NJ Business Matters: The Blog of the CIANJ

2.5% of Zero is Zero

Yesterday, the Senate Economic Growth Committee passed CIANJ-supported legislation to create an 18 month moratorium on the 2.5% development tax applied to new projects and job creation in the state.

The fee's intended purpose has been to provide affordable housing near new construction sites. However, the down economy means the money never materialized, and a tax expected to raise more than $150 million per year, collected just $5 million over six months.

At this point, it is an impediment to growth and counterproductive, leading to the obvious math Senator Lesniak has been noting lately.

Evesham Mayor Randy Brown was among those who testified yesterday in favor of the bill.

"The commercial building has ground to a halt in New Jersey," Brown said. "Hopefully, this moratorium will allow us to jump-start building and create jobs."

Evesham, Burlington County's most populous town, had complied with its obligations in the first and second rounds of the state's affordable housing requirements, Brown said, when it was hit with an "unfair, unacceptable number" in the latest round.

Evesham consequently backed away from a proposal for a 300,000-square-foot retail center that would have been assessed at $50 million because if it were built, the new Council on Affordable Housing rules also would have required taxpayers to pay more than $5 million to construct affordable housing.

So instead of creating the jobs to build and operate the 300,000 retail center, the state's demand directly cost the municipality jobs.

You can't argue with that math.

Inauguration Watch: Barack Obama's New Reality

Offered without comment, below is today's Star-Ledger lead editorial, in its entirety,

The country Barack Obama takes command of today is starkly different from the one he fought a long campaign to lead.

A recession was already underway last January but few knew it, including our new president. The National Bureau of Economic Research, official arbiter of recessions, hadn't yet made the call. Commercial banks were still lending to unqualified homeowners who were busy borrowing against homes already losing value. And federal regulators were still taking a not-to-worry attitude.

Investment banks were still doing a bustling business in worthless securities. Most of them are gone now. And clueless rating agencies were still fecklessly giving everybody and anything AA, even AAA ratings. Everything, it seemed a year ago, was investment grade -- Lehman Brothers, Bear Sterns, even AIG. Now almost nothing is. Even the Dow Jones Index, while dropping, was still above 12,000 last January-- a stratospheric number by today's anemic levels.

Bernie Madoff was not yet a household name. And the Wall Street Journal editorial page was still proclaiming this best-of-all-market economies could only be made better by a little less regulation.

Now we know better.

Candidate Obama saw an economy saddled with a heavy federal deficit, something he promised to rein in. But he still deemed it strong enough to fuel growth at home and around the globe and to support his ambitious program of deep tax cuts and expanded social spending. He talked in those balmier days of using the high-flying economy to roll back President Bush's tax cuts for the rich, launch a national health care program, and begin rebuilding the nation's infrastructure.

Doling out billions in taxpayer funds to save American banks, nevermind nationalizing some, was nowhere on his agenda. Today it's Priority One.

It's the key, economists tell us, to de-icing a frozen credit market for corporate, auto, consumer and housing loans and to restarting an economy that's nearing dead-stop. A bank collapse could cripple the economy for years.

The bank bailout, coupled with big infrastructure spending to create jobs, means Obama, instead of reducing the federal red ink during his first term,, will preside over the biggest federal deficit ever, more than $1 trillion now, with probably more to come.

This new American reality has imposed changes on the new president's agenda.

His plan to roll back the Bush tax cuts is in limbo; it's a bad time and sends the wrong signal to raise taxes now, any taxes. His national health care plan will get only a modest start -- insurance for children. And his idea of a tax break for businesses to encourage job creation has been junked as too easy to abuse: Hire 10 for the tax break, lay off 20 to cut costs. The small business lobby already has registered a beef with Obama over tax policy.

Even Obama's goal of "greening" the economy -- reducing the use of carbon-based fuels -- would probably impose too great a start-up cost on struggling industries in the current fragile economic climate. Ironically, even lower gasoline prices, the one bright spot in a dismal year, don't help either. They undercut the new president's desire to reduce fuel use and the American lust for gas-guzzler vehicles.

A year ago, the Iraq war and Obama's opposition to it was the defining issue in his Democratic presidential nomination struggle with Sen. Hillary Clinton. Today, Iraq has all but disappeared from the public debate; Obama rarely mentions it.

Bob Gates, who ran the Iraq war for George W. Bush as secretary of defense, is staying on with Obama; former Marine Gen. James L. Jones, no dove, is his national security advisor, and Hillary Clinton is his choice for secretary of state. Who'd have believed it?

The most unexpected change, however, is the sudden reserve, even skepticism, some liberals are showing toward Obama. He's not entirely one of them, they suspect. Obama wants no head-hunting probe of the Bush administration -- as many in the Democratic left do -- that would undercut his hope for Republican support. He's even willing to swallow some GOP-favored tax cuts (he denounced them a year ago) to secure bipartisan help. And that really riles the left.

Obama is committed to closing Guantanamo, but may be giving a second look to Dick Cheney's advice that he not shed the Bush team's tough antiterrorism tactics, apparently including interrogation, too quickly. It's "pretty good advice," Obama told ABC News.

It's been said of Barack that he's "a work in progress" and it's true. But then, so is the country and the economy he now commands.

COAH Mandates, Once Again, Don't Deliver as Promised

In a storyline too familiar to affordable housing in New Jersey, we learn this week that the 2.5% tax on developments designed to fund affordable housing has fallen well short of its goal. The projected $160 million over one year has raised just $5 million in the first five months, according to Senator Lesniak, as quoted in the Star-Ledger.

"It doesn't work, it hasn't worked and it's not working," Lesniak said. "Two-point-five percent, 10 percent, 20 percent of nothing is nothing."

Lesniak is crafting a bill that would waive the fee, and a state requirement for each municipality to use money generated by the fee to create affordable housing, for one year. The concept has the support of key legislative leaders in addition to the governor.

Thank you, Senator, for pointing out what we thought was obvious. The COAH tax is a tax directly tied to job growth. Now that the government has managed to make job creation 2.5% more expensive, some are surprised that developers are less eager.

To be certain, the decline is not solely the responsibility of COAH. However, affordable housing is not exempt from the law of supply and demand. Add expense, and you still push that intersection down.

Writing the State of the State Address

The Governor's office put out the YouTube video embedded below. In the two-minute clip, his staff discusses the process of writing the State of the State Address. Remember that the entire State of the State speech can be viewed or read here.

Out with the Old; Questions for the New

As the Obama transition takes hold on Capitol Hill, the opinion pages are buzzing with labor related questions for the designates to take the reigns in Washington.

On her way out, Labor Secretary Elaine Chao uses the op-ed page of today's Wall Street Journal to urge the new administration to protect a worker's right to a secret ballot when deciding whether or not to unionize.

There is a push in Congress to enact card check despite the fact that the vast majority of workers -- including rank-and-file union members -- want to keep the private ballot system in workplace unionization elections and do not want it replaced by a signature card process that will subject them to the pressures of solicitation and potential intimidation by union activists. Ironically, to decertify a union, labor leaders insist on holding private-ballot elections to protect workers from employer intimidation.

Another destructive and undemocratic aspect of the card-check bill is a provision for government-dictated labor contracts in newly unionized workplaces. Under the bill, if an initial labor contract is not agreed to within a congressionally dictated timetable, the government could designate an "arbitration board" to write a labor contract that employers and workers would be forced to live under for two years. This is not just a problem for employers. Workers would not have any right to ratify or reject the contract.

Chao also insists on maintaining transparency requirements for organized labor to ensure their members' money is not spent inappropriately.

On Real Clear Markets, Steven Malanga, a senior Fellow at the Manhattan Institute, strikes the same tone when he asks whether the new president will be friendly toward workers or to the unions that claim to represent them,

Combing through government disclosure documents that unions are required to file, the Los Angeles Times discovered last year that one of California’s most powerful labor groups and a charity related to it had made hundreds of thousands of dollars in payments to companies controlled by relatives of the union’s president. The union, the United Long-Term Care Workers, also spent tens of thousands of dollars of members’ money at fashionable establishments like the Grand Havana Room, a cigar lounge known for its celebrity clientele.

The outcry over the Timespieces forced an investigation by the local union’s national parent, the Service Employees International Union, which eventually removed the local president from office. The whole affair represented an embarrassment to SEIU because the local’s members, who typically earn about $9 an hour, weren’t happy to learn how union leaders were spending their dues.

 

In its investigations, the Times relied partially on government disclosure documents that the Bush Department of Labor had introduced a few years earlier, which require labor organizations to give more detail about how they spend members’ money.

As usual, Malanga's entire column is a must-read. We're curious as to how many of these questions will be asked during confirmation hearings.

State of the State: The Buried Story

The State of the State address was covered by all of New Jersey's major papers this morning, with some editorial criticism sprinkled about.

Buried in the news was this item from the governor's speech,

I will also direct the COAH board to allow for maximum flexibility and ample time for collaborative review of all the 240-plus affordable housing plans submitted by the 80% of the required municipalities who did the right thing and filed plans by December 31st.

Finally, recognizing the economic realities and pressures of the current economic environment, I am calling today for a one-year moratorium on the 2.5% developer's COAH fee while additionally exempting projects that were in the pipeline before the fee was instituted.

I look forward to working with Speaker Roberts, and Senators Codey and Lesniak, who all support this initiative

Senator Lesniak's response is available here.

The premise of COAH is to spread affordable housing through every municipality in the state. In COAH's entire existence, the strategy has been to assign a town a responsibility, and then let the towns subsidize it with a tax on development and job creation. That hasn't worked - even during good economic times.

Cheers to the Governor for giving the state a year to re-organize and properly address the situation. Here at CIANJ, we are still reviewing Senator Lesniak's proposed reform.

Hitting the Links - State of the State Edition

This afternoon, Governor Corzine will deliver his State of the State Address to a joint session of the New Jersey legislature. The speech is scheduled to begin at 1 o'clock, and here is your pre-speech reading material:

• The Star-Ledger reports that the speech, not yet fully written, will be a pep-talk for New Jersey

• NJN will provide a live web stream of the address at this link, and then replay it at 10:00 p.m.

• The Asbury Park Press highlights the expected optimism of the governor 

Most important is the fact CIANJ President John Galandak will be speaking at an 11:00 a.m. press conference to remind New Jerseyans that the state of business is crucial to the state of the state. We'll link to those remarks once they are delivered.

Extra! Extra!

The January issue of COMMERCE Magazine just arrived in mailboxes throughout the state and will be read by about 30,000 New Jerseyans. For our readers that do not subscribe, your blogger just wanted to link to a few of the articles in this month's issue:

• Is New Jersey Open for Business? - President's view by John Galandak
• Ten Million Miles in Space - A conversation with former astronout Winston Scott
• The Biggest Name in Business - A conversation with Donald Trump
• Public Works Projects Alone Cannot Restore the Job Market - Legislative Update by Paul Tyahla

Even more articles are available here.

Education Options Still Work

A report issued last week demonstrated once again the success of education options, especially within New Jersey's former Abbott districts. The state's Department of Education reported that within districts in which charter schools operate, 44% of traditional public school students met the yearly progress standards set forth under No Child Left Behind. Charter school students, whose schools get about 70% of the funding as traditional schools and no state facilities money, met the standards 66% of the time.

Once again, the competition inherent to charter schools (i.e. giving a child the option to leave a school that is failing them) worked. In Newark, 33% of public school students met the NCLB standard, compared to 82% of charter school students. In Camden, it was public schools 28% to charter schools 67%. A town-by-town comparison is available here and the full press release can be found here.

Doing more with less is a popular theme of policymakers nowadays. Charter schools show that theory in action.

Update: Thanks to the good people at Excellent Education for Everyone for passing along this WSJ op-edby Joe Klein and Al Sharpton urging the Obama Administration to break the status quo and support reforms that work - - including charter schools.

Lost In the Fog: Some Good News

Arch Insurance Group is moving 300 jobs out of New York and into Jersey City, according to the Jersey Journal. The news could be representative of a larger trend in the down economy.

From the Journal,

The move became a "pretty easy decision" after considering the lower rent and "impressive" package of economic incentives, including state and local government grants and tax breaks, [Arch CEO Mark]Lyons said.

"Class A" office space that rents for the mid-$30 per square foot in Jersey City rents for $60 per square foot in Manhattan, said Jersey City Redevelopment Agency Executive Director Robert Antonicello.

"More and more companies are looking at the bottom line," Antonicello said. "They are looking at New Jersey. Our waterfront has long been a great location for companies, but today it is becoming an exceptional location."

At a recent meeting of our Real Property Roundtable, Dr. Jim Hughes explained that one of the bright spots of the recession is that costs matter once again. In an era of abundant cash, corporate boards and CEOs are more apt to look at office rent as a non-factor. However, less corporate income makes it difficult to justify rent that is exponentially higher in Manhattan than in Jersey City.

Some of New York's losses could be net gains for Jersey.