Earlier this month Gov. Phil Murphy appeared at ON3, the campus and biotech office space located on the 116-acre former Hoffman-LaRoche site that spans the Clifton-Nutley border, and unveiled an economic development plan he said will “set New Jersey on the path to a stronger and fairer future where innovation and diversity are at the…
Earlier this month Gov. Phil Murphy appeared at ON3, the campus and biotech office space located on the 116-acre former Hoffman-LaRoche site that spans the Clifton-Nutley border, and unveiled an economic development plan he said will “set New Jersey on the path to a stronger and fairer future where innovation and diversity are at the forefront of the state’s economy.”
For the plan to succeed it will have to play to the state’s strengths while also confronting some hard realities.
Some of those strengths and challenges were laid out in a previous study, “Reseeding the Garden State’s Economic Growth: A vision for New Jersey,” which was issued by the global consulting firm McKinsey & Co.
“New Jersey has significant economic strengths, including strong positions in knowledge-intensive industries such as pharmaceuticals, finance and technology,” the study noted, while “a highly educated labor force and a uniquely advantageous location for participating in international trade and providing logistics services on the Northeast Corridor” also works in its favor.
But in recent years, “the state has not translated these advantages into rapid growth,” according to the report.
Recovery from the Great Recession has been weaker in New Jersey than across the nation, the report said, thanks to “four major factors” that reduce dynamism in the economy and depress growth: relatively few young companies that have grown into major employers; an aging transportation infrastructure that drags down productivity and diverts public funds from other uses; a “growing mismatch between the type of middle-skill workers New Jersey has and middle-skill jobs that employers need to fill”; and incentive programs that have focused on “retaining major employers and therefore has created fewer new jobs than states that aim more incentives at new businesses.”
While those challenges still exist, Murphy’s vision is a step in the right direction, according to Peter Kasabach, executive director of New Jersey Future, a nonprofit group focused on economic growth, redevelopment and other issues. “This new economic development plan uses all the right levers to spur 21st-century economic growth,” he said. “The talents and opportunities in our cities and downtowns, too often overlooked and undercultivated in the past, will now see the investments they need to enable their full participation in the innovation economy.”
A second look
Kasabach applauded Murphy’s moves to re-examine the state’s economic incentive programs, like his January executive order calling for an audit of the Economic Development Authority’s use of tax credits through its Grow NJ program. “Studies have consistently demonstrated that New Jersey’s current economic incentive programs have proven less effective than those in other states, and one study showed that New Jersey spends $162,000 in economic incentives for each job, while Massachusetts spends only $22,000 per job,” according to that order. In fact, overall, according to the governor’s October report, New Jersey’s incentives are the largest in the Northeast at more than $1 billion per year.
Kasabach, however, cautioned that “while looking to cut costs, don’t neglect our value-added proposition,” which he defines as “all of our assets, our amenities, the state’s quality of life, access to education, good schools and a good workforce, in addition to easy access to hubs of people, suppliers and markets.”
In order to attract and retain companies and entrepreneurs, he added, “We need to invest in things they want, like a world-class transit system and infrastructure investments in places where it makes the most sense, like cities, town centers and logistics centers.”
The new federal Opportunity Zone program, which is aimed at helping to drive more private investment into underserved areas, “could be good for New Jersey,” he said. “But its effectiveness will also depend on how well municipalities plan for the investments. They have to look at it strategically and encourage projects that will make communities stronger in the future,” like the planned 2 million-square-foot-plus innovation and technology hub in New Brunswick.
Kasabach said the state is also going in the right direction with the Economic Development Authority’s Innovation Challenge program, which gives eligible communities the opportunity to receive funds for plans that “strengthen their local innovation ecosystems” by focusing on real estate, infrastructure, green energy projects, STEM education and job training. “Aligning assets, institutions and state regulations will make the state more attractive” for investment, he added. “At the same time, we need to trim the state’s tax burden, perhaps by operating more efficiently. For example, New Jersey has more than 600 school districts and more than 500 municipalities.”
Subsidies ‘off the rails’
Tax subsidies for companies “have been off the rails for years,” according to Sheila Reynertson, senior policy analyst at the advocacy group New Jersey Policy Perspective. “It’s a good idea to revisit the program. We need a broad-based initiative with better reporting and evaluation that will help to revise the state’s economy.”
Echoing Murphy’s call for “an environment where small businesses, local entrepreneurs, multinational corporations and workers can thrive,” Reynertson said it’s important to “support small-business owners, who are the job creators” with a long-term, sustainable approach. “We commend Gov. Murphy for putting a focus on that, and it’s encouraging to see his optimistic approach,” she said.
Some observers have questioned Murphy’s proposal for a New Jersey Innovation Evergreen Fund, which would partner with the private sector to raise and co-invest funds in state-based startups, but Reynertson said she isn’t worried about the state’s ability to pick winners and losers. “You can’t depend on the free market,” she said. “He’s right to steer the ship and encourage STEM-related jobs and foster an environment that will encourage those businesses.”
Reynertson also supports Murphy’s call for hikes to the state’s minimum wage. “The middle class has been left behind in this state, so I can see multiple reasons to encourage better wages, and as a bonus, higher wages will also drive the economy.”
She cautioned against expectations of rapid change, however. “We believe that misguided tax and other policies like ‘trickle-down economics,’ fiscal mismanagement from both parties, natural disasters like Hurricane Sandy and the previous recession all combined to hold back economic growth in New Jersey,” said Reynertson. “Correcting the course will take time.”