The Week in Public Finance: An Exodus, Converts and Bad Omens
A roundup of money (and other) news governments can use.
Exodus to the South
In an analysis this week, Moody’s Investors Service noted the list of companies that had left New Jersey for warmer weather (and, we assume, friendlier tax breaks). Those include: The Hertz Corporation, which in 2013 announced the relocation of its national headquarters and 700 jobs from Park Ridge, N.J. to Estero, Fla.; in June 2014, bubble wrap manufacturer Sealed Air Corp. announced plans to move its headquarters and 1,200 jobs to Charlotte, N.C. from Elmwood Park, N.J.; and this month, Mercedes-Benz announced it will relocate its U.S. headquarters to the Atlanta, Ga. metro area from Montvale, N.J. Moody’s said the relocation is a positive for Atlanta’s and Fulton County’s credit because the company plans to invest nearly $93 million in the construction of a new facility and will employ up to 1,000 people.
Naturally, the exit of Mercedes and other high-profile companies is a strike against New Jersey, which Moody’s notes has the nation’s fourth-highest cost of doing business while Georgia ranks 20th, Florida ranks 14th and North Carolina ranks 48th. Although tax incentives did play a role in the moves of Mercedes, Hertz and Sealed Air, Moody’s said corporate officials also cite quality of life and low cost of living for employees as major draws. “New Jersey remains a high-income state, with per capita income equal to $36,027, or 128 percent of the nation,” the Jan. 16 analysis said. “But statewide income growth remains flat given recent job losses and increases in lower-paying industries, such as retail and hospitality.”
New Jersey Gov. Chris Christie lamented these stats in his state of the state speech this week, urging legislators to “open your eyes and ears to the lessons of Mercedes” and lower the state’s income tax. Of course, he also said the state’s pension system was better off than it was five years ago. In reality, just about every state’s pension system is better off now than it was five years ago -- that’s when most pension funds bottomed out from their stock market losses. New Jersey’s pension, according to Governing’s analysis, is one of dozens of systems that has yet to regain its pre-recession peak assets.
The folks at the Pew Charitable Trusts, which have encouraged states to develop savings policies that help manage against revenue volatility appear to have another convert. Connecticut Comptroller Kevin Lembo this week released a policy brief that proposed changing the formula the state follows to determine its savings deposits to one that is linked to state revenue spikes.
More specifically, Lembo proposed requiring automatic deposits whenever the most volatile tax revenue streams -- the estimated and final payments portion of the income tax, and the corporations tax -- produce revenue above historic norms. He also recommended increasing the cap on the Budget Reserve Fund balance to 15 percent of the General Fund, and considering directing excess revenues of other one-time and highly volatile revenue sources to the fund.
“Not everyone gets excited when we talk about state finances, revenue volatility and Budget Reserve Funds -- but maybe we should,” Lembo said in his news release announcing the proposals. “What it takes to achieve financial strength and stability is complicated, and it’s boring -- and exactly the wheelhouse where we should be operating now. This policy proposal -- making changes to the Budget Reserve Fund formula now -- will put the State of Connecticut in a better position leading into any future economic downturn, reducing the need for future tax increases and requiring fewer crisis-driven budget cuts.”
Good news and bad news
The Rockefeller Institute of Government has looked at the latest job statistics, which showed strong national employment growth, and put a little damper on the good news. While the data showed relatively strong growth in private sector employment, “the picture remains rather gloomy for state and local governments,” the institute said in a report. Seven years after the start of the Great Recession, state and local government employment still has not recovered to its pre-recession level.
The Jan. 9 employment report from the Bureau of Labor Statistics showed that total nonfarm employment for the nation grew by 252,000 jobs in December 2014 compared to November. But just 7,000 of those jobs were from state government employment while local government contributed 4,000 jobs.
The declines have continued, the institute noted, because state and local government employment often has a delayed response to any economic change. Private sector employment began declining in February 2008, almost immediately after the start of the recession, but state and local government employment continued to grow for several months after the start of the recession. That sector, which employs more than 19 million people, reached its peak in August 2008. However, “since then, cuts in state and local government employment have been large and prolonged,” the institute said.