TRENTON, NJ – With the economy locked in a recession, Gov. Jon S. Corzine used his State of the State address today to warn there will be “additional, painful” cuts to the state budget, and he proposed a one-year delay in instituting a controversial 2.5 percent construction fee on developers designed to raise money for affordable housing.
“The national recession undoubtedly will intensify in the next few months, and will likely last beyond 2009,” Corzine said.
The governor pushed a stalled plan for depositing $500 million of state funds in New Jersey banks, to give them the resources to lend; spending on infrastructure projects to create new jobs; and making the budget process more transparent, by listing all spending on a public Web site.
Further, he asked the Legislature to support a bond initiative on the November ballot to raise funds for the state’s open space program, as well as adopt tougher government ethics reforms.
“Through all these initiatives, we’re planting the seeds for prosperity,” Corzine said. “We are positioning as many people and businesses as possible to survive the national recession, and then thrive once the inevitable recovery begins.”
Corzine called for a one-year moratorium on the 2.5 percent construction fee, know as COAH, for Council on Affordable Housing, and said he wants to exempt the fee for all building projects that were in the pipeline before the fee was signed into law. The fee has been in effect since July.
This was welcomed by developers and business advocates, who have sarcastically referred to the fee as an “economic development tax.”
“This is recognition that that tax, regardless of the economy, thwarts economic development,” said Jim Leonard, legislative lobbyist for the New Jersey Chamber of Commerce.
The plan to put a moratorium on COAH is welcome, said Michael Seeve, president of Mountain Development in Clifton, but “if everybody recognizes the economy is not doing well, and they recognize it’s a good idea to put a moratorium on the program, why wouldn’t you get rid of the program?” he said.
Though it’s a noble aim, the program “hurts business, it hurts the ability of people to build new buildings and attract the best kinds of tenants,” Seeve said. “It hurts the ability of the development community to add ratables to the state’s tax base.”
The COAH fee is charged to the developers of commercial projects, and is intended to help defray the cost of building affordable housing. Municipalities are required to have a predetermined amount of affordable housing units built whenever land is turned over for commercial development, depending on the scope of the project.
Commercial projects offer pure ratables to municipalities, Seeve said; “the state’s budget being what it is, this would be a real good time to add some new ratables.”
But without the right conditions, the moratorium on the COAH fee will do little to right the state’s economic course, said Michael McGuinness, executive director of the New Jersey Chapter of the National Association of Industrial and Office Properties, in New Brunswick.
“If the developer no longer has to come up with 2.5 percent fee, of course that’s good thing – that will help make project more economically feasible,” McGuinness said. But “there will be no positive impact unless the town is also relieved of its obligation that comes with that new development … because they’re still going to have to construct and pay for affordable housing.”
“We should not have an affordable housing policy that is dependent on any one sector of the economy, like real estate,” he said. “Housing is too important to be left to the ups and downs of the market.”
Corzine, a former chief executive of Goldman Sachs, said the “country’s financial system hovers near collapse,” and reiterated his plan to deposit $500 million in New Jersey’s community banks. The bill to authorize the plan has stalled in the Legislature. “Wherever I go, small business owners tell me that they’re having trouble getting loans,” Corzine said.
Corzine continued his call for highway and school construction spending, bolstered by federal funding, to create jobs and jumpstart the economy. He said the state plans to spend $4.7 billion on infrastructure projects in the next fiscal year, “saving or creating as many as 42,000 New Jersey jobs.”
Corzine said a projected $2.1 billion deficit in the current state budget – due to low tax revenue brought on by the recession – will force more state budget cuts to be announced in March.
In an unexpected move, Corzine said he supports an idea – proposed by Republican legislators – of posting all state expenditures on a Web site, “to increase accountability and transparency in our budget process.”
Corzine asked for the Legislature’s support for a bond referendum on November’s ballot to extend the open-space program voters approved in 2007. The governor did not specify how much the state wanted to borrow, but he said the program “has always been one of New Jersey’s priorities.”
He also continued to push ethics reform, asking the Legislature to end, among other measures, the practice of offering public contracts to political campaign contributors, known as pay to play, and ending no-bid contracts at all levels of government. “People deserve a government they can trust” the governor said.
Corzine’s optimism was tempered by at least one in the business community. Joel Naroff, chief economist for TD Bank, said the stimulus programs put through by Corzine – and those being proposed by President-elect Barack Obama – will blunt the impact of the recession, but said the state will continue to lose jobs this year.
“New Jersey is going to be hit hard,” Naroff said. “The first half of this year will be a continuation of the problems that we have seen in the second half of last year.
“The real question is how quickly [will] things bounce back in the second half -and I’m just talking about slowing the losses. There’s a good chance that the state every month this year will see jobs decline; it’s a question of when do the job losses peter out. I think nationally that will happen in the spring and summer, but the state will go into the fall.”