CCSNJ Provides Testimony on FY 2007 Budget at Senate Budget Hearing
Wednesday, April 05, 2006

On April 5, Nichole LoPresti, manager of government relations for CCSNJ, provided the following testimony regarding the proposed Fiscal Year 2007 NJ state Budget at a public hearing held by the Senate Budget Committee at the Tweeter Center in Camden.

Senate Budget Committee Public Hearing
April 5, 2006
Tweeter Center, Camden, NJ

Testimony of Nichole F. LoPresti, Manager, Government Relations, CCSNJ
on Fiscal Year 2006 -2007 State Budget

Good morning, Chairman Bryant, and members of the Committee. Thank you for the opportunity to testify today on Governor Corzine’s proposed budget for Fiscal Year 06-07. I’m Nichole LoPresti, Manager, Government Relations for the Chamber of Commerce Southern New Jersey. We are the largest and most active Chamber in the State and are pleased to offer our testimony on behalf of our 2,000 member companies.

First, we certainly recognize the challenges our Governor faced this year with putting together a balanced budget. We were heartened to see the Governor building upon the management efficiencies contained in last year’s budget -- proposals that control spending by implementing best business practices. Some of the cost containment measures contained in this year’s budget were actually included in the Chamber’s Board Council on Responsible Government Spending report from last year. Chairman Greenwald was gracious to invite our Chamber to make a presentation before the Assembly Budget Committee on the recommendations included in that report last month. The Governor’s recommendations to bulk purchase prescription drugs and expand the use of generic drugs; pursue strategic sourcing to increase the State’s buying power, including purchases of computers; expand the Consolidated Energy Savings Program to local governments and school districts; maximize the use of state parking spaces; consolidate warehousing space; and, redeploy the State’s passenger vehicle fleet are initiatives that our Chamber embrace. We commend the work of this committee and the Governor in identifying these and other measures that reduce the cost of State Government and, therefore, save taxpayer dollars.

We also commend the Governor for his attention to the business community by establishing for the first time in New Jersey the Office of Economic Growth within the Governor’s office. This initiative has been a long time in coming, and one that our Chamber had identified many times over the years as a necessary step to promoting the expansion, retention and relocation of businesses in our state. We are looking forward to a productive relationship with Gary Rose, and to having the South Jersey business community well represented on the Economic Growth Council.

In terms of the treatment of business taxes, we offer the following thoughts. We applaud the Governor for allowing the Alternate Minimum Tax to sunset and for maintaining the full deduction of the NOL carry forward. Improving the State’s business climate depends upon government keeping its promise to the business community, especially when it comes to issues of taxation.

However, we do have concerns over the 2.5% “surcharge” on the Corporation Business Tax. We are in the process of assessing the impact of this surcharge on our member companies, and look forward to sharing with you the information we receive on its impact. What concerns us about this surcharge is imposing it at a time when New Jersey is at a distinct disadvantage in attracting and retaining businesses because of our business tax climate. I’m sure all of the Committee members are aware of the Tax Foundation’s February 2006 report that has New Jersey at the top of all the wrong lists

Overall, we rank 49^th – behind only New York – as the State with just about the worst business tax climate. We have the worst business tax, 4^th worst individual income tax, and 4^th worst wealth tax. The report points out that: “Even in its best categories, New Jersey scores lower than most states.” There are a lot of indices in this report that draw an unflattering and troubling picture of New Jersey’s business climate. We scored the lowest in our business tax base because of our punitive net operating loss system and our double taxation of income. Again, a close examination of imposing a 2.5% surcharge is needed in the coming months to truly assess how this will impact businesses located in New Jersey, and those considering making New Jersey their new home.

We are greatly concerned over this year’s attempt to once again change taxation of businesses located in Urban Enterprise Zones. It would appear that the Administration is proposing to collect an additional $100 million in taxes from businesses located in the State’s 37 UEZs, and looks as though the changes proposed go far beyond ending fraud and abuse. The language in the budget summary leads us to believe that any sales tax exemption would be limited to the purchase of goods and materials for building, initially equipping or expanding a commercial structure within UEZs. Does this mean that businesses that are currently located in UEZs would not be permitted to receive a tax exemption on the purchase of tangible personal property or taxable services unless those they are used for expanding or building a new facility? If so, this is a significant change.

We believe, if we are correctly interpreting the language contained in the budget document, that this proposal would be highly unfair to those companies that have remained in Urban Enterprise Zones due at least partly to the sales tax exemption on their purchases. Changing this tax treatment will discourage business from remaining in these areas. Businesses that have been operating in good faith should have access to the full incentive that the state promised at the time Urban Enterprise Zones were established more than two decades ago. Further, these businesses must meet qualifying standards in order to receive the exemption, including ensuring that 25 percent of their full-time employees are residents from within the zone, receiving public assistance, or low-income individuals.

Currently, the Chamber’s membership consists of ten companies that operate in Urban Enterprise Zones, including six in Camden City. These companies range from glass manufacturers to specialty chemical companies that provide not only revenue to our state but jobs for many living in these economically disadvantaged areas.

A further obstacle that is proposed for this program is the rebate application process. This would require businesses to submit auditable receipts, after which the state will determine whether the purchases are eligible for a refund. We fear that such a process will cause excessive waiting periods and could become burdensome and time consuming for businesses. The Chamber believes that this and the other provisions of this plan are a drastic change from the current program.

The Chamber urges the committee to maintain the current exemptions for businesses operating in an Urban Enterprise Zones, and the current system of collecting tax revenue without further burdening companies.

The Chamber also has concerns regarding the Governor’s proposed “hospital bed tax,” which would impose a per bed tax of up to $1,424 per licensed bed per month to raise $430 million, according to the New Jersey Hospital Association. We recognize the state’s need to maximize receipt of federal funds, however, at this time, we express three specific concerns with this proposal.

Our first concern involves the fact that the $215 million dollars raised from this tax will be directed to the General Fund for an unknown purpose. We believe that it is not appropriate to tax hospitals and, therefore, patients, in order to raise $215 million for the General Fund. Secondly, there is no guarantee that New Jersey will receive the matching federal dollars to replace the money going into the General Fund as assumed in this budget plan. In fact, it is our understanding that the federal government is attempting to discontinue practices of this nature. Finally, we are concerned with the way that the funds will be redistributed to hospitals throughout the state through increased Medicaid DRG payment rates and Medicaid HMO payments. The Chamber feels that this will result in a disparate impact on hospitals, with those hospitals with a high Medicaid patient base receiving the most benefit and other hospitals losing millions of dollars.

Finally, our Chamber has been the lone voice calling for reform of State Employee Benefits. Year after year, we have testified before the Senate and Assembly Budget committees on the enormous and rapid growth in the cost of these benefits. Once again, it is the growth in the cost of employee benefits that is a major driver in this year’s chase for new revenue. Let me say up front that the Chamber recognizes that public employees play a vital role in providing services to the eight and a half million residents of our state. But with the ever increasing cost of providing 80,000 state employees with salaries, health benefits and a defined pension -- something has to give.

We continue the call to bring these costs under control, and there are many options to do so. If we do not start the dialogue today, we will be here next year and the year after that seeking more revenue in taxes, fees, and surcharges in order to continue to feed the ever growing appetite of employee benefits. You’ve all heard the projection contained in the report of the State Health Benefits Task Force that projects that if nothing is done to control these costs by 2010, healthcare and pension costs for public employees will comprise over 20 percent of the State budget – growing from a cost of just under $3 billion in FY 05 to just shy of $7 billion in just three fiscal years from now! We submit that our State, and the residents whose taxes fund these benefits, simply can no longer afford this enormous growth.

For example in this year’s budget, we’re once again looking at growth in the Interdepartmental Account of 20.2% -- some $378 million! We are looking at an astounding increase in the Teachers Pension and Annuity Fund of $744 million. Page 66 shows in graphic detail the incredible growth in the cost of employee benefits. And, once again, these increases in pensions, salary increases, health benefits and retiree medical benefits – account for close to 79% of the growth of state operations. Overall, these increases represent about one-third, or $1.4 billion of the $3.8 billion growth in mandated programs in this year’s budget.

These numbers are illustrative of the compelling need – and, I would argue the obligation – of the Governor and Legislature to do whatever possible to reign in these costs. We submit that all taxpayers, including public employees, would greatly benefit from a thoughtful approach to controlling these expenses. Last year, our Board Council on Responsible Government Spending took a look at what our neighboring states have done to control these costs and they are contained in this report. This year, our Board Council is taking an even closer look at the picture of public employee benefits and how they compare to the private sector. We look forward to sharing the results of our research with the Committee.

We thank you for the opportunity to present our initial response to the proposed State budget and look forward to working with you, Chairman Bryant and the members of this committee, on tackling the tough issues that you face with this budget.