NEWS

What comeback? Why NJ's economy has tanked

Michael L. Diamond
@mdiamondapp
Professional Services Group, a job search support group in Morris County, meet at the Parsippany-Troy Hills Library to hear speaker Joe Himelfarb (front) discuss how to keep a positive attitude.


First in a series. Read Part Two and Part Three

New Jersey's economy is paying a heavy price for a decade of negligence.

The signs of failure are all around us five years after the end of the Great Recession. New Jersey's job growth rate — measured in fractions of a percentage point — is the second worst in the nation, just ahead of Alaska.

New Jersey's middle class has lost billions in income through layoffs, salary cuts and wage freezes. More than 100,000 job seekers have been unemployed for months on end. Thousands more have simply given up looking for work, relying on handouts, family and part-time jobs to make ends meet.

And New Jersey remains a lost soul in the nation: It is one of just three states that saw more people falling into poverty than rising above it.

What has the real impact been on your career? See which New Jersey jobs lost income over the years

The nation's labor market has recovered, but not in New Jersey. From August 2013 to August 2014, a revised report released Thursday showed the state added 6,700 jobs, amounting to 558 new jobs a month. It is so few that it would take 44 years to find positions in the state for New Jersey's 294,700 unemployed residents.

The fall has been fast.

Fifteen years ago, in 1999, New Jersey created 107,400 jobs. Its diverse economy spanned from international pharmaceutical companies in the north to giant telecommunications companies in the middle to monster casinos in the south.

That began to change in the early 2000's. Employers fled the state's high taxes for low-cost, southern states that rolled out generous incentives. But since the recession ended, New Jersey has another problem on its hands: Some of its most prized employers are dropping everything and leaving for Massachusetts and California — states that are just as expensive but have powerful networks of academic research and investment capital that cutting-edge and high-paying companies crave, observers say.

New Jersey is in dire need of a reboot.

Its suburban lifestyle that served the state so well in the late 20th century is falling out of favor. Corporations are turning their attention to efficiency, and the massive millennial generation is trading their lengthy commutes for the coziness of the city.

Since Gov. Chris Christie took office in 2010, the Republican governor and the Democrat-controlled Legislature have searched for a spark to ignite the state's economy. Christie championed tax cuts for the wealthy. And both sides offered billions in tax breaks for companies that either move to the state or threaten to leave. They have consolidated universities to jump-start research. And the Christie administration has shined a spotlight on the state's businesses.

Their steps have barely moved the needle.

"When I look at the way the recovery has proceeded, I've likened it to a drunk running a marathon," said Patrick J. O'Keefe, former chief executive officer of the New Jersey Builders Association and now director of economic research for the CohnReznick accounting firm.

"They stagger, they meander, and at the end, when the race is called, they've still got a long way to go."

Hazlet resident Derek Stewart has been driving a tractor-trailer since he got out of the Army in 1971. More recently on his routes, he sees the for-rent signs in New Jersey's suburban office parks, he sees the giant warehouses popping up in central Pennsylvania, and he worries about the direction of the state's economy.

At 65, he's wants to retire soon, but doesn't know if he can stay here. His own wages haven't kept up with the cost of living, he said. His property taxes have jumped from $3,200 in 1981 to $16,700 today, he said.

"On a truck driver's salary, it would be very hard to survive here in retirement," Stewart said. "Unfortunately, the whole environment in New Jersey has gotten a little expensive for retirees and the middle class."

New Jersey trails most other states

An Asbury Park Press analysis of government and industry data found:

New Jersey's job growth rate in the last year ranks dead last in the continental United States. The U.S. has more than regained the nearly 9 million jobs that it lost during the recession that lasted from 2007 to 2009. New Jersey has recovered fewer than half of the lost 257,900 jobs, and its job growth is losing what little steam it had.

Case in point: Despite heavy support from the state, Atlantic City's gaming industry has collapsed since 2008. This year alone, four casinos have closed, and more than 8,000 workers have been laid off. Others are on the brink of bankruptcy.

From Gov. Christie's first full month in office, February 2010, through August 2014, New Jersey added 115,600 jobs for a growth rate of 3 percent, less than half as fast as the nation. But during the most recent 12 months available — August 2013 to August 2014 — the state had a net gain of 6,700 jobs. It amounted to a growth rate of 0.17 percent, up a fraction from the preliminary 0.08 percent. The Labor Department hasn't released complete statistics for August, but its preliminary look showed New Jersey's job growth was worse than every state but Alaska.

To match the nation during that time, New Jersey needed another 60,000 jobs. For perspective, the Shore's biggest employer, Meridian Health, has 12,000 workers.

"There's no question (New Jersey) has been lagging behind the rest of the country," said Mark Vitner, senior economist for Wells Fargo in Charlotte, North Carolina. "It's relatively easy for surrounding areas to pick away at New Jersey's economy."

New Jersey stands alone in the region.

Even seemingly good news comes with a caveat. The state's unemployment rate has fallen from its peak of 9.7 percent in April 2010 to 6.6 percent in August 2014. But that survey doesn't measure how many New Jerseyans got discouraged and stopped looking for work or found employment outside of the state. One clue that it's not happening in New Jersey: New York City added 102,400 jobs from August 2013 to August 2014, growing by 2.6 percent, the U.S. Bureau of Labor Statistics reported.

New Jersey "has one of the most dismal job growths, unfortunately," said Sohini Chowdhury, an economist who follows New Jersey for Moody's Analytics, a research company in West Chester, Pennsylvania. "New Jersey residents are being employed, they are finding jobs, but not in New Jersey-based companies. They are finding jobs in companies outside the state border."

Job seekers have a tough slog. At the end of 2013, 46.6 percent of New Jersey's unemployed workers — roughly 172,000 — were jobless for at least 27 weeks, the highest rate nationwide, according to the Economic Policy Institute, a left-leaning research group in Washington.

New Jersey's economy is paying off — for the wealthiest.

New Jerseyans making $1 million or more were the only ones who saw income gains from 2010 to 2012, when adjusted for inflation, according to the Press' analysis of federal income tax data.

The middle class has fallen behind. Seven of the 10 occupations that lost the most jobs from 2000 to 2013 had median wages between $30,000 and $60,000 a year. Meantime, six of the 10 occupations that added the most jobs had median wages of less than $30,000 a year. And New Jersey workers in all occupations saw their inflation-adjusted salaries fall 15.8 percent from 2007 — the year before the recession — to 2013, federal data shows.

And the poverty rolls have risen. Nearly 1 million New Jerseyans lived below the poverty line in 2013, up from nearly 935,000 in 2012, according to the U.S. Census Bureau. It made New Jersey one of three states that saw an increase in the number and percentage of residents in poverty during that time. New Mexico and Washington were the others.

The result: New Jersey remains a wealthy state, but it is slipping. In 2007, New Jersey's per capita income of $49,194 was 27.4 percent higher than the U.S. In 2013, its per capita income of $55,386 in 2013 was 23.7 percent higher than the U.S. In 2007, it ranked second nationwide, only behind Connecticut. In 2013, it ranked third, behind Connecticut and Massachusetts.

• Consumers are squeezed.

Both retirees and workers are marching out of New Jersey, taking their money with them. During a five-year stretch, from 2006 to 2011, the state lost more than 90,000 taxpayers — and $8 billion in income — to other states and countries that was not made up from new workers within the state, according to an analysis of IRS tax and migration records.

Read: Why is the job market still sluggish?

New Jersey has the nation's highest share of mortgages that are either in foreclosure or at least 90 days late, an indicator that consumers are running out of money. Some 11.6 percent of all loans were at least 90 days late during the second quarter, compared with the U.S. rate of 4.8 percent, CohnReznick's Patrick J. O'Keefe found. New Jersey is a judicial foreclosure state, meaning the court intervenes in the process. It gives residents a better chance to keep their homes, but it slows down the housing market, long an economic engine for the state.

Consumer spending hasn't kept up with the nation. Personal consumption in New Jersey rose 3.1 percent in 2010, 3.6 percent in 2011 and 3.3 percent in 2012. Personal consumption nationwide rose 3.7 percent in 2010, 5.0 percent in 2011 and 4.1 percent in 2012, the latest year available, according to the U.S. Bureau of Economic Analysis. It's significant because consumer spending makes up about 70 percent of the economy.

"Demographics may not be everything to an economy, but it's pretty darn close," Michael Church, founder and chief executive officer of Philadelphia investment firm Addison Capital, told a group of business leaders at a recent forum in Red Bank sponsored by OceanFirst Financial Corp.

New Jersey has lost its status as a high-tech magnet.

Promising start-up companies often turn to venture capital from investors to help them survive early growing pains with the payoff down the road. But venture capital in New Jersey fell 44.7 percent from 2007 to 2013, a loss of $258.7 million. It is a far cry from 2004, when New Jersey brought home the fourth most venture funding nationwide. In 2013, it ranked 13th, according to the National Venture Capital Association, an industry group.

Advance Realty is transforming Sanofi's former 110-acre research center into the New Jersey Center of Excellence. This is an exterior of the campus, viewed as CEO Peter Cocoziello gives a tour of the facility, June 06, 2014.

Meantime, National Institute of Health grants fell by $94 million, or 28.3 percent, from 2007 to 2013. And private research and development funding dropped by nearly $5.4 billion, or 30.6 percent, from 2008 to 2011, according to government research.

New Jersey has "not made progress on the kinds of indicators you would want it to in order to drive the economy," said Robert Atkinson, president of The Information Technology & Innovation Foundation, a Washington-based advocacy group. This year, it ranked New Jersey the 10th best state for innovation. In 2007, New Jersey was second. "I think 'somewhat worried' would be the proper attitude."

The faltering economy hurt the state's own bottom line.

New Jersey doesn't have enough money to pay its bills. The state in fiscal 2013 took in $1.2 billion less from income, sales and corporate taxes, than it did in five years earlier, state figures show.

New Jersey's bond rating has been downgraded eight times by the three bond-rating agencies since 2010, which makes it more expensive for the state to borrow money. Despite those warnings, Christie and lawmakers still seemed caught by surprise over the summer when they had to make up an $800 million revenue shortfall. Christie ultimately made up the difference by cutting the state's pension contribution.

Christie is considered a top contender to seek the GOP nomination for the White House. At the state of the state address in January, he lauded the performance of the economy, saying the state has reversed course, from one that lost jobs to one that gained jobs. He noted personal income was at an all-time high , new companies were coming to the state and business confidence in New Jersey was up. (Per capita income was at a record high, but only if it wasn't adjusted for inflation.)

Nine months later, though, the economy is wilting. At a press conference in September, Christie dismissed concerns, noting the decline in the state's unemployment rate during his tenure. "No, I'm not concerned the state is going in the wrong direction," he said.

Christie declined to be interviewed for this article.

New Jersey's precarious financial condition has left lawmakers with few tools to help the state reinvent itself. Among the ideas: lower corporate taxes to be more competitive with other states; provide property tax relief that would put more money in the pockets of the middle class; or spend more on transportation projects that could create jobs and help workers be more productive.

"Bit by bit, cut by cut, New Jersey has evolved into an inhospitable place both for people and business," Jeffrey Otteau, a real estate consultant based in East Brunswick, said at a regional planning conference in June. "Information, technology, collaboration. Everything in our lives is more connected than ever before. It's true for people and employers."

Looking for work

The quest for full-time work in New Jersey can take a toll.

Glenn Nahass, 59, of Pequannock, Morris County, wrote contract proposals for defense contractors in West Long Branch and Eatontown to support the Army at Fort Monmouth. But the post closed in 2011 and moved its operation to Aberdeen, Maryland. And Nahass' employers either moved or didn't have enough work to keep him. He lost his job in December.

Nahass had the chance to work at a job in Maryland, but it would have meant living in a hotel four days a week and commuting home on weekends. Instead, he decided to stay put and search for a job close to home.

He thought back over his career. He couldn't put his finger on it, but he felt like something in corporate America changed. "What we used to believe in seems to be vanishing," Nahass said. "You used to feel more like they treated you like family, like they wanted to be treated. But that seems to be going away."

Read: 38 percent of NJ households struggle

Nahass was one of about 20 unemployed workers who gathered in the basement of the Parsippany-Troy Hills Library on a hot July day as part of the Professional Services Group, a support group for highly skilled workers who have lost their jobs. They heard a motivational speaker discuss the merits of having a positive attitude.

At the end, the workers sounded grateful for the reminder. They once had full-time jobs with benefits at campuses stretching from Colgate-Palmolive in Morristown to Fort Monmouth at the Shore. Now, they find themselves in what Irene Mendelson of Parsippany-Troy Hills called the "contractor rut," jumping from project to project while many of them yearn for a permanent job with benefits.

A technology manager, Mendelson, 56, worked for Schering-Plough until 2009, when the drug company was acquired by Merck. She survived the first round of layoffs, but not the second. Since then, she has worked at drug companies on short-term contracts ranging from six days to 18 months.

It's not all bad. She said she doesn't have to worry about the bureaucracy that can get in the way of doing the work she enjoys. But she also doesn't have the job security that would allow her and her family to spend more.

"You just have to worry about getting your contract extended," she said wryly.

Saving New Jersey's economy

New Jersey's blueprint to regain its footing is blurry when urban hubs — Cambridge, Brooklyn, Philadelphia — have emerged as landing spots for both millennials — the generation born roughly from 1980 through 2000 — and baby boomers.

In short, the quintessential suburban state needs to become cool. It needs to convert is sprawling corporate campuses into desirable workplaces; invest in universities that are fueling innovation; and replenish its transportation trust fund so that the state can improve its roads and workers and visitors can shave minutes or hours off their commutes, observers said.

It didn't used to be this way.

New Jersey has been an innovation hub since Thomas Edison invented the light bulb at his Menlo Park laboratory and Johnson & Johnson set up shop in New Brunswick in the 19th century. Since then, some of the world's best-known corporations based themselves in New Jersey, sprawling out among suburban campuses.

Read: Where does your money go? You may be surprised.

In the emerging economy of the 21st century, though, New Jersey's suburban campuses have become an albatross. Nowhere is that more evident than in the life sciences industry that the state considers one of its key employment clusters.

For good reason. New Jersey reaped $26.6 billion in 2012 from the industry, when you take into account spending by the companies and their employees, according to the HealthCare Institute of New Jersey, a trade group.

But the industry ran aground. Many of its patents for notable drugs expired during the last decade. And to grow again, companies that once made drugs from chemical compounds developed in its own New Jersey laboratories turned their attention elsewhere — to universities and start-ups that have found new therapies through advancements in biotechnology.

The industry's epicenter has shifted from New Jersey to Massachusetts and California, where companies, universities and government agencies have teamed up to help the biotechnology industry thrive.

Take a look at the closed Sanofi research and development facility in Bridgewater, where, nestled on a leafy, quiet 110 acre campus, the former laboratory has almost anything a cutting edge drug maker could want: state-of-the-art scientific equipment; a pristine auditorium; a gymnasium with wood-paneled lockers, plush towels and a room filled with stationary bikes for health-conscious workers.

It has everything, that is, but people.

Sanofi abandoned the site shortly after it acquired Genzyme in 2011 for $20 billion, moving the operation to Cambridge, Massachusetts. In an instant, the campus was a ghost town, what Dodge City is to the wild west — without the tourists. The scientific equipment, long conference room tables, even Monet-print art on the walls are still there.

But the chances of replacing it with another giant company bringing thousands of workers in one fell swoop are negligible.

"It won't happen," said Peter Cocoziello, president and chief executive officer of Advance Realty, which is redeveloping it into a mix of homes, retail and laboratory space. "I think it's the nature of the business."

Advance Realty is transforming Sanofi's former research center into the New Jersey Center of Excellence. CEO Peter Cocoziello shows science equipment left behind, as he  gives a tour of the facility in June.

Sanofi has plenty of company. Roche acquired Genentech near San Francisco in 2009 for nearly $47 billion. To streamline operations, Roche last December closed a research and development lab in Nutley that it had called home for more than 80 years, cutting its work force by 1,000. GE Healthcare in August said it would move its U.S. life sciences headquarters from Piscataway to Massachusetts, leaving 400 New Jerseyans with uncertain futures. And Novartis and Merck are among the drug makers that have laid off hundreds more.

Just like that, one of New Jersey's key employment clusters saw employment fall from 132,109 in 2006 to 121,655 in 2011, or 8 percent, according to the New Jersey Department of Labor and Workforce Development.

Regrowing innovation

For New Jersey, innovation is more than a buzzword; it's supposed to be the antidote to the state's high costs.

But the state now risks losing millennials to other states. They are entering the work force just as baby boomers are leaving it. They were raised in the information age and are digital wizards. They communicate nonstop through text messages and social media sites. They embrace teamwork and collaboration.

William Wang, 19, of Holmdel, is an example. A 2013 graduate of Biotechnology High School in Freehold Township, Wang attends the University of Pennsylvania in Philadelphia. He spent last summer at an internship that gave him a front-row seat not only to breakthroughs in cancer treatment, but also the pharmaceutical industry's new strategy to bring drugs to market.

Wang and other Penn researchers partnered with Novartis on a plan to genetically modify a patient's blood cells so that the cells can recognize and attack cancerous tumors. The therapy to treat leukemia is so promising that the U.S. Food and Drug Administration last summer labeled it a potential breakthrough, putting it on a fast-track for regulatory approval.

For Wang, these are exciting times. He enjoys collaborating with some of the brightest minds in the field. He lives close to campus and doesn't need a car. If he wants to visit Center City, he takes mass transit.

"And everyone is very driven and motivated," he said. "That's something I like and appreciate. They're doing amazing things. I want to do amazing things, too. It's a momentum that keeps you going."

New Jersey has few tools at its disposal to shift gears.

The state's top corporate tax rate is 9 percent. Only five other states have tax brackets with higher rates, according to the Tax Foundation, a Washington group that advocates for low taxes.

Meanwhile, New Jersey has little money to invest in transit projects. Its public pension system is underfunded. It has a nearly $1 billion budget shortfall. And municipalities are reluctant to approve development projects that would attract families — and require higher taxes to educate children, real estate analyst Jeffrey Otteau told the audience of policymakers and developers at a conference hosted by PlanSmart NJ, an organization that encourages sound land use.

Still, observers said, New Jersey can at least begin to chip away at the problem.

Five years after rejecting a ballot proposal that would have allowed the state to borrow $450 million for a stem cell center, voters in 2012 approved a ballot measure that gave lawmakers the go-ahead to raise $750 million for science and technology programs at colleges and universities.

And lawmakers last year merged Rutgers with the University of Medicine and Dentistry of New Jersey to bring together scientific research with a medical school and attract more investment from drug companies and the government.

Christopher Molloy, chancellor of Rutgers Biomedical and Health Sciences, said the next step is to convince researchers and doctors to collaborate.

"We've gotten a late start, but we're certainly not too late," Molloy said. "It's a very significant culture change. The silver lining is, I think, the faculty from both Rutgers and certainly UMDNJ realized there needed to be changes, and they embraced change."

The old model doesn't appear ready to return. Less than 10 miles from the Sanofi site, Merck plans to close its headquarters in Readington Township and its campus in Summit next year and move employees to its office in Kenilworth. It's part of a plan to reduce its global work force by 20 percent and save $2.5 billion.

Peter Cocoziello is well versed in the trends. And he knows he has work ahead of him to redevelop the Sanofi site. Short of a miraculous announcement by, say, Google, there aren't any employers with thousands of workers looking for suburban office space.

So his plan is this: He wants to keep the research and development property that Sanofi left behind for a half-dozen smaller pharmaceutical and technology companies, and he wants to turn the rest of the property into high-density housing and retail space, into bicycle paths and walking trails, into the sorts of things that attract millennials.

It's a project that will require local lawmakers to change the zoning. He hopes to begin construction next year.

"This corridor could be developed into a very desirable area," he said.

Michael L. Diamond; 732-643-4038; mdiamond@app.com

About the series

Today: Why New Jersey's economy is lagging. Part 2: Top jobs head north. Part 3: Can the millennials save us?