State's Sluggish Recovery Means More Bad News for Municipalities

New Jersey has fared worse than the country at large during the three-year economic recovery, a trend not expected to change anytime soon, making the future challenging for municipal governments.

That’s the message municipal officials heard yesterday at a forum sponsored by the New Jersey State League of Municipalities Educational Foundation. The half-day seminar, held at the Edward J. Bloustein School of Public Policy at Rutgers University in New Brunswick, was designed to help officials understand the economic landscape and consider options for dealing with slow growth.

But speakers offered more bad news than solutions.

"More people in New Jersey believe in the tooth fairy than that the economic recovery exists," said James Hughes, dean of the Bloustein School. A report he co-authored for the seminar, "Year 4 of Economic Recovery: New Municipal Realities to Come," shows New Jersey has regained only 85,000 of the 248,000 private-sector jobs lost during the recession and beyond.

Patrick J. O'Keefe, director of economic research with JH Cohn Accountants and Consultants, said that as of May, the state had 1.4 percent fewer jobs than at the start of the millennium, compared with the nation overall, which has 1.7 percent more jobs than in 2000. If the state continues to add about 5,000 jobs a month, it will take three more years to reach pre-recession job levels.

"Over the last 10 years, New Jersey has underperformed the nation as a whole; that is where we need to pay more attention,” O'Keefe said.

A major reason that the state's recovery has been slow is that a disproportionately large part of New Jersey's $487 billion economy is in the service sector. Nationally, manufacturing is surging, but the state's manufacturing segment is minimal.

The commercial real estate market also continues to suffer, with the vacancy rate for commercial property hovering around 18 percent since 2002, said Gil Medina, executive managing director of Cushman and Wakefield and a former state commerce commissioner. The only thing preventing that vacancy rate from worsening has been the near total lack of new commercial construction. He called the changing economic conditions “a paradigm shift.”

The state’s shifting demographics may also it even harder for communities to navigate the new economy.

Boom-Boom

Baby boomers, those born between 1946 and 1964, are becoming senior citizens. They are looking to downsize their homes but will be demanding greater services, said Hughes. At the same time, 20- and 30-somethings prefer higher-density housing in more populated areas and they are less interested in driving -- more than a quarter of so-called echo boomers do not have a driver’s license.

The result, said Hughes, is that the suburban McMansions that were a staple of the housing boom over the past two decades are becoming “historical artifacts.” O’Keefe said home ownership rates in New Jersey peaked in 2005 and have been dropping ever since -- fewer than six in 10 housing units in the state were owner-occupied in 2010. The number of building permits issued last year was less than half of what it was in 2005, and more than 50 percent of those were for multifamily dwellings.

“No municipality in New Jersey is going to be immune to the implications,” O'Keefe said.

Meanwhile, home prices are at 2004 levels and owners living in houses assessed at higher amounts are seeking to recompense for that lost value through tax appeals.

Thomas Neff, director of the state's Division of Local Government Services, said a record 113,000 tax appeals were filed in 2012, 28,000 more than the previous year. Last year's appeals resulted in a $4 billion loss in ratables. The losses in 2012 will likely total $5 billion.

“Taxpayers are very, very angry,” said Martin Allen, real estate tax counsel to a number of municipalities.

He said tax courts are so backed up that appeals filed today are not likely to go to trial until October 2014. The result is more towns agreeing to settle cases to avoid litigation costs.

Continue reading on NJSpotlight.com.

NJ Spotlight is an issue-driven news website that provides critical insight to New Jersey’s communities and businesses. It is non-partisan, independent, policy-centered and community-minded.

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