New Jersey in recent years has lavished generous tax incentives on big companies like JP Morgan Chase and Subaru in an effort to bring more jobs to the state or to keep corporations from leaving. But a new evaluation of the state’s sluggish economic conditions suggests taxpayers could get more return on their investments with policies that target much younger companies.
The in-depth economic report prepared by international management consultant McKinsey & Co. holds up startups and firms that are less than 10 years old as the state’s real “net-job creators.” It also points to policies adopted in other states that have aggressive angel-investor tax credits and incentive-monitoring programs as models for New Jersey.
“Other states have gotten higher returns by continuously monitoring the economic gains from their investment, enforcing claw-back provisions for incentives that do not produce returns, and focusing investment in industry clusters where young companies can blossom,” the report said.
According to its authors, the economic evaluation was prepared and released publicly to help inform ongoing policy discussions with nonpartisan, objective recommendations to boost a state economy that has been mired in a pattern ofcoming out of the Great Recession. The report’s other recommendations include calling for a modernization of New Jersey’s transportation infrastructure and launching a stronger effort to help match the state’s workforce with the jobs that its employers are seeking to fill.
“No single institution or sector can make the changes the state needs,” the report said. “It will take dedicated efforts by the private, social, and public sectors — and the involvement of us all — to make the Garden State a growth leader again.”
New Jersey’s 4.1 percent unemployment rate is lower than the national jobless average right now, but the report from McKinsey, which has offices in Jersey City and Summit, focused on the state’s gross-domestic product, which has grown at only half the national rate in recent years.
In 2013, Gov. Chris Christie, a second-term Republican, worked with Democratic legislative leaders tothe state’s economic-development tax-incentive programs in an effort to boost economic growth. Since then, more than $4 billion in incentives have been awarded through the Grow New Jersey program. But the ramped-up tax-incentive effort has also drawn a fair share of in recent years from those on both the right and the left, and an audit released earlier this year in the state Economic Development Authority’s oversight of the incentive programs.
The firm’s analysis, which included interviews with more than 70 state business leaders, also determined that New Jersey spends roughly $174,000 for each job that was created or retained by one of the older firms, but $110,000 for every job in companies that are younger than 10 years.
“The lack of fast-growing young firms — and the higher proportion of older corporations — has been a factor in slow growth in New Jersey,” the report said. “Few mature businesses grow faster than the overall economy and large companies generally create relatively few new jobs, but young companies can double in size in a year or two and may be adding jobs for many years to keep up with growth.”
Tennessee was held up as a model for adopting an approach that involves the use of six entrepreneurship centers around the state, an aggressive angel-investor tax-credit program, and public-private partnerships that foster more research and development. Other states like Virginia are also doing more to analyze the effectiveness of their economic-incentive programs, while a tracking of New Jersey’s incentives that was authorized in 2013 isn’t due to be released until 2018, the report said.
“The key is continuous exploration of these incentive programs and (determining) what’s working and not working,” said Steve Van Kuiken, a senior partner with the firm who outlined the findings in a conference call with reporters yesterday.
On the issue of transportation infrastructure, the report held up recent efforts being made in Chicago to reduce traffic congestion that include using more technology and data to determine which transportation-infrastructure projects should get public funding.
In New Jersey, Christie worked with legislative leaders last year tothe state Transportation Trust Fund for another eight years, boosting the annual spending of state dollars to $2 billion thanks in part to a 23-cent gas-tax increase. But have also been raised about how infrastructure projects will be selected for funding as the reauthorization plays out, and as total investment soars to near $32 billion counting federal matching dollars.
The report recommends “optimizing project portfolios to prioritize investments that have the greatest benefits, streamlining delivery to save time and money, and making the most of existing infrastructure rather than investing in new infrastructure.”
In the area of workforce development, McKinsey highlighted recent efforts in Maryland to better link job training with the industries that are looking for more workers, including the formation of nonprofit partnerships between companies, secondary schools, and trade associations.
Another recommendation involved focusing the state’s economic efforts on its core strengths, including the blossoming logistics and warehouse sector and areas like biotech and cybersecurity. That way New Jersey can take advantage of its top-notch universities and proximity to a financial-services industry that has become a leading target of hackers.
“The New Jersey growth agenda should be broad-based and statewide to succeed,” the report said. “However, these industries represent some of the clearest opportunities for immediate results.”