City Journal Spring 2014

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New Book From Steven Malanga:
Shakedown: The Continuing Conspiracy Against the American Taxpayer

The Immigration Solution: A Better Plan Than Today's
by Steven Malanga, Heather Mac Donald, Victor Davis Hanson
The Immigration Solution.

The New New Left: How American Politics Works Today
by Steven Malanga
The New New Left: How American Politics Works Today

Eye on the News

Steven Malanga
Growing the Garden State
Chris Christie’s biggest second-term challenge: improving New Jersey’s woeful business climate
12 November 2013

During his reelection campaign, New Jersey governor Chris Christie sparked controversy by saying that he had inherited a government that was “the most business-unfriendly” of any in the nation. Christie wasn’t exaggerating by much. The Garden State’s business climate deteriorated rapidly in the years before Christie took office and is still widely judged to be among the country’s worst. Christie’s efforts to improve it will have to be a major priority of his second term, especially when other Republican governors are touting their states’ attractiveness to investors.

The damage that eight years of Democratic rule did to New Jersey’s business reputation is startling. In a 2001 survey of business leaders taken just before Jim McGreevey won the state’s governorship, half of executives polled by New Jersey Business and Industry Association (NJBIA) said that the state was a good place to do business. By the time McGreevey had to resign amid scandal in 2004, however, that number had slipped to just 28 percent. By early 2010, just as Democrat Jon Corzine’s gubernatorial term was ending, a mere 11 percent of the state’s business executives saw Jersey as a good place in which to operate and invest; more than half rated the state poorly, according to the NJBIA’s annual survey.

National polls painted an equally bleak picture. In a 2009 Chief Executive magazine survey, executives who run multi-state businesses rated New Jersey as the nation’s third-worst business environment, behind only New York and California. This adverse climate no doubt contributed to what two Rutgers University economists, James Hughes and Joseph Seneca, in 2010 termed New Jersey’s “lost decade” of economic growth, which included a weak recovery after the 2002–03 recession and then the severe slump that began in 2008. From 2000 through 2010, Jersey ranked third-worst among the states in job growth, according to the National Establishment Time-Series database.

Christie made progress on this front in his first term. He established a red-tape commission that recommended changes in the state’s regulatory environment, characterized by one business leader as “an overwhelming maze of unreasonable, overzealous, conflicting and archaic rules that cause confusion, impose huge costs and level severe penalties on businesses for even minor violations.” The state streamlined permit processes for businesses, did away with duplicate regulations, and restrained some overzealous municipal regulation. In an NJBIA survey earlier this year, 46 percent of business executives said the state had made headway on easing the regulatory burden.

Until now, Christie’s budgets have made the biggest difference in changing attitudes. Heavy state and local tax burdens, worsened by dozens of tax hikes over the previous eight years, consistently rank among local firms’ biggest complaints. But Christie has held the line on state taxes for four years and signed legislation capping property levies by municipalities. Nearly half of all businesses said last year that the state was doing better at controlling spending and taxes—up from just 14 percent in 2010. The proportion of executives rating New Jersey as a poor location for a business has declined sharply, from 52 percent in early 2010 to 21 percent this year.

Christie’s efforts have also resonated with blue-collar, private-sector union workers. Some two dozen unions that had backed Democrats McGreevey and Corzine crossed over to support Christie this year, thanks to his efforts to control taxes and spending. “Our men love him,” the head of a local of International Brotherhood of Electrical Workers said after the union endorsed Christie.

Still, the Garden State has a long way to go to change its anti-business reputation among firms nationwide. Over Christie’s tenure, the state’s business ranking in CEO magazine’s annual survey has risen only two places, to 46th, though the magazine notes that the trend is positive. “New Jersey actually seems like it is trying to get a little bit more business friendly,” one executive told the magazine. “But historically, I have never dealt with a state that had more of a ‘gotcha’ attitude and treated businesses like they were guilty until proven innocent.”

Taxes remain Christie’s biggest challenge. The Tax Foundation recently rated the state’s burden on businesses the second highest in the nation, behind only New York’s. Jersey earned this dubious distinction thanks to the highest property-tax load in the nation, the third-highest individual income tax, the fourth-highest sales tax, and the ninth-worst corporate income tax. That’s an impressive array of employment-dampening levies.

Though he took office promising extensive tax cuts, Christie has been hemmed in somewhat by the weak economy and by fiscal time bombs that he inherited. Over the years, for instance, the state’s legislature tapped New Jersey’s unemployment insurance fund for more than $4 billion and used the cash to expand spending. After the economy slumped in 2008, Jersey had to borrow $2 billion from Washington to pay unemployment benefits, which Christie has spent his first term paying back. Jersey has gone 20 years without making adequate payments into its pension fund. In 2010, Christie signed legislation committing the state to making annual contributions, including a $1.5 billion payment this year and a projected $2 billion one next year. The state has also had to assume the debts of the insolvent New Jersey Sports and Exposition Authority, another entity whose coffers Trenton raided.

Christie continues to struggle with a Democrat-controlled legislature. After the governor vetoed a hike in the state’s minimum wage earlier this year, the legislature voted to put the increase on the ballot. It passed in November. Extensive research suggests that the wage increase will dampen job growth, particularly among small firms. It will also send the message to executives nationwide that Democrats don’t share Christie’s ideas on how to revive the state’s economy.

Christie’s reelection win has sparked talk of a 2016 presidential run. If he makes a White House bid, his record tackling the state’s anti-business environment will almost certainly become an issue. Another potential 2016 candidate, Texas governor Rick Perry, has spent the last year traveling to Democrat-controlled states to tout Texas’s robust job growth and business-friendly environment. When Perry ran ads in June on New York radio and television stations, he might as well have been talking to Jersey businesses when he declared: “If you’re tired of the same old recipe of over-taxation, overregulation, and frivolous litigation, get out before you go broke.”

Perry wasn’t indiscreet enough to cross the Hudson River and deliver that message directly to New Jersey firms. That may change three years from now.

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