May 21 (Reuters) - When New Jersey Governor Chris Christie on Tuesday unveiled a massive budget shortfall, he pointed the finger at a steep and unexpected drop in income taxes.
But Christie’s lowered revenue projections - $2.75 billion through the end of fiscal 2015 - highlight a deeper problem: While its neighbors and the rest of the nation have slowly but steadily recovered from the Great Recession, New Jersey has flatlined.
The data paint a bleak picture.
Through March, New Jersey had recovered less than 40 percent of the jobs it lost during the recession, while the United States overall has recovered 99 percent of the jobs lost, according to data from the U.S. Labor Department.
In the high-paying manufacturing sector, for instance, nearly 650,000 new jobs have been created nationally since Christie took office in early 2010. Over that same time, New Jersey’s manufacturing employment has declined by nearly 18,000 jobs.
In housing, too, New Jersey is weakening while other areas improve. In the first quarter of 2014, it was the only state to see an increase in foreclosure rates. At 8 percent, its foreclosure rate is now the highest in the country, according to the Mortgage Bankers Association.
And while most states have begun rebuilding their reserve funds, New Jersey’s has continued to shrink and is now at its lowest level in a decade, according to Moody’s Investors Service.
New Jersey’s economy grew by 2 percent over the 12 months through the end of April. But neighbors Pennsylvania and Delaware grew by 4.2 percent and 3.9 percent, respectively, according to a Federal Reserve Bank of Philadelphia index that combines four economic factors. The U.S. economy expanded by 3 percent using the same measure.
So why can’t Christie catch the same tailwind that other states are riding?
High property and business taxes, as well as a steeply progressive income tax system, are driving away high-income earners and middle-class homeowners, some say.
“When you have a business environment that’s not progressive and you’re not attracting new businesses or business expansions, the economic engine is bogged down and that equals lost revenue,” said Dan Heckman senior fixed income strategist at U.S. Bank Wealth Management, which has been avoiding New Jersey bonds, now rated among the very lowest of all U.S. states. “They have been behind the eight ball for quite some time.”
New Jersey ranks 49th among the 50 U.S. states for its business-friendly tax climate, according to the Tax Foundation, a think tank based in Washington that advocates for lower taxes.
Rental car giant Hertz is moving its global headquarters from New Jersey to the lower tax state of Florida, for example.
Pharmaceutical companies, an important sector in New Jersey, have also been consolidating and scaling back operations in the state, said Lucy Dadayan, a senior policy analyst at the Rockefeller Institute of Government in Albany, New York.
Population trends are also problematic for the state. Census data shows that New Jersey’s population grew by 1.2 percent from 2010 through 2013, half the national rate.
Other anecdotal indicators also suggest problems attracting and keeping residents. United Van Lines said in its annual survey in January that more people are moving out of New Jersey than any other state.
Retaining young urban professionals with Manhattan and Brooklyn so close by is also a challenge, said James Hughes, dean of Rutgers’ Edward J. Bloustein School of Planning and Public Policy in New Brunswick.
“Creative-class millennials don’t want to be in New Jersey, the quintessential suburban state,” he said. “They don’t want to work in plain vanilla office buildings perched on the edge of a highway. Their lifestyle and workplace preferences really are to work in interactive, edgy, high-density, walkable environments that are public transit accessible.” (Reporting by Hilary Russ in New York; Editing by Dan Burns and Lisa Shumaker)