Four NJBIA manufacturers recently took their messages directly to the Legislature. Three members of the Association's Manufacturing Council testified March 14, 2005, at a Senate Oversight Committee hearing organized by Senator Sarlo (Passaic-Bergen). They told the senators that costly health insurance, energy, taxes, and regulations are driving up New Jersey's business costs, already among the highest in the nation, and this is threatening manufacturers' ability to compete.
Testifying were Alexander "Sandy" McWilliams II, president of McWilliams Forge Company, Inc. in Rockaway; Scott Ernst, director of human resources for Air Cruisers Company of Belmar; and Robert Staudinger, president and CEO of National Manufacturing Company, Inc. in Chatham; NJBIA President Philip Kirschner; and NJBIA First Vice President Jim Sinclair.
"This is the first Senate committee hearing in 20 years to look into the obstacles that manufacturers face, and you are to be commended for it," Kirschner told committee Chairman Paul Sarlo. The message manufacturers delivered to the committee was clear- New Jersey manufacturers can compete with manufacturers in other states and throughout the world, but the State must get serious about curtailing the very high cost of doing business here.
Take energy costs, for example. McWilliams Forge, which has manufactured engine parts for Boeing and Honeywell for 64 years, depends on natural gas and electricity to heat up metals used in its manufacturing process. McWilliams Forge took a huge risk in 1999 by building a new $15 million forge press that would help it compete globally. The recession then hurt the company greatly. On top of that, McWilliams said, the company has had to absorb a 58 percent increase in energy costs in four years (it paid $1.6 million in 2004) and ever increasing taxes on that energy. Prior to 1998, the company paid no sales tax on natural gas. Between 1998 and 2002, it paid a total of $66,000 in sales tax. In 2004 alone, however, McWilliams paid $62,000 in energy taxes and, with the imposition of the new "social benefits charge," expects to pay about $75,000 in 2005. "These are two taxes on an essential commodity to run our business that lowered our bottom line by 10 percent in 2004," McWilliams explained.
Air Cruisers' Ernst said his company, which manufactures aircraft evacuation slides for commercial airliners, has been coping with huge increases in its health insurance for the last few years. The company's insurance carrier is now requesting a whopping 45 percent increase. It reached the point where the company considered paying the employees the money it spent on health benefits and let them purchase their own insurance. "From a socially responsible position we quickly ruled this out as a possible solution," Ernst said. But the problem of funding such a large premium increase remains. Ernst urged the committee to enact a combination of tax incentives and regulatory reforms to make health insurance more affordable.
Staudinger of National Manufacturing said one of the most onerous taxes placed on businesses last year was the "air toxics surcharge." He said this surcharge will create a total retroactive tax burden nearing $300,000 for his company, despite the fact that the company has spent a great deal of money improving its processes and environmental compliance. "National has a 60-year history in New Jersey, and for a company our size, this new tax would be devastating and will force a re-evaluation of our business operations in New Jersey," Staudinger said. The Assembly voted that afternoon to repeal the tax.
In earlier testimony to an Assembly committee on February 7, Clifford Lindholm III, CEO of the Falstrom Co. in Passaic, urged lawmakers to create a climate that encourages manufacturing growth in New Jersey. Lindholm, who is also chair of the NJBIA Manufacturing Council, also assured the members of the Assembly Commerce and Economic Development Committee that New Jersey manufacturers can still compete in a global economy.
NJBIA President Philip Kirschner also testified before the Assembly about the importance of maintaining a strong manufacturing sector in New Jersey's economy. The committee released three bills cutting energy sales taxes for certain manufacturers, giving preference to New Jersey-made products in State contracts, and creating a business ombudsman as part of the NJ Board of Public Utilities.
Lindholm said the key to helping manufacturers like Falstrom is reducing the cost of doing business. Policies that help reduce the cost of purchasing energy, for instance, help manufacturers compete with operations in low-cost states and overseas. Based in Passaic, Falstrom produces precision metal products, primarily for several large defense contractors. Lindholm explained that Falstrom's customers continually push for lower prices, making the reduction of taxes and fees a top priority for manufacturers competing in a global economy.
"Falstrom is living proof that manufacturing is alive in New Jersey and that we can be competitive with manufacturers in other states and other countries," he said.
Kirschner told the committee that manufacturing plays a vital role in New Jersey's economy. It supports a half-million jobs, pays an average wage that is 20 percent higher than other jobs, and produces 12 percent of the gross State product. New Jersey manufacturers can still compete in a world of outsourcing and global competition, he said, because of their expertise in manufacturing.
"What usually gets outsourced are the easily manufactured products that require a simple manufacturing process," Kirschner told the committee. "What's left takes extra skill and precision."
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