New Jersey employers are deeply concerned about the near-term outlook for the State and national economies, and they anticipate a slowdown in economic activity at all levels, the New Jersey Business & Industry Association found in its 2006 Business Outlook Survey.

“For the State and national economies, a new pessimism has replaced last year’s relative optimism. In 22 years of survey data, this marks one of the most dramatic shifts from optimism to pessimism in a single year,” NJBIA President Philip Kirschner said, presenting the findings in a well-attended news conference on November 22.

Thirty-nine percent of survey participants expect US economic conditions to deteriorate in the first six months of 2006 and only 21 percent anticipate improvement. This is a reversal of last year’s outlook, when 42 percent expected conditions to improve and 16 percent expected them to worsen.

Expectations are similarly downbeat for the New Jersey economy, with 39 percent expecting conditions to worsen and only 18 percent anticipating improvement. The outlook for respondents’ own industries is less negative, with companies more evenly divided between those expecting things to get worse (32 percent) and those expecting things to get better (27 percent).

“Our survey reveals a stunning loss of confidence in the near-term economic outlook,” said NJBIA President Philip Kirschner. “It’s clear that many employers anticipate a slowdown in an already sluggish recovery in New Jersey.”

In considering the prospects for their own business activity in 2006, employers remain more upbeat than they do for the broader economy. More expect their sales, profits and employment to rise than expect them to fall in 2006. Still, they foresee less favorable conditions than did last year’s survey respondents.

The 2006 Business Outlook Survey questionnaire was distributed to NJBIA’s 23,600 member companies in September 2005. The survey findings are based on the first 1,850 responses. Respondents came from every industry and every region of the State. Nearly three out of four participants were small companies with one to 24 employees.

The survey was conducted as Hurricanes Katrina and Rita were hitting the Gulf Coast, dislocating local economies and sending oil and gas prices to record highs. This had an immediate negative cost impact on businesses and consumers across the country.

“We believe, however, this only accentuated a pessimism among employers that already existed. It didn’t create it. New Jersey was ranked 41st in the country in the rate of creation of new private-sector jobs even before the hurricanes,” Kirschner said.

Employers remain very unhappy with New Jersey’s business climate, which they view as much more costly and less business friendly than in other states.

The survey findings were widely reported in the State’s news media with stories appearing in all of New Jersey’s major daily newspapers. Reports were also carried by the Associated Press, 101.5 FM, New Jersey Network and many radio stations.

Among other survey findings:

Business Cycle
When asked where their industries are in the economic cycle, a growing proportion of companies, 20 percent, said they are “moving from expansion to recession,” up from 8 percent of companies in last year’s survey. Additionally, 22 percent said their industries are in recession, the same as last year. Still, more companies saw their industries to be in the growth phase of the business cycle, either because they are expanding (23 percent) or recovering from recession (36 percent).

Sales Outlook
Forty-nine percent expect their sales to rise in 2006, down from 56 percent projecting sales increases last year. At the same time, 25 percent expect sales to slow in the year ahead, compared with 18 percent who anticipated slowing sales the year before.

Profits Outlook
Forty-three percent anticipate profit growth over the next year, down from 49 percent the year before, and 32 percent anticipate declining profits, compared with 26 percent the year before.

Employment
More companies than not said they plan to expand employment in 2006, though the percentage expecting to hire more workers has fallen from a year ago. Twenty-four percent of companies said they plan to hire more workers in the year ahead, down from 27 percent last year, and 10 percent said they anticipate cutbacks, compared with 7 percent last year.

NJ’s Business Climate
Employers continue to give New Jersey dismal marks as a place for business expansion. New Jersey’s favorable ratings have fallen or stagnated for five consecutive years. Only 28 percent said New Jersey is a good place for business expansion, the same as the last two years, but down from 50 percent in 2001.

Costs of Doing Business
Wage and Salary Rates—Seventy-five percent of employers said they expect to give pay raises in 2006. One quarter of employers expects to give raises of 1-2 percent and another one-third, raises of 3-4 percent. Only 14 percent anticipate giving pay hikes of 5 percent or more. These projections are roughly in line with those from last year’s survey, which turned out to be on the conservative side. (See Table)

Fringe Benefits—Seventy-three percent of respondents say their fringe benefit outlays will increase in 2006, about the same as the three preceding surveys. Twenty-one percent said they expected no change and 6 percent anticipate a reduction. Of those projecting increases, 43 percent believe costs will rise by 1-5 percent, with the rest divided equally between those anticipating increases of 6-10 percent and those expecting cost hikes of 11 percent or more.

A State program that uses tax incentives to create new private-sector jobs generates $88 in new economic benefits and $3.70 in new tax revenue for every dollar it costs, a Rutgers University analysis released in October concluded. The study of the Business Employment Incentive Program (BEIP) concluded that the program led directly to the creation of 51,665 jobs between 1997 and 2005 and indirectly supported another 58,089 jobs through increased economic activity.

Under BEIP, employers enter into agreements with the NJ Economic Development Authority (EDA) to create a minimum of 25 new jobs (ten new jobs for certain high-tech and biotechnology businesses) in return for a grant equal to between 10 percent and 80 percent of the amount of the new income taxes the jobs generate. The grant payments can run for up to 10 years.

To qualify, a business must demonstrate that the BEIP grant is a “material” factor for expanding or relocating jobs in New Jersey. Grants to businesses are not paid until the jobs have been in existence for at least one year, so no payments are made until after the State has received a full year of income tax collections.

BEIP is a critical tool for attracting new businesses to New Jersey and encouraging existing businesses to expand here. Out of 183 BEIP projects, 100 went to businesses relocating from another state (mostly New York), 77 went to businesses expanding operations in New Jersey, and six went to new businesses.

The study also found that the BEIP program was particularly popular among manufacturers. Of the 88 projects approved in 2005, the largest number (41 percent) went to manufacturers, followed by business and professional services (20 percent) and the financial sector (16 percent). This is particularly important in light of the fact that New Jersey’s manufacturing sector is struggling. For more information, contact Art Maurice at ext. 247, or amaurice@njbia.org.

Beginning in the first quarter of 2006, New Jersey employers with 10 or more employees must submit wage reports (form WR-30) to the NJ Department of Treasury electronically. Employers will be able to file their forms online or through a Secure File Transfer Protocol (SFT) with an easy-to-use computer program. For more information, call the NJ Department of Treasury’s Alternate Filing Bureau in the Division of Revenue at 609-633-1132. Questions about Secure File Transfer Protocol, including how to register and obtain an SFT login and password, may be directed to James Cordani of the Alternate Filing Bureau at 609-984-7988.

NJBIA is asking State employers to speak out in favor of legislation, A-3440 (Cohen, Russo)/ S-2435 (Kean)/S-2574 (Rice), that would allow New Jersey employers and employees to use Health Savings Accounts (HSAs). Please use our online Voter Voice service at www.votervoice.net/groups/njbia to send an e-mail to your State Senator and Senate President Richard Codey. It will only take a minute of your time.

HSAs were created to give employers and their employees an affordable option for paying for healthcare. But there is a problem. New Jersey’s insurance laws do not meet federal guidelines for HSAs. New Jersey’s law must be changed by the end of the year or you and your employees will be unable to take advantage of the substantial savings HSAs offer. A-3440 would do the trick, but the bill must be passed by the State Senate by December 31, 2005. For more information, please contact Christine Stearns at cstearns@njbia.org, or ext. 260.

The New Jersey Assembly will swear-in 11 new members when its reorganization is held in the second week of January. The freshman class is comprised of eight Democrats and three Republicans. Here is a quick look at the 2006 freshman class:

Nelson Albano, Democrat, District 1 (Cape May, Cumberland and Atlantic): A union leader and advocate for tougher drunk driving laws, Albano upset six-term incumbent Jack Gibson.

Jim Whelan, Democrat, District 2 (Atlantic): Whelan was the popular mayor of Atlantic City in the 1990s. He defeated incumbent Kirk Conover.

Pamela Lampitt, Democrat, District 6 (Camden): A councilwoman in Cherry Hill, Lampitt won an open seat to replace long-time Assemblywoman Mary Previte, who did not seek reelection.

Paul Moriarty, Democrat, District 4 (Camden and Gloucester): A former reporter for Philadelphia TV news, Moriarty was elected Mayor of Washington Township in 2004. He replaces retiring Assemblyman Robert Smith.

Jennifer Beck, Republican, District 12 (Monmouth and Mercer): Beck is a councilwoman from Red Bank. She was the top vote-getter, beating incumbent Democrat Robert Morgan.

Amy Handlin, Republican, District 13 (Monmouth and Middlesex): A Monmouth County Freeholder, Handlin was the top vote-getter after defeating Republican incumbent Joseph Azzolina in the June primary.

Marcia Karrow, Republican, District 23 (Hunterdon and Warren): Karrow is a Hunterdon County freeholder, replacing Assemblywoman Connie Myers, who did not seek reelection.

Charles Epps, Democrat, District 31 (Hudson): Epps is the superintendent of schools for Jersey City. He defeated incumbent Democrat Anthony Chiappone in the June primary.

Thomas Giblin, Democrat, District 34 (Essex and Passaic): Giblin is a labor leader, former Essex County Freeholder and former State Democratic chairman. He replaces Assemblyman Peter Eagler.

Gary Schaer, Democrat, District 36 (Bergen, Essex and Passaic): Schaer replaces long-time Republican Assemblyman Paul DiGaetano, who did not seek reelection. He is president of the Passaic City Council.

Valerie Huttle, Democrat, District 37 (Bergen): Huttle is a Bergen County freeholder who won the seat vacated by Assemblywoman Loretta Weinberg, who stepped aside to run in a special election for State Senate. Weinberg won her Senate race and will replace Senator Byron Baer.

Private sector employment figures through October 2005 show an underlying weakness in New Jersey’s economy, NJBIA President Philip Kirschner said in a November 16 news release. According to the NJ Department of Labor, private-sector employment declined by 2,900 jobs in October. NJBIA estimates that at the current pace, private-sector job growth for all of 2005 will be less than 1 percent. For the first ten months of the year, New Jersey’s private-sector employers have added only 25,800 jobs.

This is also well below the rate of job growth in New Jersey’s previous two economic expansions. New Jersey added an average of about 50,000 private-sector jobs a year during the 1990s expansion and about 100,000 jobs a year during the 1980s expansion. The current rate of job growth is one of the slowest of the last 50 years for New Jersey, according to a recent analysis by Rutgers University economists Jim Hughes and Joe Seneca.

New Jersey’s rate of private-sector employment growth is also well below that of the nation as a whole. In 2004, New Jersey was ranked 41st in the nation in its rate of private-sector job creation. So far this year, the Garden State’s rate of private-sector job growth — at 0.8 percent for the first ten months of the year — is less than the nation’s rate of 1.3 percent.

Not only is this bad news for the economy, but such weak job performance has broad policy implications for State government. For more information, contact Chris Biddle at ext. 227, or cbiddle@njbia.org.

Last month, the NJBIA Taxation Committee, chaired by Wyeth Tax Manager Bob Magno, hosted NJ State Treasurer John McCormac, Division of Taxation Director Bob Thompson and Division of Revenue Director Jack Tully for an in-depth look at pending and future tax policy issues affecting employers.

McCormac expressed concern with sales tax collections, presently on-track to fall $200 to $300 million below target. Also trending lower are income tax receipts. Here, the negative impact of last year’s “half-a-millionaire’s” income-tax increase on collections may be showing itself. Finally, the Corporation Business Tax (CBT) looks to be on pace to outperform revenue projections. McCormac cautioned that revenue shortfalls, combined with new spending requirements for “roads, schools and public employee benefits,” will make this upcoming budget particularly challenging for Governor-elect Jon Corzine.

Thompson noted that tax delinquencies are down 85 percent in the past four years, but more needs to be done. He described the new data warehouse project undertaken by the Division of Taxation. For the first time, Taxation auditors will have access to data sharing software capable of comparing State tax payment trends with national and industry-sector information, allowing for more precise audit targeting. Also, the Division has begun exercising its new authority to pull professional licenses of persistent tax delinquents.

Taxation Deputy Director Harry Fox summarized beneficial changes in sales tax policy resulting from New Jersey’s adoption of streamlined-sales-tax legislation. Tax amnesty of both tax liability and penalties/fines is available for businesses that have never registered as New Jersey sales tax collectors. Tully said new regulations mandating electronic form filing and tax payments mean that any business with over $10,000 of total tax payments, including UI payments, can no longer pay with a bank check.

The NJBIA Taxation Committee members said they support the full restoration of net operating loss deductibility and elimination of the alternative minimum assessment, scheduled to be eliminated in July 2006. Jim Evans of Kulzer & DiPadova provided a white paper and led a discussion on “Single Sales Factor” (SSF) tax reform for New Jersey businesses.

For more information about the Taxation Committee or to become a member please contact Art Maurice at amaurice@njbia.org or 609-393-7707, ext. 247.

Suzanne Lagay
President, CEO
Hunterdon County Chamber of Commerce

Three years ago attendance and interest in the Hunterdon County Employer Legislative Committees (ELC) was waning.

That’s when Suzanne Lagay, president and CEO of the Hunterdon County Chamber of Commerce, came on board as co-Chair of the Hunterdon County ELC—to get things back on track.

“I was invited to join then-Chair of Hunterdon ELCs, George Ditzler, because of my Chamber presidency role,” Lagay said. “George approached the Chamber to see if we were interested in the effort and it was immediately appealing to me as something I believed we owed our members.”

The ELCs, established by NJBIA in 1959, are independent, local organizations representing all 21 counties. ELCs meet monthly and, at each meeting, legislators, cabinet members or local officials discuss important issues pertinent to business.

In order to revive interest in the ELCs, Lagay said she used the resources at her disposal as president of the Chamber.

“Our Business & Government Committee is able to get top-notch speakers for the ELCs, which attract qualified, current speakers on topics of vital interest to employers,” she said. “Also, the Chamber newsletter advertises and invites the business community to these incredibly informative breakfasts.”

With attendance up in her three-year term, Lagay said she is satisfied to have seen her work pay off. According to NJBIA Vice President Frank Robinson, her efforts have not gone unnoticed.

“Suzanne has worked closely with NJBIA in our grassroots efforts and her service has been invaluable in helping us to carry the business community’s message to elected officials,” he said.

NJBIA’s 2006 New Good Neighbor Awards Competition
Nomination Deadline: February 6, 2006

The 46th Annual New Good Neighbor Awards competition, sponsored by NJBIA and New Jersey Business Magazine, recognizes companies that have worked to bring about an improved business climate in New Jersey by building or renovating a commercial facility. Winners will be chosen based on economic benefit and job creation, architectural merit, and community involvement. Plants, offices, commercial buildings, and shopping centers may be nominated. Construction or capital expenditures at the nominated facilities must have been completed between January 1, 2004, and December 31, 2005. Expansions or renovations may also be nominated.

The nominating deadline is February 6, 2006. To request a nomination form, please call Lori Davis at 609-393-7707, ext. 239.

NJBIA 2006 Sponsorship Program
Sign up now to participate in the NJBIA 2006 Sponsorship Program. Your company can reach specific decision makers and improve your visibility at these popular NJBIA events.

Put your name in front of key leaders of the business community and State government at our Meet the Decision Makers Breakfast Series or sponsor our Golf and Tennis Day, which attracts over 350 business executives. Be a high-profile sponsor of our Public Policy Forum, where the Governor speaks. Support our award winners at the New Good Neighbor Luncheon or the Awards for Excellence Dinner.

Sponsorships start at $500. Inquire about our sponsor packages starting at $5,000. They go quickly, so don’t miss out. Reserve your valuable sponsorship today by calling Sherry Esteves at 609-393-7707, ext. 219.

Some of the Great Events You Can Sponsor in 2006:

February June
Energy Conference New Good Neighbor Awards Luncheon

February-April July
Meet the Decision Makers Breakfast Series Golf & Tennis Day

March October
Made in New Jersey Day Awards for Excellence Dinner
Health Insurance Seminar
December
Public Policy Forum

BUSINESS RESOURCE PUBLICATION

The Practical Guide to Federal and NJ Employment Law:
The Employer’s Resource, Combined Edition

NJBIA is proud to offer the savvy employer this valuable publication edited by Martha Lester, Esq., Chair of Lowenstein Sandler’s Employment Law Practice Group. The guide covers federal and New Jersey employment-related laws, regulations and best practices, making it an essential resource for managers and employers seeking to comply with laws and manage workplace risks effectively. This user-friendly resource provides the law, contact information, HR tips, frequently asked questions, and forms. Contact Chris Lopez at 609-393-7707, ext. 224, to order your copy of this invaluable guide or order on-line at www.njbia.org. Prices: NJBIA members $80, nonmembers $115.

Employers Face Tax Withholding Changes for 2006

Employers face changes in tax withholding rates and taxable wage bases for 2006. Higher personal exemptions and standard deductions and revised tax brackets are reflected in new federal income tax withholding tables. The social security (FICA) tax will apply to an increased taxable earnings base. On the State level, the maximum taxable wage base will rise for contributions to the State Plan Temporary Disability Insurance, Health Care Subsidy Fund, Unemployment Insurance Fund, and Workforce Development Partnership Fund. The following rates and wage bases are applicable in 2006.

SOCIAL SECURITY (FICA)
• Maximum taxable earnings — $94,200 (up from $90,000).
• Employee and employer tax rate — 6.2% (.062).
• Self-employed tax rate — 12.4% (.124).

MEDICARE (HI)
• Taxable earnings — unlimited.
• Employee and employer tax rate — 1.45% (.0145).
• Self-employed tax rate — 2.9% (.029).

FEDERAL INCOME TAX
• Modified federal income tax withholding tables will be mailed to employers in federal Circular E, reflecting tax bracket, standard deduction, and personal exemption annual cost-of-living adjustments.

FEDERAL UNEMPLOYMENT (FUTA)
• The employer FUTA tax will remain 0.8% (.008), after credits, of the first $7,000 of each employee’s earnings. No Federal Unemployment Insurance Tax is imposed on employees.

NEW JERSEY WORKFORCE DEVELOPMENT, UNEMPLOYMENT INSURANCE AND HEALTH CARE SUBSIDY FUND TAXES
• Employee and employer State Unemployment Insurance, Health Care Subsidy Fund, and Workforce Development tax rates will apply to the first $25,800 of an employee’s earnings.
• For 2006, employees are subject to a 0.0425% (.000425) Workforce Development Partnership Fund tax rate. The employee Unemployment Insurance (UI) tax rate remains at 0.3825% (.003825) of taxable payroll.

NEW JERSEY TEMPORARY DISABILITY INSURANCE (TDI)
• Maximum taxable wages — $25,800 (up from $24,900).
• Tax rate for employees covered by the State Plan TDI — 0.5% (.005) of taxable wages.
• Employer tax rate for the State Plan is based on each employer’s claims experience.

NJ GROSS INCOME TAX
• Tax withholding rates for 2006 are unchanged.

Employee Benefits Rise in 2006

Employee maximum weekly benefits for Workers’ Compensation, Unemployment Compensation, and Temporary Disability are adjusted annually to reflect increases in average taxable wages of covered employees. Amounts applicable in 2006 are set forth below.

NEW JERSEY UNEMPLOYMENT INSURANCE
• Maximum benefit for benefit years commencing on or after January 1, 2006: $521 weekly (up from $503).

TEMPORARY DISABILITY INSURANCE
• Maximum benefit (State plan) for periods of disability commencing in 2006: $488 weekly (up from $470).

WORKERS’ COMPENSATION
• Maximum benefit applicable to temporary disability, permanent disability, permanent partial disability, permanent total disability, and dependency benefits awarded for injuries suffered in 2005: $691 weekly (up from $666).

Prepare Your Payroll the Easy Way

NJBIA is again offering the Rapid Finder Payroll Tax Deduction Tables, which provides easy-to-find combined New Jersey and federal tax deduction tables for employers with weekly payrolls. Cost is $27 for members and $37 for nonmembers. For details, call NJBIA’s Christine Lopez at 609-393-7707, ext. 224.

Quote of the Month

“We’re seeing a slowdown in an already sluggish recovery. That’s disappointing news for the New Jersey economy.”

NJBIA President Philip Kirschner commenting on the State’s employment decline in the month of October.