Recovery Rides on Reform, Business Leaders Say

Rick Remington | August 2, 2010
‘Convoluted’ regulatory process most cited in discussing why NJ trails rest of region in returning to growth

If New Jersey is to catch up to its neighboring states in the current economic recovery, business leaders say, it is essential that the Christie administration deliver on its promise to reform the state’s regulatory structure in order to attract and retain employers.

Inefficiency and a lack of urgency in conducting permit reviews are most cited by business leaders when discussing why New Jersey lags neighboring states in the economic recovery. While the state’s tax structure may be high, it is not dramatically different from the rest of the Northeast, yet New Jersey trails the area in economic indicators and has higher unemployment than the rest of the region.

These same business leaders also warn that the state must soon find the resources to maintain its critical transportation and port infrastructure, as well as invest in higher education, if it is to re-start its economic engine.

Lt. Gov. Kim Guadagno and Caren S. Franzini, chief executive officer of the New Jersey Economic Development Authority (NJEDA,) said the Christie administration has already taken substantive steps in regulatory reform and in reshaping the state’s image within the business community. They cited new business relocations to New Jersey from New York and Philadelphia as early evidence of their progress.

“People are beginning to look at New Jersey as a place where we welcome business again,” Guadagno said.

No Urgency, No Answers

Business leaders remain unsure, however, saying the Christie administration has its work cut out in trying to turn around the state’s image.

“The convoluted regulatory process, long fraught with conflicting requirements, unpredictability, delays and no relation to actual science, does not facilitate economic development,” said Mike McGuinness, CEO of the state chapter of the National Association of Industrial and Office Properties (NAIOP New Jersey.)

“It hinders those who are already here from expanding or even staying in New Jersey, and it encourages potential new employers to look elsewhere,” he said.

Philip Kirschner, president of the New Jersey Business and Industry Association (NJBIA) agrees. According to Kirschner, it is not a question of the regulations themselves, but the lack of response to the business community.

Kirschner said companies are prepared to accommodate state and local environmental and land use requirements when planning to expand or relocate, but they cannot tolerate lengthy reviews and inconsistency. “The state’s ability to deliver timely answers, even if those answers are ‘no,’ has dragged behind other states,” he said.

New Jersey has lost major pharmaceutical expansions in recent years to other states, such as Massachusetts, because those states have promised and can deliver timely answers, Kirschner says.

“That doesn’t cost any money whatsoever,” he added. “That’s just good management.” New Jersey needs to get answers to requests quickly, so that business can plan. This isn’t changing any of the underlying laws, he notes. “Let’s just get this done.”

Former Edison mayor Jun Choi, a managing director at Government Strategy Group of New Providence, says he has seen companies becoming frustrated with the uncertainty surrounding the approvals process when they approach municipal and state governments with a question or a permit. “As a result, they leave for Pennsylvania,” he said. “Many of the examples I have seen end up in Pennsylvania.

“A lot of businesses recognize that to do business in New Jersey, it’s going to be more expensive overall,” Choi said, noting that in many cases, that is not enough to dissuade companies from expanding or locating here. “But what they would appreciate is much more timely responses back. It is important to have certainty in this difficult business climate.”

State Aiming for Smoother Process

On his first day in office in January, Gov. Chris Christie signed eight executive orders, four of which dealt directly with the state’s economy. Shortly afterwards, he outlined a three-pronged economic recovery strategy to be managed by Guadagno built around regulatory reform, marketing and aggressive financing assistance through the NJEDA.

Guadagno said her office expects by the end of August to have a business action center up and running with 65 staff “whose sole job will be to respond to business.” The new office is intended to provide “one-stop shopping” for businesses to navigate the state’s regulatory processes.

In addition, state agencies that handle permitting, such as the departments of environmental protection and transportation, will have deputy directors in place to facilitate reviews. “The idea is not that you necessarily get a ‘yes,’ but that you get an answer,” she said.

Also, she said the administration will use offices maintained by the Port Authority of New York and New Jersey in London and Shanghai to market the state globally. Guadagno added that both she and Gov. Christie continuously reach out by phone and in person to employers to expand or relocate in New Jersey.

“New Jersey’s business climate has completely turned around in the last six months under this new governor,” she said.

Look at Neighboring States?

The numbers do not yet bear this out. New Jersey in the first six months of 2010 in fact lost an additional 3,000 private sector jobs while the nation overall was gaining jobs, and for 20 consecutive months through June has suffered higher unemployment than New York, Connecticut, Pennsylvania or Delaware. The Federal Reserve Bank of New York in a recent analysis concluded that economic activity in New Jersey through the first half of 2010 was “essentially flat,” in contrast to New York City and New York State, whose economies were growing at “a relatively brisk pace.”

And while business leaders applaud the administration’s reform initiatives, at least one reported a feeling of déjà vu.

“Obviously, I agree with the administration’s commitment to regulatory reform,” said Patrick O’Keefe, director of economic research for the consulting firm J.H. Cohn. “But having been around since before the [1980s-era] SCORE proposals, I’m inclined to defer judgment until we see follow-through.”

McGuinness said New Jersey would do well to examine the efforts of its neighboring states whose recoveries, by various measures, have all been outpacing New Jersey’s.

For instance, he said both New Jersey and New York offer a business employment incentive program (BEIP) in which companies are awarded grants based on the amount of state income taxes generated by new employees they hire.

“I hear from our members that they have been getting more generous grants in Manhattan and Brooklyn and the other boroughs,” he said. “We have a generous program here in New Jersey, but I’ve been told of instances where the levels of grants that were awarded [in New York] could never be done in New Jersey.”

In Pennsylvania, the administration of Gov. Edward Rendell established a federally funded non-profit corporation, Wall Street West, in the Lehigh Valley that successfully lured Manhattan relocations, such as financial back-office operations, that in earlier years would have settled in New Jersey, McGuinness said.

Connecticut and Massachusetts, meanwhile, were years ahead of New Jersey in authorizing the use of licensed site remediation professionals (LSRPs) to conduct environmental investigations and cleanup activities at contaminated sites, facilitating the redevelopment of so-called brown-field properties, McGuinness said. The LSRPs handle lower risk remediation efforts, expediting the return of those properties to productive economic use, while enabling state regulators to focus their efforts on more hazardous sites.

The New Jersey program was not created until May 2009, when then Gov. Jon Corzine signed legislation modeled after the Massachusetts program.

‘Aggressive’ Outreach

Guadagno and Franzini said the New Jersey BEIP program is as aggressive as those offered by neighboring states; a 10-year BEIP grant worth an estimated $12.4 million, they noted, helped lure Intrasphere Technologies Inc., a life sciences consulting firm, across the Hudson to Jersey City in May.

Guadagno also pointed out that New Jersey won points with the Washington-based Small Business Council of America when it chose, under Christie’s leadership, to avoid tax increases to help close its budget deficit.

But Guadagno and Franzini said the biggest difference over the first six months has been the aggressive outreach to existing and prospective employers. Franzini cited the example of SSM Industries, a ductwork and piping manufacturing concern, which chose in late July to relocate from Philadelphia to West Deptford.

“The lieutenant governor called them once to say, ‘I hear you’re thinking about New Jersey, please come here,’” Franzini said. “She called a second time and said ‘I just want to make sure you’re fired up’ because she knew it was going to happen.”

But during that conversation, which occurred at 5 p.m., Guadagno learned that SSM officials were facing an unexpected tax issue that had been raised by West Deptford, and it threatened to scuttle the deal, she continued.

“At 6:30, we resolved the issue,” Franzini said. “We called a person from West Deptford that was on vacation at the beach. They had a record-keeping problem, there wasn’t supposed to be an additional tax, it was wrong and the next day the project closed and they made a commitment to move to New Jersey.”

Renewed Focus on Workforce

Moving forward, business leaders, economists and Christie administration officials all agree that New Jersey’s top asset is the quality and education level of its workforce.

“We still have a very, very good workforce and talent base and that what keeps us in the game frankly,” Kirschner said. “That really is No. 1 when you talk to most businesses. You can have the best business plan in the world, but if you don’t have a talented staff that can implement that plan, you don’t really have much of a plan.”

For that reason, business leaders urge the state to find ways to invest in higher education and to take advantage of the state’s higher-ed system.

Other advantages for New Jersey cited by Kirschner and McGuinness are its well-evolved transportation network; location within a densely populated, relatively affluent consumer marketplace; and roster of well-established pharmaceutical, telecommunications, life science, health and education centers that “tend to attract other people.”

But McGuinness warned that New Jersey could jeopardize its economic recovery if it fails to act soon on replenishing the Transportation Trust Fund and take immediate steps to support containership operations at Port Newark/Elizabeth.

NAIOP New Jersey is one of several New Jersey organizations that has urged successive administrations over the years to raise the state gas tax in order to fund new projects, McGuinness noted. By the end of the current state budget, all revenue deposited in the trust fund will be required to pay off past debt service, leaving no funding available to finance new highway, bridge and public transit projects.

“I know this governor has been very outspoken saying no gas tax under his watch, at least not now,” McGuinness said. “While no one wants to get a tax increase, we have a lot to risk if we don’t get our infrastructure, our roadways and mass transit systems modernized. We’re going to lose future tenants, future business and future jobs.”

In addition, he noted the transportation and logistics sector accounts for more than 10 percent of New Jersey’s gross domestic product, driven in large part by container-port operations at Port Newark/Elizabeth and supporting warehousing and light industrial activities. New containerships expected to hit the seas within a few years will be unable to access the port unless the Bayonne Bridge is replaced with a higher span, he said.

Because the bridge is owned by the Port Authority, the Christie administration must gain concurrence from New York Gov. David Paterson to proceed with a bridge replacement project.

Kirschner said New Jersey should expect a slow rebound in jobs.

“The opportunities for growth are in innovations and knowledge-based industries—pharmaceuticals, telecommunications and health,” he said. “Those are our strengths and we will continue to be industry leaders in those areas which offer good jobs, well-paying jobs.

“But it’s going to be slow incremental growth,” he said.