Meltdown within a meltdown

On Thursday Governor Corzine addressed a joint session (NJ Senate & Assembly) of the New Jersey legislature.  He outlined four broad proposals, each of which we will explore.  His suggestions once again involve spending, and also are discriminatory in who would be helped rather than provide relief to all who reside in New Jersey.

Corzine’s first proposal “provides immediate assistance to those in greatest need”.  It would provide selective foreclosure assistance through the New Jersey Housing & Mortgage Finance Agency (HMFA), an in but not of entity in the Department of Community Affairs  (DCA).  This agency will then redistribute money to unnamed community housing groups for dispersal to “include financial counseling, mortgage restructuring, and house and mortgage acquisition”.  It is expected that $25 million will be doled out to assume a portion of the mortgage debt for a limited number of the 50,000 yearly foreclosures.  Assemblyman Joseph Malone is asking Corzine for specifics on the criteria, locations, and statewide effects of helping this limited few.  Many of the individuals facing foreclosure overextended themselves and made poor financial decisions.  Note that property taxes are a component of traditional mortgage payments and that if the taxes were under control than these payments would be measurably lower.

In addition to the housing bailout Corzine is proposing $10 million for energy grants to assist about 200,000 households.  Also proposed is expansion of the senior property tax freeze income levels from $53,000 to $80,000.  He claims it will aid approximately 70,000 seniors, the 1st year state annual cost is $5 million, expanding to an annual $30 million by the 3rd year.  As part of this first proposal Corzine is asking for an appropriation of $3 million from state funds emergency assistance to food banks.  He is encouraging individuals and businesses to give more.  All I can say about this request is donations have dropped because people and businesses are broke from the state’s addiction to money.  If property tax relief were enacted a few years ago there would be more money and items to fill the food banks.

Proposal two supposedly addresses economic activity and short-term employment.  I view it as aid to the union rate workers who earn prevailing wage and are inclined to vote for their ‘party bosses’ at election time.  Could it be a coincidence that their pockets will be full shortly before the November 2009 gubernatorial election?  He states that, “The projects are advancing capital plans already authorized, drawn and funded”.

“First and most practically, I have instructed all commissioners, most particularly the commissioners and directors of the Department of Transportation, New Jersey Transit, the Toll Authorities, the Schools Development Authority, the Board of Public Utilities and the Department of Environmental Protection, to accelerate where feasible all currently funded capital spending projects.”

This would infuse $4 to $5 billion in the next six months.  What will be left to do and spend if this is accelerated?

Another part of proposal two involves the Board of Public Utilities (BPU) and Department of Environmental Protection (DEP) Energy Master Plan.  The 89 page Draft New Jersey Master Plan can be viewed here.  Corzine touts this as “green collar jobs, private sector jobs”.  The businesses mentioned are mostly environmental, energy, and engineering with lots of state agency involvement.  I do appreciate that private sector jobs will be included, but in scanning the plan there also appears to be a lot of work for state agency employees and workers paid prevailing wage (union wage rates).

Also, under proposal two are attempts to help small businesses.  Corzine recommends, “depositing at competitive rates a portion of the State’s cash management funds”.  He believes that this financial support to banks will spawn small business lending.  Read what Assemblyman Richard Merkt has to say about this idea.  Corzine also wants to increase further involvement by the Main Street Assistance Program, again in the DCA and the Economic Development Authority (EDA) in supporting businesses.

Just when I think Corzine couldn’t be more out of touch, along comes another epiphany.  He proposes that the legislature consider a two-year program to write a $3,000 check to a small business (defined as 500 employees or less) and a sales tax credit for qualifying capital investments for each full time employee hired and kept for one year.  This is a total waste of money.  Virtually the only business that will take advantage of this are ones that would need and want another employee anyway.  Workman’s Compensation Insurance is a requirement for businesses, even for one low wage employee’s coverage it will cost about $800 a year.  On top of that the matching employer tax contributions will amount to approximately $2,000 a year.  There is extra bookkeeping, possible health insurance, and other costs to consider.

Yet there are real job killers in our state.  Take the Council on Affordable Housing (COAH) again in the DCA, where new commercial development creating jobs is punished.  Joan Verplanck, President of the New Jersey Chamber of Commerce provided information in this letter.

“Under the revised rules, for every 16 jobs that a New Jersey company adds, it must pay a “growth share” for the privilege. In other words, the new rules would force companies to pay for a unit of housing for every 16 jobs they add.

The “growth share” amount paid by companies varies by region. Job creation in Mercer, Monmouth and Ocean counties, for example, will cost companies $152,227 for every new affordable housing obligation. COAH has determined a need for 115,666 units of affordable housing in New Jersey through 2018 - up from 52,000 in the previous rules.

There is also a component of the new rules that forces companies to pay additional amounts to COAH if they decide to expand their facilities.”

If the State of New Jersey wants to do something meaningful for businesses there are a number of issues that should be addressed.  Here are a two to ponder.  Get the Division of Taxation under control to provide clearer support to businesses, rather than using ‘after the fact’ intimidation and totalitarian tactics when a matter arises.  Mandates are passed to the division as a result of the state’s government passing bloated and wasteful budgets, giving the tax collectors the hatchet and the orders to get money.  Second suggestion, pay businesses for the important fiduciary tax collection trust functions that is ever increasing in responsibilities.  Business is forced to act as an agent for the state, without compensation.

In proposal three Corzine recommends that the legislature enact long-term business climate and economic changes.  The Governor mentioned business tax reforms that would be helpful to some businesses.  The Corporate Business Tax (CBT) provision known as the “throw out” rule determines how the taxes are collected based on other state tax policies.  Basically, under this rule if a multi-state business with a New Jersey headquarter is not taxed in another state, New Jersey taxes the income.  Another is the business loss carryover extension from seven to twenty years.  States that surround New Jersey already have a twenty-year carry forward period giving a company a better chance to absorb losses from growth, investment, and expansion costs.  This will encourage New Jersey businesses to expand in those three areas and it make more desirable to do business in our state.  A third New Jersey tax rule discussed is a change toward a single sales factor tax.  New Jersey determines company taxable income based on property, sales, and payroll while a number of our neighboring states base income on only the sales component.  Corzine is also supporting 54 recommendations submitted by the Permit Efficiency Review Task Force.  These recommendations would mainly reduce permit duplications and aim to improve the efficiency of the permitting process.  The above-mentioned recommendations will do nothing for the hundreds of thousands of ‘mom and pop’ businesses that fuel massive amounts of taxes and jobs to New Jersey.

The last critical proposal voiced by Corzine is how he intends to remain fiscally responsible in a time of declining revenues.  He estimates the direct state cost (spending) of the above ‘stimulus’ package at $150 million.  The Treasury Department is guessing that the revenue shortfall for the year will be $400 million.  The departments have been asked to cut back on equipment purchases, consultant contracts, and lower priority programs.  He is counting on the federal government announcing a second economic package that will provide increases to state Medicaid support, unemployment aid, housing and energy funding, also infrastructure and children’s health care aid.

Democrats statements on Corzines proposals are general in nature, cheering for his plan.  Republicans are less complementary, negatively dissecting individual aspects of the plan.  My personal view of the proposals is that they are selective in nature and they do not generally address core issues for most businesses and taxpayers in New Jersey.  It is a blow to most of the financial supporters of New Jersey’s large moneybag.  I consider most of the plan more fuel for New Jersey’s personal meltdown.