In recent years, the New Jersey State Legislature has considered passing legislation that would require employers to provide paid family leave. The adoption of such a measure would have disastrous effects on the State economy. New Jersey would become only the second state in the nation (after California) to adopt such a mandate.

Paid leave would substantially increase employers’ cost of doing business throughout the State. It would hit the small business community especially hard and make it harder for New Jersey businesses to remain competitive with companies in neighboring states.

However, proponents of paid leave continue to push for such a law. According to recent reports, the latest incarnation would require all employers to provide 12 weeks of paid leave to employees to care for a child or seriously ill spouse or parent. While specific legislation had not been introduced as of this writing, paid-leave funding would come from an increase in the taxes employees pay into the State’s Temporary Disability Insurance Fund (TDI).

While some proponents have said there will be no cost to employers and the increase to employees might only amount to a few extra dollars a week, employers should be concerned. The proposal will increase costs for small employers, who would be forced to hire temporary employees to replace workers out on paid leave. Larger employers would face similar increased costs and could also see their TDI rates increase if they purchase disability insurance through a private provider.

An additional problem is that the Temporary Disability Insurance Fund does not have adequate reserves to cover the costs that would follow from Paid Family Leave thousands of new paid-leave claims.

Like the NJ Unemployment Insurance Trust Fund, the TDI fund has been raided repeatedly over the last decade. Since 1993 over $473 million has been diverted from the fund to help pay for the State’s general operating expenses. Again, TDI exists for the benefit of those who are suffering from a disability that prevents them from returning to work. The proposal being discussed opens this fund up to nearly every employee in the State.
A paid family leave policy in New Jersey would only cement its reputation as a State that fails to reconcile its laws with the common practices in other states. NJ would become one of only two states in the country that require employers to provide paid family leave.

For years, NJBIA has warned the Legislature of the consequences of diverting employer payroll taxes from the Unemployment Insurance Fund (UI). This unfortunate bipartisan practice began over a decade ago and both parties share responsibility for it.

Since 1993, more than $4.7 billion has been diverted from the UI fund for a variety of purposes, including uncompensated medical care or what is commonly known as hospital charity care. In 2005, New Jersey diverted $350 million from the fund for this purpose. Unfortunately, this latest diversion has left the fund dangerously close to insolvency. The UI fund balance has fallen to a 20-year low of approximately $1 billion.

Even as $4.7 billion in UI funds have been diverted, UI benefits in New Jersey have actually increased every year. In New Jersey, weekly UI benefits are 60 percent of a worker’s weekly wages. The maximum benefit rate currently is $521 per week, which is greater than the benefits provided by the neighboring states of New York, Connecticut, Pennsylvania and Delaware. These benefits are even higher than in California or Michigan.

Due to the low fund balance, payroll taxes might need to be increased this year to keep the fund solvent. Such an increase could come as early as this
Diversions spring and would largely depend on two factors: the state’s unemployment rate and whether the Legislature will entertain yet another diversion as part of the fiscal 2007 budget.

The Administration of Governor Jon Corzine fortunately recognizes that the State should not continue to divert UI funds for expenses unrelated to jobless benefits or worker training. It recently issued a transition report that speaks frankly about the consequences. The report presents a grim outlook for employers:

“The UI trust fund cannot support any additional diversions for charity care. Even without a further diversion being included in the FY 2007 budget, current projections indicate that an automatic increase in the UI tax rates paid by employers will occur on July 1, 2007. It is important that the fund be allowed to replenish itself and that no further diversions be allowed for charity care.”
Other states have tried to avoid these large increases by issuing state revenue bonds to limit or avoid the costs of federal loans. Arkansas, California, Illinois, Massachusetts, Minnesota, Missouri, New York, North Carolina and Texas have issued bonds to cover the cost of insolvent UI funds.

NJBIA believes that the Legislature must end the diversions now. As indicated in the Governor’s Transition Report, even if the diversions are stopped this year, there is a high likelihood that taxes will increase in 2007. This could lead to a $400 million payroll tax increase. Next, the State must review its options to avoid an increase or soften the impact of such an increase on employers. New Jersey employers did not support these diversions. On the contrary, the business community has long recognized that this day of reckoning would come and has consistently opposed them. Finally, New Jersey must develop a plan to assist the businesses impacted by the looming tax increase.

Whistleblower Notifications (P.L. 2004, c. 148)
Employers are required to display the official State poster in both English and Spanish regarding the Conscientious Employee Protection Act (Whistleblower Law). In addition, this law requires employers with 10 or more employees to annually distribute written or electronic notice of the whistleblower law to employees. The law gives employers the option of posting and distributing this information in other languages, in addition to the required English and Spanish.

Minimum Wage Increase (P.L. 2005, c. 70)
Increased New Jersey’s minimum wage to $6.15 on October 1, 2005, with another increase to $7.15 to take effect on October 1, 2006. In addition, a Commission will make a periodic review of the minimum wage to determine if future increases are warranted.

Deterring Unemployment Tax Avoidance (P.L. 2005, c.239)
Designed to deter the practice of shifting employees to “dummy” corporations, this law protects law-abiding employers from those who try to hide their risk experience from New Jersey’s unemployment insurance regulators.

— 2006-2007 Legislative Session —
NJ Lawmakers Consider Mandatory Health Coverage, Work Breaks and Other Bills Costly to Employers

The 2006-2007 session of the NJ State Legislature is underway, and already a host of bills have been introduced that would increase costs for employers. NJBIA opposes these bills. Below are some of the more egregious examples.

S-1021 (Coniglio)
Requires employers to provide rest and meal breaks. This bill would require every employer to provide rest and meal breaks for both exempt and non-exempt employees. The bill provides that “no individual will be permitted to work” more than four continuous hours without a paid 15-minute break or more than 6 continuous hours without an unpaid 30-minute break. As amended, the bill removes unionized employees who are covered by a collective bargaining agreement with a break/work clause. This bill would be extremely disruptive for all workplaces and would give employers and employees less flexibility in managing their work hours. Status: pending Senate floor vote.

S-1005 (Sweeney)
Increases certain workers’ compensation supplemental benefits. This bill would cost employers approximately $200 million in increased workers’ compensation premiums in the first year alone! It is intended to provide a cost of living adjustment (COLA) for death and permanent disability. The bill attempts to cure an inequity in the system, namely that those who were injured before 1980 receive a COLA and those injured after 1980 are paid the maximum benefit for that particular year. However, this bill would cause disruptions and vastly increased costs to the system. Status: second referenced to Senate Budget Committee.

S-477 (Sweeney, Vitale)
Requires large employers with 1,000 or more employees to pay a specified level of medical coverage for full and part-time employees. Specifically, a draft committee substitute of this bill requires employers with more than 1,000 employees to provide health benefits with a value equal to at least $4.17 per hour to any employee who works 15 hours or more. If an amount equal or greater to this amount is not spent, then the employer will be required to pay a tax. The amount of the new tax will be the number of hours worked multiplied by $4.17 with the amount spent by the employer on that employee’s health benefits subtracted. The resulting sum would be paid to the Expanding Access to Health Care Fund and would be used to fund the State’s FamilyCare program. The effect of the measure is that an employer would be required to spend $3,253 for health benefits for an employee working 15 hours per week or $7,589 for those working 35 hours per week.

Finally, the bill authorizes other political subdivisions (i.e. state, county, municipality) to adopt minimum wage and benefit rates that exceed the State minimum wage rates. New Jersey’s minimum wage was increased to $6.15 on October 1, 2005, with another increase to $7.15 planned for October 1, 2006. Additionally, a commission is expected to review whether future increases are necessary beginning in 2007. The language in the substitute ignores the State plan adopted last year and simply permits local political subdivisions to increase hourly wages whenever they see fit. Status: Senate Labor Committee.

S-472 (Sweeney)
Requires employers to provide as much as six months notice before any plant layoffs or terminations. The bill applies to terminations for cause (e.g. due to theft, misconduct, etc.) or due to business closings or mass layoffs. It would be nearly impossible for businesses to comply with the lengthy notice requirements or the burdensome “look back” provisions. NJBIA has suggested making this bill more like the federal law which requires employers contemplating mass layoffs or plant closings to provide 60 days notice. Status: pending Senate vote.

New Jersey’s private-sector employers added a modest 35,400 jobs in 2005, a 1 percent increase, the NJ Department of Labor and Workforce Development (DOL) reported recently. This performance left New Jersey trailing the nation in job growth once again, evidence that the state remains mired in a sluggish recovery.

The DOL’s year-end report on NJ employment growth came even as the national economy was cooling. US gross domestic product, after ten quarters of solid growth, grew by just 1.1 percent in the fourth quarter of 2005. The slowdown—brought on by a sputtering housing market, a spike in energy costs, subdued consumer spending and a big trade deficit—has set economists to squabbling. Is the slowdown temporary or is it the start of a prolonged event that will take a big bite out of economic growth in 2006?

In the meantime, New Jersey continues to behave like an economic caboose, trailing the nation rather than leading it. For two years in a row, New Jersey has done poorly compared with the rest of the nation in its rate of private-sector employment growth.

In 2004, New Jersey added 31,300 private-sector jobs, making it 41st in the nation in its rate of job creation. The addition of 35,400 private-sector jobs in 2005 is marginally better, but it still leaves New Jersey lagging the rest of the country. Private-sector employers nationally added 1.8 million jobs in 2005, an increase of 1.7 percent, compared to 1 percent for New Jersey.

New Jersey did end the year on a moderately up note. Private-sector employment rose by 5,800 jobs in November and 2,600 jobs in December. Nonetheless, there is little evidence to suggest that the State has emerged from a see-saw pattern of weak and inconsistent job growth that has plagued it in recent years.

In fact, New Jersey still hadn’t recouped all of the jobs it lost in the last recession. Total private-sector employment at the end of 2005 remained 3,200 jobs below the previous peak of 3.43 million set in December 2000.
The pronounced weakness in the State’s current employment expansion has led Rutgers University economists Jim Hughes and Joe Seneca to declare it to be the weakest expansion in half a century.

Certainly, the current rate of job growth is well below the rates of growth seen in the 1980s and 1990s expansions, when 60,000 to 100,000 new jobs were added annually. Since hitting a cyclical low in March 2003, private-sector employment in New Jersey has grown by 83,200 new jobs. This works out to an average annual gain of only 30,255 jobs.

Employment growth in the current expansion has come mostly from construction and lower wage service industries. Over the last five years (December 2000-December 2005), the biggest percentage gains have come in leisure and hospitality (up 14.6 percent), education and health services (up 12.1 percent), and construction (up 11.3 percent). (See table for details)

But overall service sector employment growth, which was the workhorse of a robust period of job expansion in the 1990s, is flagging. It has grown by a mere 2.8 percent over the last five years, and there has been unusual weakness in high-paying sectors like professional and business services (down 2.1 percent) and trade, transportation and utilities (down 2 percent).
Most of the losses over the last five years have come in manufacturing (down 23.5 percent) and information services (down 31.9 percent), which includes computer technology and telecommunications.

This report was prepared by Christopher Biddle, NJBIA Vice President of Communications, he can be reached at 609-393-7707, ext 227.