New Jersey businesses enter 2015 enjoying the best of times — and the worst of times.
For five years, business has had perhaps the best possible friend in the governor’s office in Chris Christie, whose administration pledged to cut red tape, awarded billions of dollars in corporate tax breaks, cut business taxes and restructured the state’s economic development process to make it more efficient and effective.
Yet, New Jersey’s post-recession economy is still struggling. Job creation is weak, and the jobless rate remains higher than the nation’s. The state has ranked at or near the bottom in the proportion of jobs recovered since the 2007-09 recession and in its business environment.
Amid the uncertainty, the one sure thing is that the state’s private sector will have a key role in charting New Jersey’s long-awaited comeback.
The Record recently gathered the heads of four of the largest business trade associations in New Jersey — Jim Kirkos, president and CEO of the Meadowlands Regional Chamber of Commerce; Thomas A. Bracken, president and CEO of the New Jersey Chamber of Commerce; John Galandak, president of the Commerce and Industry Association of New Jersey; and Michele N. Siekerka, president of the New Jersey Business and Industry Association — to hear their insights into what is going on in the economy, what businesses are thinking about and what the New Year will bring.
Here are some highlights of the discussion (edited and condensed):
Q. New Jersey’s labor market is weak. What can be done?
Bracken: We need to resurrect our business atmosphere. I think the best sources of jobs are the companies that are in New Jersey, not necessarily the ones we are trying to attract to New Jersey. The state has a lot of work to do. The lieutenant governor [Kim Guadagno] has done a lot of work paying attention to the business community that’s here. We need to pay a lot more attention to the business community of New Jersey. Ask them what they want — not tell them what they need, which is what the mandates that are coming out of Trenton are. And, really try to nurture those companies, encourage them to grow, encourage them that this is a place they should be and want to be.
Galandak: We’re kind of still repenting for the sins of the past. It’s not that nothing has improved, but we’re still out of line with a lot of other states. In some cases, all other states. One area is the elimination of the estate and inheritance tax, which really puts us at a competitive disadvantage with folks thinking about moving here. That’s certainly a priority for us.
Kirkos: The cost of doing business in New Jersey is key. Most of the time we think about that relative to large companies. But small and midsized companies feel it the worst. And what they are experiencing right now is a lot of stop and go. They see a little bit of movement in the economy, and they think about expanding their business. And then all of a sudden, they pull back because they lack confidence or a new regulation comes out — something that stifles their business. And, so, this lack of continuity of a business climate is really hard.
Q. What other specific remedies do you suggest?
Bracken: Tops on my list is that we have paid, I think, in the last five years, $1.2 billion or $1.4 billion incentive payments to companies to attract them to New Jersey. And I am not sure how many jobs that’s created. I think it’s something like 20,000 jobs, roughly, that’s a guess. If we would have taken that money and somehow allocated it to the 300,000 businesses that are in New Jersey and only one out of 10 added one job a year, that’s 30,000 jobs a year. And, I think if we would have allowed those smaller companies the availability of some of these incentive dollars, you would have created job totals like that. So I think the incentive payments, the availability of those to smaller companies over a greater geography, are absolutely imperative for us.
Q. So let’s talk incentives. This year the state will award close to $2 billion in incentives. Is this the way to go?
Bracken: I think you have to have incentives because other states have them. And, we have to try to attract businesses from other states. I am just saying allocate more of that to the companies that are here, so that they are given the incentive to grow and stay here and add jobs and not feel they’re being left out of the equation. Instead of doing it the same way every year, I think we’ve learned that there are better ways to do that. Let’s see if we can afford to cut the corporate business tax by maybe allocating a little there.
Q. Jim, should we change the incentive structure?
Kirkos: The incentives are good. But I think it’s time to take a look at how we can allocate incentives. Much of the incentives that are awarded are for larger companies because they tend to bring in the larger amount of jobs. But, we need to do something for small and midsized companies as a group and as a whole because they are the dominant employer and always will be the dominant employer in the state. They don’t get enough attention, and that’s the area that’s most stagnant with job growth right now.
Q. What about the impact of the proposed state law mandating paid sick leave?
Bracken: One way to look at this is that probably the biggest challenge for companies in New Jersey is top-line revenue growth. The market is soft. The way they’ve dealt with it over the years is cutting expenses. So, along comes the Legislature and says, "OK, that’s great, but here’s an additional cost we’re going to make you incur." Which is paid sick leave, minimum wage, you name it.
Siekerka: We don’t have in the Legislature today a lot of small-business owners or folks who are in the private sector. So they don’t know what it’s like to change the light bulb, get the invoice out, take the customer complaint and make the product at the same time. You’re legislating from a seat in Trenton when you don’t have a boots-on-the-ground understanding what the impact really is.
Q. We’ve recovered only half the jobs we lost during the recession. What went wrong?
Bracken: Sandy had a huge impact. Before Sandy, there was a lot of business momentum. It was really starting to be impactful for the state. Sandy hit and ground everything to a halt. No other state was impacted by Sandy like we were because our whole state and the supply chain within the state was impacted. So, it was a huge hurdle to overcome, and people tend to forget that.
Siekerka: Think about the trend from there. Sandy hits in October of ’12. You have the immediate devastation. Everything grinding to a halt. You come to a very weak tourism season in the summer of ’13 as a result of that because our shore was still devastated. You come off that weak tourism season, you go into a horrific winter — ’13 going over into ’14. Probably one of the worst winters we’ve seen in New Jersey in years. And then you come into ’14, and now you have a staggering situation in Atlantic City, and you have jobs for government workers declining. We were starting to rebound from the recession, and then we just got clobbered time and time again with some major issue in the state that set back the momentum for the business community.
Q. Is there anything the governor could have done to make this situation better?
Galandak: I think the administration’s done a remarkable job. Let me be a little bit bold — what could be done differently is to actually reduce taxes even further than we have. How can you do that? There could be more of an emphasis on shared services and consolidation.
Siekerka: When we look to 2015, our businesses told us if government would send a sign with some certainty early in the year, [then] they’re [businesses] going to open their wallets. They’re going to invest. So, what could those signs be? Those signs could be moving toward phasing in some relief on the estate inheritance act, small-business tax credits. The sooner in the year government leaders can send that signal, the quicker the wallets are going to open up next year.
Bracken: There was talk at one time over the last couple years of this incentive: Instead of having the incentive dollars, if you took those incentive dollars and eliminate the corporate business tax. It has the same budget impact, but it would be a huge signal to companies and the outside world.
Kirkos: New Jersey’s fiscal woes cannot be fixed with cuts. We have to grow our way into a better economy in this New Jersey. You cannot cut enough to fix New Jersey’s fiscal problems, which means you got to unshackle the business community. We will generate tax revenue. We will generate jobs and payroll taxes and everything. Our members will do that if they’re unleashed. These kinds of conversations really need to take place with our Legislature.
Q. Looking to 2015, what do you think will be the single-biggest issue facing businesses?
Kirkos: Anybody that owns a company today, when they look to the future and they do their business planning, they try to identify the obstacles that are going to be in the way. So, the biggest fear is, quite frankly in many cases, national events — what’s going on a national scheme. What’s the real end product of plummeting oil prices?
Galandak: I think it’s the overall thing of how you deal with uncertainty. Everything from business continuity to dealing with extreme weather.
Bracken: There’s an enormous fear that Trenton is going to become like Washington, where we are in gridlock and nothing happens. We’re coming into a year that’s very political — not that every year isn’t political in New Jersey. This year is going to be particularly political because we have the potential for the governor running for president and many people running for governor. So, when that happens, personal agendas sometimes get in the way of the right thing, and we could have a lot of things not get done that should get done. We could have a lot of stupid things happen, which are maybe even more stupid than the things that have happened. And that’s the big fear.
Q. Which is better for business: if the governor runs for the presidency, or if he stays in New Jersey?
Bracken: You would think it would be tougher [if he runs for president] because he’s going to have his attention diverted. But I can’t honestly say that the people he has won’t pick up the ball and do something well — like the lieutenant governor.
Q. Businesses aren’t worried about what the governor decides to do?
Kirkos: No, I think their fear is — as Tom said — is that in that process that things will come to a stop.
Siekerka: The scary part is after that. If we sit at status quo for a year as we figure out what’s going on at a national level, what we hear is people are concerned about what happens after that. Because if we fall back to a Democratic governor and a Democratic Legislature, that’s trouble for business. Right now we have the power of the veto pen in the front office. If we lose that balance, businesses are looking at political uncertainty — that scares them. Businesses are already looking at what we know is going to be a very challenging budget cycle. Business is scared to death of the first six months of next year. And that what I said earlier — the quicker government can send a positive signal very early in the year, the quicker they’re (businesses) going to open their wallets.
Q. I regularly hear from economists that part of New Jersey’s problem is that key industries have declined — pharmaceuticals, telecom, casinos. If the state wanted to bolster a few key sectors to push the economy forward, what should they be?
Siekerka: We have one right now in New Jersey that is going to continue to grow because of things happening all around the world. It’s logistics and distribution. The port is a critical asset to the state of New Jersey. As the [Bayonne] bridge rises and the Panama Canal opens, more trade will be going through that port.
Bracken: And the biotech start-ups and entrepreneurs, that’s also a very vibrant and thriving industry in New Jersey that’s emerging.
Q. How do you see the economy going in 2015?
Siekerka: We’re quite optimistic. We are coming off of a year where we have the strongest growth since post-recession, and businesses are optimistic that that trend will continue. But it’s going to be very slow and steady.
Bracken: I’m also cautiously optimistic. But I have to say that in the back of my mind I am scared to death that that cautious optimism is going to have one, two or three issues pop up that could make us take a huge step backwards.
Galandak: Agreed. The cautious optimism is fragile and barring any unforeseen calamity whether man-made or extreme weather condition. Most of our members are saying the same thing.
Kirkos: Here’s the image. Businesses with their hand in their pocket on their wallet. They’re going to keep their hand on their wallet until they see a sign that says, "Take it out." That’s going to be predicated on what happens nationally and certainly what happens in Trenton. If those things are good indicators, they’re ready to invest. But that cautious optimism is going to keep their hand on their wallet until they see some real signs.