Shifting Property Tax Burden to Business Could be Nail in the State’s Coffin

Appeared in Star Ledger on August 13, 2006

By Thomas A. Bracken, Chairman, NJ Chamber of Commerce
President & CEO, Sun Bancorp & Sun National Bank

When I first heard there was going to be a special legislative session to lower property taxes for residents, I was excited. A summer session focused on property taxes could also begin to solve another major crisis facing New Jersey – making the state economically competitive once again.

That’s because New Jersey’s skyrocketing taxes, which includes property taxes, are a big reason companies and employees have been leaving or staying away from the Garden State. In fact, a recent study by the Washington, D.C.-based Tax Foundation revealed that New Jersey has the second worst business tax climate in the nation. CEOs from around the nation also rated New Jersey as the fifth worst place to do business.

As details emerged about the property tax session, I assumed our legislators were interested in enacting true reform by focusing on ways to correct all the systemic problems that have been dragging New Jersey down. Issues such as correcting the state’s generous, outdated pension system; consolidating and encouraging shared services within the 1,300 layers of government with taxing authority; and slashing out of control state spending were all on the table – a monumental feat in itself.

My excitement, however, turned to horror when I began to read that one of the options being considered by members of the legislature is to simply shift the tax burden from residents to our already overtaxed and hurting companies. That is not true reform – it is merely lowering one group’s taxes and raising another’s.

If this disastrous scenario becomes reality, it could be the final nail in the state’s economic coffin. According to Rutgers economists, New Jersey is already losing tens of thousands of high paying jobs due to the state’s high operating costs and they are not being replaced by similar, attractive positions. In fact, the new jobs being created are lower paying service sector ones – jobs that do not require college degrees or will tempt our children and the best and brightest to stay here and settle down. They will leave for places where there is greater economic opportunity and where growing companies have made long-term investments.

Our astronomical cost of living already dissuades talented individuals from considering New Jersey. If you had multiple job offers – one in a low cost state and one in a high cost state – wouldn’t you go to the place where the cost of living is much lower and your purchasing power is much greater? Would you rather live like a king in Illinois or just get by in New Jersey?  That’s an easy question to answer.

New Jersey is at a critical economic juncture and if our legislators decide to travel down the politically easy road of merely shifting the property tax burden to business, they could very well be making one of the worst decisions in the state’s almost 400-year history. I know this sounds extremely ominous, but the stakes are really that high.

Those responsible for creating jobs within companies will certainly go ballistic if their tax burden is increased significantly once again. That’s because employers already pay their fair share in property taxes. In fact, they are responsible for almost 40% of all property taxes collected in New Jersey, yet they are not eligible for the rebates many residential property tax payers receive. In addition, businesses have no impact on the local school districts – the largest component of all municipal property tax bills.

Before seriously contemplating shifting the property tax burden to business, the employers of New Jersey implore those legislators examining changes to instead look at the areas of pensions, consolidation of government and the reduction of spending as the target areas for change. That is in the best interest of the state and its residents in the long run.

We are operating on a state budget that has increased from $16.4 billion in fiscal 1998 to $32 billion in the budget just passed. Fixed costs for state employee benefits have grown by $2.3 billion or 91% between fiscal 2003 and fiscal 2007. New Jersey also has 21 counties, 566 municipalities, 616 school districts and 186 fire districts, all of which collect property taxes. We all know where the problems lie with the state’s property tax issue – and taxes overall – and they lie here.

The coming weeks will be a testament to the fortitude of those in power. We need our legislators to finally address the tough issues plaguing us so that New Jersey can get its fiscal house in order. That way we can all put this contentious issue behind us and we can instead focus on growing the economy, attracting high paying jobs and making the state a great place to live and work.

We hope over the coming weeks that our leaders will not make politically motivated decisions that will cause irreparable harm to New Jersey and eliminate any hope of bringing economic vitality back to the state.

Thomas A. Bracken is chairman of the New Jersey Chamber of Commerce and chairman and CEO of Sun National Bank.

August 2006