This decade can't end soon enough for New Jersey's beleaguered economy.
Bookended
by a pair of recessions, the most recent of which has cost the state
more than 150,000 jobs, it's given businesses and taxpayers little to
cheer about.
In
the 1980s and '90s, the state added on average more than 400,000
private-sector jobs per decade. Since then, we've gone in reverse.
Barring a dramatic hiring surge before the end of the year, New Jersey
will end the decade with fewer private-sector jobs than it had at the
beginning, the first time that's happened since the Great Depression.
Marvin
Ehrlich, principal at Capital Wealth Advisors in Marlton, said that
reversal of fortune is due, in part, to high taxes on businesses.
"Taxes
are just too high in this state and businesses are suffering," he said.
"That means they have to cut costs and that means jobs."
To date, the state has had a net loss of 83,000 jobs in the private sector since the start of the decade.
The
state added 167,000 jobs in health care, leisure and hospitality, but
those gains were offset by job losses in other areas of the private
sector. These include the loss of nearly 150,000 jobs in manufacturing,
43,500 jobs in trade, transportation and utilities, 35,000 jobs in
information, 9,500 jobs in professional and businesses services and
6,300 jobs in financial services, according to the latest data from the
U.S. Bureau of Labor Statistics.
"We'll
be a state of white collars and unemployed if that trend continues,"
said Eli Liebermann, president of Innovative Power Solutions, an
Eatontown manufacturer of aerospace generators that has resisted
frequent offers from other states to join the exodus out of New Jersey.
But
technology also is making it easier for New Jersey businesses to grow
elsewhere, noted Kathleen Davis, executive vice president of the
Chamber of Commerce Southern New Jersey, based in Voorhees.
"If
a company needs three more employees, maybe it makes sense to keep
those employees across the river in Delaware or Pennsylvania, where
taxes are lower," she said. "Location is becoming less and less
important because technology is enabling many people to work from any
where."
Meanwhile, the public sector government jobs has boomed. It has
gained 69,000 jobs since the beginning of the decade, up 12 percent, a
double-edged sword that has helped propel the state's already sky-high
property taxes into the stratosphere.Growing competition
What's changed?
It's more a matter of what hasn't changed.
In
the past 10 years, nothing has been done to fundamentally alter the
glaring property tax and other competitive cost imbalances that
undermine economic growth, business leaders say.
This
is New Jersey's Achilles' heel. In the past decade, emerging new
rivals, including North Carolina, Georgia, Virginia and Maryland, have
taken full advantage of this weakness to grow their own economies, not
just with low-skilled manufacturing and service jobs but with the kinds
of good-paying white-collar jobs that have long been New Jersey's
hallmark.
"Our
economy basically went sideways, while our competitor states saw job
growth," observed Arthur Maurice, first vice president of the New
Jersey Business and Industry Association, which represents some 22,000
employers in the state.
From
the start of the decade to the end of 2007, when the recession
officially began, New Jersey gained 74,000 private-sector jobs, up 2.2
percent, the government data show.
In
comparison, Virginia added 241,400 private-sector jobs, up 8.5 percent;
North Carolina added 189,000, up 5.7 percent; Pennsylvania added
153,100, up 3.1 percent; Maryland added 150,000, up 7.6 percent; and
Georgia added 149,000, up 4.5 percent.
In
all those states, the health care and professional and business
services sectors made substantial job gains, and all but Pennsylvania
saw significant growth in the financial services sector.
In
the years when the U.S. economy was booming, New Jersey's growth was
tepid at best, compared to other states. North Carolina, for example,
added an average of 92,000 private-sector jobs per year from 2004 to
2006, more than quadrupling New Jersey's gains during the same period.
"It's no secret that New Jersey is a costly place to do business,"
said Davis of the South Jersey chamber. "There are taxes, regulation
and bureaucratic red tape."Corporate
taxes aren't the only taxes that worry business owners. Davis points to
a recent hike in the state income tax rate, from 6.37 percent to 8
percent for people earning $400,000-$500,000. The so-called
"millionaire's tax" is now 10.75 percent. Except for the 11 percent
assessed in Georgia and Hawaii, that is the highest rate in the nation.
Davis
said that is a big hit for many owners of small businesses, as well as
professionals, such as lawyers and health-care providers.
"More
than 80 percent of small businesses pay taxes through personal income
taxes," she said. "These also are the people who in prosperous times
are buying things and keeping the economy going."
New
Jersey's decline gained steam during the past decade, according to
Rutgers University economists James W. Hughes and Joseph J. Seneca.
"Our
fast-growth years are over," said Hughes, dean of Rutgers' Edward J.
Bloustein School of Planning and Public Policy. "That's characteristic
of the entire Northeast."
From
1990 to 2005, New Jersey's share of the U.S. high-tech job base slipped
from 5.2 percent to 4 percent, Hughes and Seneca said. Over that time,
New Jersey shed 8,400 high-tech jobs, while other states made
impressive gains. Texas added 165,900 high-tech jobs, Virginia picked
up 130,000, California added 121,800, Georgia grew by 75,200 and North
Carolina added 70,500.
In a nutshell, Hughes said, "We're much less unique than we were 20 years ago."
Falling off radar
To be sure, it's not as if tumbleweeds are rolling down the Garden State Parkway.
New
Jersey's gross domestic product is the eighth-largest in the country.
The state has the highest concentration of scientific professionals in
the United States. It's the nation's ninth-largest exporter, the
headquarters of 24 Fortune 500 companies, the epicenter of the U.S.
pharmaceutical industry.
New Jersey has 35,000 miles of roads and the largest port complex on
the Eastern Seaboard. Its public schools rank near the top of the class
nationally, and a third of its residents age 25 and older have at least
a bachelor's degree, the sixth-highest rate in the United States,
according to the U.S. census.In addition, in terms of its median household income, which was $64,070 last year, New Jersey was fifth highest in the nation.
In
today's ever more cost-conscious business environment, however, these
attributes are often of secondary importance, if they're considered at
all, corporate relocation consultants say.
Businesses contemplating a move to another state, they say, focus on two chief factors: cost and talent.
On the first score, New Jersey simply can't compete.
According
to the nonpartisan Tax Foundation, New Jersey has the worst state
business tax climate in the United States. In its list of the best
states for business, Forbes magazine last year ranked New Jersey 34th
overall down from 19th the year before. New Jersey ranked 48th for
business costs, ahead of only New York and California.
Chief
Executive magazine last year ranked New Jersey 45th in the cost of
doing business and 48th overall, based on a survey of 543 CEOs. The top
states were Texas, North Carolina, Florida, Georgia and Tennessee. All
five are "right to work" states, which prohibit compulsory union
membership as a condition of employment, whereas in New Jersey one out
of five workers belongs to a union, which generally means higher
salaries and wages. Roughly half of the state's union members are
government employees.
"What
happens is there are very few compelling reasons, particularly on a
cost basis, that this would be the logical place to pick," said Dan
Levine, a Scotch Plains-based corporate relocation consultant who was
an assistant state treasurer during the McGreevey and Codey
administrations. "I rarely come across a company that wants to move to
New Jersey that is not already here."
When it comes to talent, New Jersey can make a compelling case, but
costs figure into that equation, too, for the employee as well as the
employer, says Jay Biggins, a Princeton-based corporate relocation
consultant."New
Jersey is talent-rich," Biggins said, "but also challenged in its
ability to retain its talent because the high cost of living in New
Jersey creates incentives for the talent to relocate."
From
2000 to 2008, nearly 800,000 New Jersey households relocated to another
state, taking $57.7 billion in adjusted gross income with them,
according to tax data from the Internal Revenue Service. Balanced
against the influx of new residents who moved to New Jersey from other
states during those years, New Jersey had a net loss of $12.8 billion
in adjusted gross income, in 2008 dollars.
Many
of those who left headed for states such as North Carolina that could
offer good-paying jobs and a significantly lower cost of living a
combination New Jersey couldn't match.
Economic initiatives
Gov.
Jon S. Corzine, a former star on Wall Street, took office in 2006
vowing to use his private-sector expertise to improve New Jersey's
business climate and economic competitiveness.
He
merged the Department of Commerce with the Economic Development
Authority to streamline business retention and recruitment programs,
and established the Office of Economic Growth within the executive
branch to coordinate overall economic strategy. He also created an
Economic Growth Council, an advisory panel of business, education and
labor leaders.
Corzine
has rolled back some business taxes, and he launched a series of
focused funding initiatives targeting economic development in urban
areas, emerging high-tech and bio-tech businesses, stem-cell research
and improved port operations. During his tenure, Bayer Pharmaceuticals
and Bausch & Lomb, among others, chose to open headquarters in New
Jersey. Earlier this year, Major League Baseball's MLB Network moved
into the former Secaucus studios of MSNBC, the cable news network,
which relocated to New York City 10 years into its 15-year commitment
to New Jersey.
Last year, the Economic Development Authority says it finalized more
than $550 million in financing assistance, state business incentives
and tax credits and venture fund investments. So far this year, the
authority has finalized 186 projects totaling about $328 million in
financing, according to preliminary figures.The cost pressures that have prompted residents and employers to leave the state this decade remain unchanged, however.
A
year ago, when the New Jersey Business and Industry Association
surveyed 1,450 employers in the state, just 12 percent said New Jersey
was a "good" place to expand a business, the lowest level in 25 years.
Maurice, the group's first vice president, says it will take
comprehensive tax and regulatory reform to improve that outlook.
"You
don't destroy a state's reputation overnight, you don't rebuild it
overnight," Maurice said. "The signal has to be sent that New Jersey's
elected officials and policymakers at all levels understand we have a
problem with our business climate some of it's perceived, a lot of it's
real and we've got to change that."
Steven
Wolf, principal at The Alternative Board, a business consultancy in
Westville, is concerned that the state doesn't give tax breaks to
companies that are struggling.
"Taxes are a big worry for businesses that are fighting to survive," he said.
Wolf perceives a worrisome Catch-22. The likely remedy for businesses that have had to lay off workers is even more taxes.
"There
are so many good people out of work," he said. "Down the road, someone
is going to have to pay a lot more taxes to take care of them."
Courier-Post senior writer Eileen Smith
Monday, September 06, 2010
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