Challenges and Opportunities in New Jersey: An Opportunity to Swing the Pendulum Back
Corporate & Finance Alert
October 6, 2009
This article provides an overview of what I see as New Jersey’s “business unfriendly” problem, and suggests a solution.“New Jersey can’t seem to shake its reputation for being unfriendly to business,” reported The Star Ledger on Sept. 23 in an article entitled, “Jersey ranks 50th, again, for tax climate.” That is no shock. In May, Joseph Henchman, Director of State Projects for the prominent Washington bipartisan think tank, The Tax Foundation, opined, “Fiscal policy in the Garden State reads like a ‘what not to do’ for policymakers and stakeholders.” He added, “The corporate income tax combines a high rate, onerous rules, and lavish subsidies for the politically connected. The sales tax is one of the highest in the country. The state is one of five in the country to adopt a heavy individual income tax on high-income earners, which has reduced economic activity in the state. New Jersey residents also pay more property tax per capita than residents of any other state.”1
And it is not just taxes. James Hughes, Dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, says the combination of high taxes and tough regulatory requirements have made New Jersey an unattractive place for many businesses.2 Scott Hodge, President of The Tax Foundation, noted that New Jersey “is dead last” on the Foundation’s Index of Competitive States, and that the Foundation finds the corporate income tax to be the most burdensome of all business levies when it comes to a state’s competitiveness.3 Again, no shockers in any of this.
From my vantage point as (i) former president/CEO/shareholder of two New Jersey companies, (ii) current practicing attorney at Gibbons’ Newark office, and (iii) President of the New Jersey Chapter of the Association for Corporate Growth (ACG New Jersey), I see this issue daily. But New Jersey’s unfriendly business climate and reputation were not always the case. ACG’s September 18 meeting topic was “Re-Establishing New Jersey’s ‘Business-Friendly Culture and Infrastructure.’” Our meeting announcement stated:
From the 19th century through the 1970’s, New Jersey had become a leading global industrial and manufacturing center across numerous industries, with private business and the State government working in tandem for the overall common good of both NJ business owners and workers. The State capital itself was known by the slogan “What Trenton Makes, The World Takes”. Somehow, over the years, the State’s priorities shifted, with business taking more of a back seat, and more and more burdens and obligations placed on businesses and business owners, ultimately contributing to a net shift of business out of the State and a loss of NJ’s “business-friendly” global reputation and jobs. The good news is there is now a growing realization, cutting across party and management/labor lines, that we need to address this, fast. But how?
The key question is, “But how?” . . . New Jersey is struggling; not just the state government, but also our companies, business owners, workers, homeowners, and families. We are all dealing with the issues of increased personal and business expenses, lost productivity, lost business to domestic and foreign competition, and rising unemployment. A large potion of our prior manufacturing base is gone, and it would take many years to bring it back. The media is constantly filled with opinions on restoring economic health in New Jersey, from educators, economists, business leaders, columnists, and business organizations. It is an election year, and the candidates are discussing and debating this issue. In other words, there is an overload of information and opinions, without clear cut answers, solutions, and direction.
I certainly have no silver bullet, but I do have some observations. The louder and more often people yell, the less they are heard. The more special interest groups demand, the less there will be for everyone else. The more power groups pull in opposing directions the less we will move forward. Finally, the cliché, no pain, no gain.
As Tom Friedman says, the world has become flat, with low cost global competition and technology disbursement affecting New Jersey and the rest of the United States. These phenomena notwithstanding, there may be low-hanging economic fruit for New Jersey by attracting businesses from elsewhere, domestic and global. While this approach may seem overly simplistic, think about the possibilities. In my view, the way to achieve this goal is to create a culture that will return New Jersey to being “perceived” as more business friendly and cost competitive in taxes, legal risk, and government oversight. The critical component is a new willingness by the government to view and treat business as its partner for the common good of the state.
This is as much about marketing New Jersey to the global business community as anything else. A shift in “friendliness perceived” can swing the economic pendulum back. If this happens, even to a small degree, there can be a huge impact on New Jersey’s economy.
Consider the combination of New Jersey’s current economic output and its huge competitive advantages, even in a “flat world:” access to the global financial center, New York City, the northeast’s large marketplace of business customers and consumers, New Jersey’s deepwater ports with access to Europe and other continents, and a highly trained and capable workforce in many industries, from blue collar to senior management.
Perhaps our biggest competitive advantage is our current economic output. As difficult as things are in New Jersey, we still are maintaining a Gross Domestic Product (GDP) of $475 billion (2008), or 3.3% of the entire U.S. GDP. The United States, in turn, with a GDP of $14.2 trillion (2008), still possesses 23.6% of global GDP, with Japan in a far second at $4.9 trillion, and China third with $3.9 trillion, or only 27% of U.S. GDP. Granted, New Jersey is losing ground, but the resources are still here. We simply need to shift a small percentage from neighboring northeastern states, the continental United States, and abroad back to New Jersey.
If a unified effort by the different power groups in New Jersey, government and nongovernmental, for-profit and not-for-profit, can create a unified strategy, or at least a unified front by focusing on common ground rather than differences, and then “go on the road” to market New Jersey’s strengths nationally and internationally, it can make a significant difference. Once the election is behind us, a nonpartisan, uniform voice among New Jersey government, business, and labor leaders, can send a message to both New Jersey based and non-New Jersey based businesses that New Jersey is shaking off its “we don’t care” culture, and replacing it with a “we do care” and “we are partners” culture. If business owners got the sense that New Jersey really cared, they would be less likely to relocate from and more likely to locate to New Jersey. The businesses would range from financial services in NYC to call centers in the south and Mumbai, and from R&D centers in Taiwan and China to assembly plants everywhere.
If you have any questions, please contact the Gibbons Corporate Department.
1 States News Service, Tax Foundation Fiscal Fact No. 171 and No. 172, May 27, 2009.
2 Courier News, “Garden State Businesses Face Twin Hurdles of High Taxes, Red Tape,” September 20, 2009.
3 Pittsburgh Tribune Review, “Business Tax Burdens Pa.,” February 13, 2009.