BLUEPRINT FOR A PROSPEROUS NEW JERSEY

Lower Taxes And Stronger Economic Growth Must Top List of 2007 Legislative Priorities

The Legislature has a variety of important issues to tackle in 2007 including the need to enact tough ethics reforms and the challenge of crafting a balanced, fiscally responsible state budget. However, it is clear that the two issues that must top our list of priorities going forward this year are the state’s desperate need for substantial long-term tax relief and for a business climate that will help foster a more productive economy.

A report issued last year two prominent Rutgers economists painted a bleak picture of our state’s economic health in the wake of five years of Trenton’s tax-and-spend budget policies. This report was backed up by a survey of business leaders in the state concluding that confidence in the state economy among these leaders is at its lowest level since the 1991-92 recession.

The report, compiled by Rutgers economists James Hughes and Joseph Seneca, concluded that our state may now be facing its most uncertain economic future since the era of the Great Depression. New Jersey is suffering from an economic decline the severity of which has been exacerbated by the flight of affluent residents and high-paying jobs away from our state.

Over the past five years the state’s job growth has been largely limited to the public sector while the sluggish state economy hindered private-sector job growth resulting in the loss of many high-paid technology, knowledge and manufacturing jobs.

Private sector employment decreased by 7,900 jobs between 2000 and 2005, and more importantly we are losing jobs in sectors where our state used to be dominate. We lost more than 98,000 manufacturing jobs during that five-year period – twice as many as we had lost in the prior ten years.

In 1990, New Jersey accounted for a 20 percent share of all pharmaceutical jobs in the nation and today that has dropped to a 13 percent share. It is not difficult to pinpoint what has placed our state economy in this unenviable position.

For five years, the leadership in Trenton has tried to balance runaway spending on the backs of our state’s taxpayers. Spending in the last five years has increased by more than $9 billion and the Democrats have hiked 94 taxes in those five years including the sales tax, the income tax, business taxes and taxes on a variety of other products and services.

These tax increases are choking off economic growth in our state and threatening to diminish the very revenues they were intended to generate. New Jersey must change course and must look at ways to encourage business growth and development in our state.

Meanwhile, property taxes have increased by 35 percent in the past five years and this is making New Jersey unaffordable for many families. As the property tax burden has made this a less desirable state in which to live, it has deprived the state of the labor market and potential investors that could support business expansion.

It is a simple formula: by hiking taxes to fund government spending, Trenton is chasing away revenue producing businesses and jobs. Meanwhile, these policies along with our state’s ever-growing property tax crisis are chasing away middle class and more affluent homeowners.

The 2006 special session on property taxes produced some good ideas for cutting the cost of state government and reforming the way we fund our schools. The questions is whether the Democrat majority will have the courage to pursue those solutions in 2007.

During last year’s budget process, Republicans proposed $2.2 billion in possible spending cuts and savings. Those cuts were rejected by the Democrats who instead increased the size of the state budget by $2 billion.

These savings, along with the ideas generated by the property tax special session, could be used to provide a substantial, long-term solution to our property tax crisis. If we were willing to cut wasteful spending we could roll back much of the 35 percent property tax increase homeowners have experienced in the last five years and sustain the relief going forward.

It is our hope that the Democrat majority will not settle for a one-year, quick-fix gimmick that vanishes after this year’s election.

Republicans intend to fight for long-term solutions that will make our state more attractive to homeowners and businesses. With the right priorities, we believe both goals can be accomplished.

Rising Taxes Fuel Exodus of People
and Jobs from New Jersey

The importance of changing course has never been greater. Economic experts are continuing to send signals that unless something dramatic is done soon to control taxes, spending and debt in New Jersey, the exodus of people and jobs from New Jersey will grow. 

Last year’s report by James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, and Joseph J. Seneca, a professor at the Bloustein School, was the first of several to sounded an alarm about the state’s troubled economy.

Their findings confirmed that high taxes, rising costs and the loss of good paying jobs under the previous Democrat administration is continuing to be a drag on New Jersey’s economy and incentive for residents and businesses to find a safe harbor elsewhere.

"Annual population growth in the state recently has slowed significantly. In fact, it has fallen steadily year by year from 71,000 people in 2002 to 33,000 in 2005," noted Hughes and Seneca in a column appearing in The Star-Ledger on February 23, 2006.

"Net immigration from abroad into New Jersey has been declining, while net migration from New Jersey to the rest of the country has been increasing. In 2002, nearly 24,000 more people moved out of the state to the rest of the country than moved into the state from the rest of the country.

"By 2005, almost 57,000 more people left New Jersey for the rest of the country than moved here, more than double the out migration of three years earlier. If this trend continues, future population growth will be more on the scale of the 1970s, when the state grew by 194,000 people, and the 1980s, when the state's population rose by 365,000.

“This shifting demographic pattern is paralleled, and perhaps caused by conditions in New Jersey's economy, which is now beset by below-national growth rates, tepid gains in high-paying job sectors, the erosion of our core science and technology assets and the high costs of housing. So we may not have such a congested future after all."

An important factor figuring into the decision of major corporations to leave New Jersey is certainly the billions of dollars in higher taxes and fees imposed on businesses of all sizes over the past four years to support a state budget that continued to grow at an alarming rate even as its structural deficit ballooned.

One dramatic indication of how drastically the landscape has changed in New Jersey was revealed recently when the Beacon Hill Institute State Competitiveness Index, which ranks a state’s ability to compete for business, rated New Jersey 44th in 2004, an alarming plunge from 26th the previous year.

Labor statistics show New Jersey continues to perform worse than the nation in job creation. Payrolls grew last year 1.5 percent in the U.S., even with the damaged caused by Hurricane Katrina, compared with less than a 1 percent rise in New Jersey. While the national unemployment rate has been falling, hitting 4.9 percent last month, the New Jersey unemployment rate has been rising for most of the last six months.

Beyond the basic numbers, the problem in New Jersey is too many of the added jobs are lower-paying service jobs, such as those at restaurants and hotels, rather than higher-paying jobs at technology and finance companies, the sort of positions that have previously fueled the state’s growth, according to some experts and industry representatives.

Hotels and restaurants alone accounted for more than 11,000 of the added jobs last year. The downside is that the average pay for these types of service jobs ranges from $20,000 to $28,000, compared with $58,000 for professional and business services and $75,000 for finance, two categories that have boosted the state's economy in years past.

Private industry created all but 1,800 of the added jobs last year. In 2004, by contrast, private industry created about 31,000 jobs while government accounted for about 15,000 jobs.

A report released in October 2006 by the Washington-based Tax Foundation ranked New Jersey 48th in the nation for the friendliness of its business tax climate. It was viewed as even more evidence that New Jersey needs to reverse course.

The Tax Foundation’s State Business Tax Climate Index not only found little improvement in the state's business tax climate, it cautioned that New Jersey may drop in the rankings again in 2007 because of the major sales tax increase imposed by Governor Jon Corzine and the Democrats.

Also last fall, economists Rae Rosen of the Federal Reserve Bank of New York and James Hughes of Rutgers University, expressed concern that New Jersey's job-growth engine is sputtering and the state has fallen behind in the quest for high-tech expansion.

Not only is job growth in New Jersey lagging the region and the nation, the state is creating more low-paid than high-paid jobs, Rosen said. And while the nation is creating one low-paid job for every high-paid job, the ratio for New Jersey is two to one. New Jersey lost 8,400 high-tech jobs from 1990 through 2005, while the nation gained 1.4 million, Hughes said.

"Task Number 1 is to recapture the confidence of corporate America, which eroded badly during the 2000-to-2005 period, which was one of fiscal irresponsibility and seemingly endemic scandal and corruption," he noted.

The bad news kept coming in November. A study by the Small Business & Entrepreneurship Council in Washington, DC, concluded that New Jersey has the least friendliest small business environment in the nation.

The study, otherwise known as the Small Business Survival Index 2006, ranks states according to the policies implemented as they relate to taxes, regulation, spending and other governmental costs affecting the entrepreneurial sector of the economy. New Jersey earned its overall dead last ranking due to high income, property, capital gains and estate taxes as well as high electric costs. This is how New Jersey fared in specific areas:

1. State and Local Property Taxes – 49th
2. Top Capital Gains Tax Rate – 48th
3. Top Corporate Income Tax Rate – 43rd
4. State and Local Government Expenditures (2003 to 2004) – 43rd

“For the entrepreneurial sector of the economy, policy matters,” the report noted. “The U.S. economy is dependent on the health and growth of small businesses and obstacles that impede their success is a big negative for the economy...some elected officials, policymakers and special interests believe that taxes, regulations and other governmental costs can be increased with impunity. Economic reality tells a different story. Ever-mounting burdens placed on entrepreneurs and small businesses by government negatively affects economic opportunity.”

In November 2006, a report released by the Council of Economic Advisors found yet again that while the national economy added 727,000 jobs since May, New Jersey job growth has remained stagnant - even losing 2,200 jobs last month.

As 2006 drew to a close, the New Jersey Business & Industry Association’s annual “Business Outlook” report struck another pessimistic note.

The NJBIA report notes that while employers as a group have voiced growing concern about the near-term economic outlook nationally, their bleakest assessment is reserved for the New Jersey economy.

Fifty-one percent of survey respondents said they expected state economic conditions to deteriorate in the first half of 2007, while only 12 percent said they anticipated improvement, a result that represents “the most downbeat assessment since the 1989-92 recession surveys.”

The year ended on a pessimistic note when the Federal Reserve Bank of Philadelphia reported on December 27, 2006 that New Jersey’s economy was all but stagnant.

In a column appearing December 28, 2006 in The Philadelphia Inquirer, Hughes and Seneca said New Jersey’s economic slowdown is “far worse” than the nation’s. In the first 11 months of 2006, New Jersey ranked 44th among the states in the rate of private-sector job growth – 0.4 percent. As Hughes and Seneca observed, that put New Jersey “way behind West Virginia, Alabama, Arkansas and Tennessee – none of them an economic powerhouse.” Meanwhile, private sector employment in the nation expanded by 1.2 percent.

Why is this happening to such an affluent state?

“Higher interest rates, volatile energy costs, a maturing national expansion, and a slowdown of housing activity slowed economic growth in New Jersey this year from the already below-average pace of the previous two years,” said Hughes and Seneca.

“But in recent years, growing problems of housing affordability, declining business cost competitiveness, undisciplined state finances, and a lack of public-policy focus on the economy also have taken
their toll.”

Assembly Republicans strongly believe any continuation in 2007 of the “tax-borrow-spend” pattern established by the Democrats over the past five years will only further undermine the economy and jeopardize New Jersey’s financial future.

The Republican Record:
Lower Taxes and Economic Prosperity

When Republicans controlled the state Legislature, we reduced the size of the state budget three times by making cuts in spending (FY 1993, FY 1995 and FY 1997).

The budget was $14.8 billion when Republicans were in the majority in 1992. Four years later it was $16.3 billion – a $1.5 billion, 10 percent increase in four years, as opposed to the Democrats $6 billion, 30 percent spending increase in four years.

Our total spending increase in 10 years was from $14.8 billion to $22.3 billion – a $7.5 billion increase. That was from 1992 to 2001. The Democrats have done $6 billion in just four years.

When spending did rise it was because we were providing additional funding for school aid and fully funding property tax rebates for all homeowners (in other words, property tax relief) which accounted for a large portion of the budget increases. The Democrats have increased spending while cutting these property tax relief programs.

We cut taxes 62 times including income taxes, sales taxes, business taxes, and we also reduced – through the New Jersey SAVER program – the property tax burden on most homeowners. The Democrats have increased taxes 63 times for a total of $4 billion.

State debt went from just under $15 billion when we left office to nearly $30 billion currently – a doubling in just four years.

We did not borrow for operating expenses while we were in charge. The Democrats did so in the FY 2004 budget and the Supreme Court ruled it unconstitutional and ordered the state not to resort to such practices in the future. In 2005, a Superior Court judge ruled that the state budget had again relied on borrowing to cover operating expenses in violation of the Supreme Court’s holding.

We maintained a healthy budget surplus every year and were praised by Wall Street for our fiscal management. A Standard & Poors report issued on November 8, 2000 stated that New Jersey had a stable fiscal outlook because of its:

“Strong economy and tight fiscal budgetary practices . . . The assimilation of these actions into the state’s operating budget, while maintaining a solid fiscal profile over the next few fiscal years could result in positive credit implications.”

The report also pointed out that:

“Nonrecurring revenues, or one-shots, have been eliminated from the Fiscal 2001 budget while the structural deficit is reduced to only $306 million from roughly $1.6 billion in Fiscal 1994.”

The Republican Promise:
Lower Taxes and Economic Prosperity

New Jersey was blessed with economic prosperity during the final decade of the last millennium.    It can return, if the Republican policies that nurtured economic growth are implemented once again. What it will take is a Legislature with a new set of fiscal priorities:

1. Lower taxes;
2. Less bureaucratic red tape;
3. Fiscal discipline, and
4. Policies that encourage economic growth and expansion.