Assembly Panel Wants to Keep Businesses, Jobs from Moving to Neighboring States

Tara Nurin | February 11, 2014 | More Issues
Experts tell committee NJ needs lower taxes, better training programs, more economic incentives if it wants to stop losing jobs to New York, other neighbors

With a new chairman and a roster consisting of all but two new members, the Assembly Commerce and Economic Development Committee is working to bring more business investment into New Jersey.

What they’re learning as they ask top representatives from the state’s business and education sectors is this: Without prolonged and decisive action to reduce certain taxes and increase training programs and economic incentives, New Jersey’s economy will continue to be ravaged by neighboring states stealing business from the Garden State.

Other states –New York is the prime offender — entice corporate investment by offering a host of tax-relief packages. These create tax-free zones and limit property and estate taxes while they supply sustained incentives and services to growing businesses and those that move near research universities.

According to New Jersey’s business community, the state went a long way toward establishing parity with its neighbors by passing a set of tax-relief bills in 2011, then following them up with the Economic Opportunity Act of 2013 (”EO13″), which streamlines access to public incentive programs.

Yet despite the act being hailed as the most sweeping upgrade to the state’s business climate in history, informal advisors to the committee warn them not to become complacent about pushing further reforms.

Taking a Beating

“We’re getting beaten up by the competition, especially New York, Pennsylvania, and Connecticut,” cautioned Suzanne Zammit, president of the New Jersey Business Incubation Network. The coalition of experts is tasked with nurturing the state’s more than two dozen business incubators and lobbying on their behalf.

Because New Jersey provides seed money and incubation programs to startups but few resources as they grow, Zammit says a large number take advantage of New Jersey’s public incentives geared toward fledgling enterprises then leave for states that offer continued support. But the state used to have such programs, and, say business boosters, should have them again. Before the Jon Corzine-era Edison Innovation Fund ran out of money, the NJ Economic Development Authority (EDA) used it to support “life sciences and technology companies throughout their discovery, development, and commercialization stages,” according to an EDA press release from 2008.

“It’s becoming very hard to attract the very best of the best. They’re going where the money is,” Zammit says, lamenting the state’s lagging position.

Incoming committee chair Gordon Johnson (D-Teaneck) says he hears the urgency in corporate boosters’ message. He expects his committee to spend the next two years taking up issues concerning infrastructure, incentives, education, and home rule laws that restrict Trenton’s zoning authority — and maybe even tax reductions if the revenue can be recouped through greater employee spending.

Taxes and Incentives

Speaking at a hearing last week called to introduce committee members to the state’s major business-policy players and their agendas, David Brogan, first vice president of the New Jersey Business & Industry Association, cautioned members about New York’s robust programs that nurture incubators and offer prize money for winning entrepreneurs.

Speakers also noted that New York Gov. Andrew Cuomo is cutting corporate income taxes, setting up a 10-year tax abatement program in the western counties, and establishing tax-free zones near certain universities where, among other things, some employees who earn less than a $200,000 a year pay no income tax.

“We’re living in a very competitive world. States are trying to become more innovative . . . And in a high-tax state like New Jersey, there’s a greater need for incentives,” testified Brogan.

He also thanked lawmakers for reducing the S-Corp. filing fee by 25 percent and allowing small companies to factor in certain losses when calculating their gross tax burden, with some businesses receiving permission to carry losses forward for 20 years.

Brogan also appreciates that the Legislature moved from a three-factor formula that averages property, payroll, and sales when calculating business tax liability for companies that trade in New Jersey to one that’s based only on sales. Because this formula no longer penalizes companies that maintain property and employees in the state, Brogan considers it more equitable to companies with a large in-state presence.

But despite these favorable changes, Brogan said more needs to be done. He’d like the Legislature to revisit two failed budget proposals, one that would eliminate the sales tax on services associated with tax-free products (like software upgrades), and another that would raise the estate tax threshold from the current $675,000 to at least $1 million.

As it stands, Brogan argued, New Jersey’s estate tax, whose low threshold interferes with succession planning, is the country’s second-lowest after Pennsylvania, which has none. By contrast, he says, Delaware’s threshold sits at $5.25 million and New York and Maryland set theirs at $1 million. It matters because owners of family businesses are sometimes forced to sell off assets to pay the tax. With a higher threshold, fewer entrepreneurs would be liable.

“You don’t want to die in New Jersey,” he joked.

Industries Past and Future

“New Jersey is a different place than it was 30 to 40 years ago. I don’t think we’re going to attract a chemical presence anymore, which is what formed a base of New Jersey’s industry before,” said Michael Egenton, senior vice president of the state chamber of commerce.

Now the hot industries setting up shop in-state tend toward finance, healthcare, and biotech, he said.

More than 350 biotech industries flourish in New Jersey today, vs. just 80 16 years ago, said Bill O’Donnell, vice president of BioNJ, the state’s trade association for the life sciences industry. Labor boosters view the cutting-edge field that uses live organisms in healthcare products and procedures (as opposed to the pharmaceutical industry, which uses chemicals) as valuable for its use of skilled labor, high earning potential, and potential growth.

In return, the industry rewards New Jersey handsomely, as evidenced by two distinguishing factors: the Fierce Biotech daily industry newsletter named it one of world’s top-five growth markets for biotech, and its $4.8 billion in industry-funded life-sciences R&D ranks it number one in the nation.

But still, it’s not enough. According to O’Donnell, “access to adequate funding remains one of the greatest impediments to growth, especially at the beginning.” He proposed that the legislature create more programs like the Edison Innovation Fund to facilitate venture funding and grants to biotech startups, “if New Jersey intends to remain the medicine cabinet of the world.”

Life Sciences and NJ

Johnson acknowledged he needs to better familiarize himself with the role the life-sciences industry could play in the state’s economic future.

“I didn’t realize how big the biotech industry is in New Jersey so of course I’ll be paying attention,” he said.

More so than in other industries, life sciences requires a highly trained workforce and thrives in partnership with universities, where workforce training programs, research, and clinical trials can ideally be conducted in tandem.

Boosters want Trenton to create a database of corporate research taking place alongside the state’s educational institutions to facilitate connections for other companies looking for the same sort of collaboration. As it stands, Michael Klein, executive director of the New Jersey Association of State Colleges & Universities, sayid too many clinical trials get outsourced to the “Research Triangle” region in North Carolina.

Klein also urged lawmakers to relax restrictions on state schools that require approval from governing boards that may only meet once per quarter and slow the process of building facilities and creating programs at a time when universities are seeking to establish professional certificates for popular industries as an additional source of revenue.

Sheila Oliver (D-Essex) is calling on fellow committee members to explore job training programs at all levels to ensure that prospective businesses can find the workforce they need in New Jersey.

Whether it’s a pool of highly skilled scientists and engineers or a group of employees who require basic job skills to populate everyday Main Street businesses, Oliver implores fellow lawmakers to examine current workforce development programs and reroute funding to those that offer modern job training. Not doing so could leave companies with a pitiful pool of applicants and wasted public funding for such programs.

“Some of the training on the local level is so antiquated, it doesn’t reflect current needs,” she said of urban workforce development programs, typically funded with federal funds routed through the state. “I do not see a correlation between the amount of money we’re spending and who actually gets those jobs.”

Committee members also said they plan to discuss the need for modern transportation, water, and energy infrastructure to assure companies that their utilities are reliable and not overpriced and that employees can safely and conveniently travel to and from work.

“We are competing with other states and regions and we have to ensure that we’re cognizant of what’s out there and doing all we can to provide incentives to invest in New Jersey,” Johnson said.