector practice, as was reflected in the Chamber’s second Board Council on Responsible Government Spending report. That report also found many differences between the co-pays and deductibles in health insurance plans offered in the private sector compared to employees in the public sector. We believe that adjustments need to be made in copays, deductibles and out of pocket maximums in order to more closely control the cost of coverage. Providing employees more choice in plans can help to minimize the impact of these changes by allowing employees to choose coverage that best suits their needs.

We also support efforts to enhance government operating performance, including implementing recommendations of the Privatization Task Force. Consolidating the state’s print shops, streamlining the maintenance and management of the State motor pool’s passenger fleet, consolidating and putting out to bid contracts for warranties and maintenance, and making much needed investment to modernize the state’s IT infrastructure, among other initiatives, demonstrates this Administration’s commitment to a more efficient government.

Finally, we applaud the Governor for implementing his Performance Budgeting Initiative, which ensures that budget priorities and agencies’ missions and projects are aligned. Focusing on achieving results and measuring performance data will create a culture of innovation and continuous improvement. This has long been a model in the private sector. It is one that is put into action every day at our Chamber through our ISO Quality Management System. We are the first and only Chamber in the country to have achieved ISO 9001:2008 certification. Every day, we measure results against clearly defined, measurable goals that ultimately are about delivering consistently excellent service to our members. The ISO system requires us to specify our goals, define measurable objectives and action plans in order to achieve those goals. One of the most important aspects of our ISO System is measuring member feedback which allows us to evaluate whether we are meeting our goal of being the business organization of choice for businesses in our region.

We compete every day for dollars from the business community and, as you can imagine, the past two plus years have been challenging ones for our Chamber. We believe our ISO Quality Management System has enabled us to maintain existing members, while adding new ones almost daily. Without this sense of mission and without goals, it is nearly impossible to assess whether the service being delivered is what is needed and whether it is being delivered in the best possible manner.

The work of the legislature and the Governor to enact public policy aimed at creating jobs and a positive business climate do make a difference, not only in the pocketbook but also in the psyche of the business community. The work of Lieutenant Governor Guadagno, including implementing the recommendations of the Red Tape Review Commission, opening of the Business Action Center, and her personal outreach to companies, some of whom were our member companies, is changing the perception of our state as a more business friendly place. In this year’s member survey, 40.3% of respondents indicated that they believed that the business climate in New Jersey had improved in the last year. Anecdotally, I can tell you that business confidence is increasing and it is due to the unprecedented attention by our policymakers to creating jobs and making our state one that is more friendly to business. This year’s budget is an important step to building that confidence.

Thank you for the opportunity to present our input on the Fiscal Year 2012 Proposed State Budget.