NJ Business Matters: The Blog of the CIANJ

How Business Can Support Charter Schools

As all of our regular blog readers know, here at CIANJ we are strong proponents of choice within the education system. Giving students the ability to learn in a variety of environments helps maximize the chances of success, and empowers students to leave a school that has failed them.

Part of that movement includes public charter schools. 1.2 million students drop out of high school each year, and the marketplace increasingly demands a skilled workforce. Here in New Jersey, the legislative response has included requiring students to attend school until age 18, rather than the previous standard of 16. That may help, but the reality is that you cannot force someone to go to school and put in the necessary work if they do not want to go, and if the parental involvement is not high.

Charter schools can help address that underlying problem. And business can help promote the charter school movement. With that, we point to the latest U.S. Chamber of Commerce report: Corporations, Chambers, and Charters: How Businesses Can Support High-Quality Public Charter Schools.

It's Unanimous: Assembly Supports Elimination of the Throw-Out Rule

Within the hour, the General Assembly unanimously passed two pieces of legislation that will bring New Jersey's corporate tax code more in line with other states. Here at CIANJ, we applaud the Assembly and urge similar action from the Governor and the Senate.

Our press statement is available here. Read it. It includes video and a brief explanation of the bills.

• A-3124/S-2130 would allow companies to carry net operating losses forward for up to twenty years. The bill now heads to the Governor's desk.
• A-2722 would eliminate the "throw-out" rule. This harmful provision is a holdover from the tax increases pushed through during the McGreevey Administration. Under it, a company with a presence in New Jersey can be taxed for sales that neither begin nor end in the state. As Assemblyman O'Scanlon said during the debate, a company can have 1% of its sales take place here, but 100% of its profits would be taxable under New Jersey law. Think that hypothetical company would stick around?

The Doctors Are Out

The ongoing saga of education leaders using titles earned at "diploma mills" took two turns yesterday. In the State House, the legislature voted 34-0 to prevent educators from receiving raises and tuition reimbursement for degrees earned at unaccredited "universities". Then down the street, the NJ Higher Education Commission ordered six more educators to stop using titles earned at the schools.

From the Star-Ledger,

The latest group includes an instructor of psychiatry at the University of Medicine and Dentistry of New Jersey in Cherry Hill and an assistant professor at St. Peter's College.

Two work in the Freehold Regional High School District, where the district's superintendent relinquished his Ph.D. after it was questioned.

Officials believe several of the degrees came from so-called diploma mills.

Long-time blog readers will remember this story first broke during the summer, when the Freehold Superintendent was found to have received tuition reimbursement, a raise, and a subsequent retirement boost for a degree earned at an on-line school. Another Shore area educator earned his Master's degree after submitting a resume` and a paper that was described as being "two, maybe three pages" long.

The Slow March to Tax Reform

Yesterday, the legislature moved forward with two pieces of CIANJ-supported legislation important to the state's business community. The Senate voted 38-0 to pass S-2130, which would allow companies to carry their net operating losses forward for 20 years.

Companies often operate in the red their first few years. About 20 states and the federal government allow companies to carry those losses forward against future earnings for 20 tax years. New Jersey caps it at seven. In total, 40 states either have longer carry-forward periods or do not tax corporate income at all. Bringing New Jersey to at least that standard would help our worst-in-the-nation corporate tax rating.

Meanwhile, the Assembly Appropriations Committee voted unanimously to get rid of New Jersey's unfair "throw-out" rule.

Like most states, NJ determines its tax portion of a multi-state company’s profits by a matrix that includes calculating what percentage of the firm’s sales took place in New Jersey. Almost all states have agreed that in the case of an inter-state sale, the profits count in the state where the product is sold, not where it originates.

 

However, some states either do not tax corporate income or do not tax specific business activities. These are referred to as “nowhere sales”. New Jersey takes these nowhere sales and applies its tax to them, even if the shipment neither originated from nor arrived in New Jersey. It is an especially punishing part of the tax code that was adopted under the McGreevey Administration and has put NJ companies at a competitive disadvantage. Repealing it has been a priority of CIANJ and would save corporate taxpayers an estimated $89 million annually. The measure passed by a 7-0 vote. It is expected to be voted upon by the full Assembly on Monday. 

 

It's a slow march, but it is finally headed in the right direction.  

EMP Is O-U-T

Yesterday, the Corzine administration released its Energy Master Plan. The Governor's press statement is available here and the full plan is available here. At the worldwide headquarters of CIANJ, we're still digesting the revised plan, but it is largely unchanged from the draft released during the summer. Our commentary from then is posted to our website.

Here are the highlights:

• Reduce energy use 20% by the year 2020
• Have renewable resources, such as wind and solar, generate 30% of our electricity
• Study the need for a new nuclear reactor

The plan rightly acknowledges the fact that energy prices have been rising far too quickly, and that to lower them, we must accept the basic premise of supply and demand. If done properly, conservation can be a very cost-effective way to reduce demand (and the price). However, we would also stress the need to boost supply. While having aggressive goals for solar and wind power may be worthwhile, they are based on technologies that have yet to prove they can carry a baseload. On the other hand, nuclear energy can generate large quantities of energy without producing any greenhouse gas emissions. It must be an increased part of the mix if we hope to reach carbon reduction goals, just as it is used in countries such as France.

Star-Ledger coverage with reactions.

NTU Endorses Sales Tax Holiday

Add the National Taxpayers Union (NTU) to the growing list of organizations supporting a proposal to slash the state sales tax in half on all products sold between the day after Thanksgiving and January 4th. A copy of their letter to members of the New Jersey legislature is available here.

Within the letter, the NTU cites many of the same reasons CIANJ did when announcing its support for the proposal last week. From NTU's statement,

The proposal will save consumers between $400 million and $500 million during that time -- not an inconsiderable amount. This is because unlike most holidays, which tend to allow tax-free shopping on limited classes of items over a few days, the New Jersey plan has both breadth and depth. Ideally, the state would rescind the unwise sales tax increase enacted in 2006, but at least with this holiday taxpayers would be able to save money on numerous purchases for a comparatively long period.

To that, we would add the competitive advantage New Jersey companies would have over their peers in neighboring states. It is why the list of supporters includes multiple organizations that represent small businesses, many of which cannot afford a slow holiday shopping season.

John Galandak on the National Economy

Over the weekend, CIANJ President John Galandak appeared on Inside Trenton to discuss the national economy, and ways the legislature can make New Jersey an even better place to live, work and conduct business. The end of that discussion has been saved to our YouTube page and is available below.

NOL Bill Set for Thursday Vote; Costs $0 for 10 Years

During the debate on whether or not NJ should allow companies to carry Net Operating Losses (NOL) forward for twenty years versus the current standard of seven, critics have argued that the state does not know what the cost of a change would be. It is something that was brought up during our appearance on New Jersey Now last week.

Just to clarify, there is now an official estimate from the Office of Legislative Services (OLS). OLS serves as the non-partisan research and legal arm of the legislature. Their findings remind us that the bill will result in $0 of lost tax collections for the state through 2018. After that, the decreased revenue is indeterminate, but rarely are fiscal estimates offered 10 years out. 

From the OLS Fiscal Note, 

The Office of Legislative Services (OLS) concurs with the Executive that the bill could not affect State finances until fiscal year 2018, when it could begin to generate an annual revenue loss to the State General Fund.  The OLS notes further that the bill could also yield a moderate revenue loss to county and local governments through special dedications applying to corporation business tax (CBT) payments by banks, financial institutions, and electric, natural gas, and telecommunications utilities. (emphasis ours)

So if a bill "costs" the state nothing for 10 years, and can help improve our worst-in-the-nation business tax climate, is there a compelling reason not to pass it quickly? Fortunately, the Senate appears poised to vote on the measure on Thursday, and it deserves to be passed with an overwhelming majority.

Short

The Administration and non-partisan Office of Legislative Services (OLS) spent yesterday briefing lawmakers about how far short tax collections will be versus expectations, both for this and the next budget year.

The current budget year, which began on July 1, is now predicted to experience a $400 million shortfall. Next year, the estimates range between $3 billion and $4 billion. To put that in perspective, the state had planned to spend $32.9 billion this fiscal year.

As for the state's leading economic forecasters,

During that hearing, financial experts predicted housing prices will continue to fall for almost another year, and that private sector job losses, which have totaled 18,700 so far this year, could exceed 263,000 before the economy starts to turn around.

"It's a bad, bad situation," summarized James Hughes, Dean of the Edward J. Bloustein School of Planning and Public Policy.

While the situation might be bad, it is not totally unexpected. Look for future budget hearings on cuts as predictions are slowly replaced with actual tax receipt numbers. 

We need pro-growth policies now as much as ever.  

Pension Fund Loses $5 Billion in September

The State Treasury Department reported today that the state pension fund lost more than $5 billion last month, bringing loses from the previous year to $12 billion. During the current budget year, which began July 1, the fund has lost more than 8.8%.

As the Star-Ledger aptly points out,

For taxpayers, that performance is troublesome. Actuaries who calculate each year how much the state should put into the pension accounts to meet future benefit payments assume the money on hand will earn an average of 8.25 percent each year.

When longterm returns miss that mark, taxpayers must make up the difference. This year, between state and local taxes, taxpayers put more than $2 billion into the accounts, which bankroll retirement benefits for 700,000 teachers and public employees.

The need for sweeping reform to the state's pension system, including the gradual movement of all state workers into a 401(k) style system, continues to grow. While the changes passed as part of this year's budget process are significant, they do not provide overwhelming relief to the burden on New Jersey's taxpayers. Without real reform, the spiral of asking taxpayers to pay more for a system they could not afford in the first place, will continue.