Cost of corruption 1B

//July 31, 2009

Cost of corruption 1B

//July 31, 2009

Price of bribery a disincentive to set up shop in N.J., insiders sayOne billion dollars

That’s the price tag a Garden State congressman puts on corruption in New Jersey, and it’s an estimate that’s generally accepted as a reasonable sum.

“Pay-to-play practices cost the state at least $1 billion a year,” said U.S. Rep. Leonard Lance (R-Westfield). “It’s not restricted to places like Hudson County. Instead, it’s widespread across the state.”

It’s difficult calculating the exact cost corruption exacts on the state, but Wayne Eastman, an associate professor of supply-chain management and marketing sciences at Rutgers University, said bribes generate a multiplier effect that reaches far beyond what changes hands under the table.

“It’s not that a billion dollars in cash actually changes hands each year,” said Eastman, who previously served as acting director of the Prudential Business Ethics Center at Rutgers Business School–Newark. “But if you believe that corruption distorts incentives so the right decisions are not being made, then a large number like that makes sense.”

Nationally, public corruption raises the cost of doing business about 20 percent, said Edward Kahrer, the FBI agent who spearheaded the investigation that snared a total of 44 people. But it’s likely more than 20 percent in New Jersey.

“The perception of corruption here may also deter some people from setting up shop in New Jersey,” Kahrer added, driving would-be entrepreneurs to set up shop elsewhere.

“All kinds of businesses are affected by public corruption,” he said. “It’s not just developers. Mayors and other public officials, including code officials in Paterson, have sought bribes for everything — from permits and variances, to turning on or maintaining the water at a house.”

In 2007, former Passaic Valley Water Commission employees Robert Schweidereick and George Morgan pleaded guilty to accepting bribes from a residential property manager in Passaic in exchange for continuing water service at his properties despite delinquent water bills, and for “promptly activating water service for new accounts,” according to an August 2007 announcement from then-U.S. Attorney Chris Christie.

“This concern goes far beyond perceived levels of high taxation relative to other states,” reads a 2007 report by the Prudential Business Ethics Center, now the Institute for Ethical Leadership.

In fact, business leaders “are nervous about New Jersey’s reputation, which they feel [is] an embarrassment, and may adversely affect their credibility with business-to-business relations and corporate location decisions,” according to the report, “New Jersey State Government Ethics Reform: Business Leaders and the Public Call for Change.” Eastman helmed the group that wrote the report, and co-authored its findings.

The question now is whether the most recent arrests captured most of the bad apples, “or only exposed the tip of the iceberg,” said John Weingart, a former assistant commissioner of the state Department of Environmental Protection.

“I wonder, for example, how many public figures turned down the bribes offered in the FBI sting?” Weingart said. “I’m sure people would feel more comfortable if a lot of officials walked away, and only a few said they would take the bribes.”

But that didn’t happen, Kahrer said.

“Very few turned down the bribe,” he said. “This isn’t the end of the investigation. More public officials will be getting pulled in.”

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It’s the taxes, stupid