Business Tax, ECONOMIC OPPORTUNITY FOR ALL
GSI Briefing: New Jersey’s Business Climate in 2021 – What will it take for NJ to win?
The business climate in New Jersey is undeniably challenging. Behind the dour headlines and low rankings, there are opportunities – if we as a state have the courage and the leadership to change.
On March 2nd, GSI convened an expert panel, moderated by veteran journalist Tom Bergeron of ROI-NJ. Our panel included:
· John Boyd, Jr., Principal of The Boyd Company, a Princeton-based corporate site selection firm
· Assemblyman John Burzichelli, Vice Chair of the Assembly Budget Committee
· Joe Colangelo, Founder & CEO of Boxcar, a suburban super-app with offices in Cranford, Chatham and Newark
· Jeremy Farrell, Managing Director at LeFrak, a New York based National Development & Real Estate owner
· Christina Renna, President & CEO, Chamber of Commerce of Southern New Jersey
In a wide-ranging conversation which you can view below, our panelists spoke eloquently about the tremendous assets of our state tempered with the stark reality of what is needed if we truly want to compete to win. Strong leaders as well as ordinary citizens will need to have the courage to embrace change or face the consequences of being left behind and enduring higher unemployment, inability to fund priorities such as education, health care and transportation and generally lowering the quality of life throughout our state.
Among the key observations from our panelists:
New Jersey’s prime assets include proximity to NYC and Philadelphia, respected university systems, high performing primary schools, extensive transportation systems, available open land, and a mix of suburban and urban places to live. Those assets can be leveraged to expand emerging industries such as offshore wind, avionics, drones, online gaming, film animation, digital media and cyber security. John Boyd suggested a look at the Nevada strategy that links two of their biggest economic drivers, military and casinos, to develop an IT industry around cybersecurity. NJ has both of these underlying industries.
Our strongest headwinds, the cost of doing business, especially taxes, and overall regulatory climate, are working against our ability to retain and lure investment in New Jersey. Environmental policy and regulations were called out specifically. Noting DEP regulations serve an important role but these are particularly complex, especially for manufacturing, and at times regulators engage in overzealous interventions into business operations. As the state competes with not just 49 other states but global markets, the policies that are winning are clear. As panelist Joe Colangelo noted, “it’s not rocket science.” Moving quickly to ease regulatory hurdles and enacting a competitive tax rate spurred great success with sports and online gaming here in NJ. We just need to do the same thing more broadly.
While structural tax reform is essential, in the interim the panelists agreed that incentives are necessary to level the playing field among competing states when there is a great disparity in business taxes. Specifically called out was the cost of our state’s expansive layers of government, with nearly 600 school districts and 565 municipalities, as a key driver of the tax burden. Property Taxes were cited as another key obstacle to recruiting and/or retaining key employees.
What everyone agreed on however, was that changing New Jersey, and New Jerseyan’s opinions, is the toughest challenge of all. “People want reform, but they don’t want change” was succinctly stated by Assemblyman Burzichelli. GSI would add to that “Not changing has the greatest risk of all.”
GSI BUSINESS POLICY RECOMMENDATIONS
With deep consideration of the diverse perspectives offered by our panelists, GSI strongly recommends the following economically stimulative policies to state and local elected leaders as to improve our state’s business climate to retain and lure investment to our state.
1) Leadership Matters: New Jersey’s elected leaders simply saying “We’re New Jersey” is not enough. Without a fundamental recognition that our state is losing residents and businesses, tax and regulatory policies that improve our competitive standing will not happen. Businesses must see their government as a partner, not antagonists or as a set of hurdles to overcome.
2) Public Commitment to Change: While many residents recognize that reform is needed, they are reluctant to embrace change when it comes to their own towns and school districts. There will only be public support for shared services if there are also shared benefits. Leadership in Trenton along with local Mayors and School Boards, must commit to embracing shared services to eliminate redundant costs and pass on some of the benefit to taxpayers.
3) Predictability: Severe disruptions such as we experienced in 2020 disables business planning and the ability to confidently make commitments to investors. As businesses are starting to regain their footing and looking to re-invest, the decisions made by New Jersey most recently versus other states are discouraging business growth. As examples, Trenton made permanent a business tax surcharge resulting in our highest-in-the-nation business tax rate, then embraced a significant tax increase on small businesses and high earners, and is now pursuing energy policies that the Administration has publicly proclaimed will drive current energy prices much higher for both businesses and all residents. If New Jersey persists in this direction, we will remain, as we are today, near the bottom of states winning ongoing business investment. For New Jersey to be “Open for Business,” making different decisions, not promises, is the only way to convince anyone that there is a demonstrably more positive and predictable future here.
4) Address Legacy Costs: Beyond the expansive ongoing costs of our government structure, New Jersey is bearing significant legacy costs in the form of public debt and unfunded pension and healthcare liabilities. Those legacy costs burden both state and local municipalities and consume an ever-growing portion of every annual budget. As part of obtaining public buy-in on shared services, reforming our state’s legacy costs can only be led from Trenton. Not changing these continuously growing liabilities will undermine any possible benefits achieved at the local level. Being “all in this together” means facing change at every level and by every individual in our government if we truly are committed to winning.
5) Revamp our Tax Structure: States, particularly those in high-tax states, are engaged in a “race to the bottom” with tax incentives to offset high business taxes. Individuals and small businesses can cherry-pick and relocate to states with no or very low personal income and property tax rates. A fundamental re-alignment of New Jersey’s approach to taxation, while a long-term effort, will significantly reduce the need for economic incentives as well as position us to compete head-to-head with any state for both jobs and residents.
New Jersey’s business climate did not deteriorate overnight. GSI is confident that regaining our competitive advantage is possible, albeit requiring deliberate actions by our government and business leaders as well as the public at large to face uncomfortable choices.
If we do not embrace these hard facts and demand changes in the direction of New Jersey, what will it take to convince you that there’s no time left to wait?