As New Jersey emerges from the pandemic, many questions remain about the economic recovery of the state's individuals and businesses — as well as the state's budget and finances. We sat down with Senator Steven Oroho — the only CPA in the state legislature — to discuss the economic outlook, the $6.4 billion New Jersey is receiving from the American Cares Act, state taxation of remote workers and more.
Jeff Kaszerman: Hi, I'm Jeff Kaszerman, vice president of government relations at the New Jersey Society of CPAs, and welcome to episode 72. As we all know too well, the coronavirus pandemic has wreaked personal havoc on the people of New Jersey. It has also devastated the state’s small businesses and the economy. But as more and more people get vaccinated, businesses are reopening and the economy seems to be picking up. On top of that, New Jersey just received a whopping $6.4 billion from the American Rescue Plan. So, what happens now? Where is the economy headed? What should the state do with the billions it received from the feds, and what can New Jersey do to help businesses get back on their feet? I'll be discussing all of this with Senator Steven Oroho, who represents New Jersey’s 24th legislative district and is the senior Republican on the Senate Budget Committee. We are proud to say that Senator Oroho is a CPA and a long-standing NJCPA member. And he knows more about fiscal and financial issues than probably anyone in the Legislature. In addition to serving in the Legislature, he has a full-time job as a financial planner for Stonebridge Capital Management. Senator Oroho is respected by — and works well with — both sides of the aisle. In fact, he has an excellent relationship with Senate President Steve Sweeney, even though Sweeney is a Democrat. On top of all of this, Senator Oroho is just a really great guy. What more could you ask for in the only CPA in the Legislature? Welcome Senator, glad to have you as a guest again.
Senator Oroho: Hey Jeff, great to be with you, thank you very much.
New Jersey and National Economies
Jeff Kaszerman: With the devastation wreaked by the coronavirus pandemic, the economic outlook is top of mind to millions of individuals and probably every single business owner in the country. So, since I know you’re a CPA and a financial planner, let’s start with the economy. We surveyed our members in May, and we asked them if they thought that economic conditions in the United States for the rest of the 2021 will be better, about the same or worse than the first five months of 2021. Forty-four percent said better, 26 percent said about the same and 30 percent said worse. But two prominent investment banks have a somewhat different view. Goldman Sachs predicts the U.S. economy will grow 8 percent this year and unemployment will drop to 4 percent by the end of the year. And the CEO of JP Morgan Chase predicts robust recovery through 2023. So, our members don't seem to be as optimistic as the investment banks. Senator, where do you think we’re headed?
Senator Oroho: Well, Jeff, I do agree that we’re going to see additional growth. I don't know if New Jersey... I guess, the investment banks are probably looking more across the country. I do expect New Jersey will have some growth as well. And certainly, coming out of the pandemic, New Jersey has had some of the most draconian lockdown provisions in the country. So, I think, in any kind of scenario, there’s going to be some growth. Now, there’s a lot of small businesses, that quite frankly are, I'm sure, either completely out of capital or running low on capital, so that certainly would have an impact of somebody having a little bit more of a dire outlook, because their timeframe is, “If I don't get going shortly, I'm going to be out of business.”
Jeff Kaszerman: Right, right. So, we also asked about the economy here in New Jersey, and our members that we surveyed were even more pessimistic than they were about the national economy with only 35 percent saying they expect the state’s economy to improve during the remainder of 2021. And more than 60 percent said that “state and federal policies unfriendly to businesses” is one of their top three challenges. So, what do you think are the three most important actions the state could take over the next year, next 12 months, to help small businesses?
Senator Oroho: Well, Jeff, thank you very much. And quite frankly, there’s a reason why the New Jersey businesses are more pessimistic, because when the CARES Act money came out, obviously that was to be used specifically to help our small businesses and nonprofits. And unfortunately, the Murphy administration held onto the purse strings for way, way, way too long. And now we have the American Rescue Plan coming, and I do think that the first thing they can do, because July 1, I know the Murphy administration and a majority part of the Democrat party is basically saying there’s no tax increases in the budget this year, it’s an election year budget type of thing. But that’s not really true, because there is a taxing, it’s just not in the budget itself and it’s the Unemployment Trust Fund and that’s going to hit all businesses. So, the first thing we can do, and the Senate Republicans, I mean, the Senate Republicans have been saying for a long time, along with our business community, has been saying for a long time, get money into the Unemployment Trust Fund. Now, we do have, right now, a no-interest loan from the federal government, so the idea of trying to get money right away into the Unemployment Trust Fund before July 1, before that tax increase, would be a significant improvement for our small businesses. So, I think that’s the first thing that they can do. The American Rescue Plan, obviously we had a significant amount of money in there, along with the CARES Act money. A lot more money could have gone directly helping our small businesses or nonprofits, so that’s the next thing we could do. And I would say the third thing, and I actually have more than three, but I'll go with three.
Jeff Kaszerman: I knew you would.
Senator Oroho: I’ll go with three. We got to get our schools open, because our small businesses need employees to come back and unless our schools are open, they can’t go back.
Funding from the American Rescue Plan
Jeff Kaszerman: Now, as you alluded to, New Jersey's receiving an incredibly huge chunk of money from the American Rescue Plan, about $6.4 billion, and what I think some people are forgetting is that our local governments are also going to be receiving a lot of money, about $4 billion, and this money has to be spent over the next three years. So, since this money can’t be used to pay down debt or reduce taxes, how do you think the state should spend this money?
Senator Oroho: Well, Jeff, thank you. And this is something, the Senate Republicans actually put out a plan. Now, there are different ways. Right now, the state has a significant cash surplus on hand. So, it started with the funds that they received, what we said was completely unconstitutional borrowing, of about $4.3 billion. Obviously, that money is still sitting there. Unfortunately, they made it non-callable for 12 years, but some of the cash we have, there is an ability, that I think, the fees, some of the debt that’s out there, essentially set up a sinking fund or some sort of lock box that we can help offset some of the debt.
Now, with respect to the American Rescue Plan, we actually did put out a very detailed plan and basically said we would take two and a half billion of that and like I said, the first thing in the three things we talked about for small business, is put it into the Unemployment Insurance Trust Fund. And what that will do is, allow us to pay off the federal loan, as soon as it starts to become an interest bearing, then we should pay it off. And I think that’s sometime in September, right? But then also, the extra, say, a billion and a half, over the next three years to help eliminate a tax increase. Now, the Legislature did spread it out over a three-year period and the Governor did sign it, but it’s still a major tax increase on our businesses to get our Unemployment Trust Fund back in decent shape. So, we can easily, and that’s very clear that that money can be used for that, so that’d be the $2.5 billion. Yeah, we’d say another $’.5 billion for capital projects.
Jeff Kaszerman: Wait, I'm sorry. Did you say $2.5 billion could be put into a sinking fund?
Senator Oroho: No, that was something I had said before with respect to some of the other cash that’s already around.
Jeff Kaszerman: Okay, gotcha.
Senator Oroho: Particularly that $4.3 billion of cash that was unconstitutional borrowing, right? And then, so now talking specifically about the American Rescue Plan, you got the $2.5 billion I told you about as far as putting it into the Unemployment Insurance.
Jeff Kaszerman: Okay, got it.
Senator Oroho: And then another, say, $1.5 billion over a three-year period that we can use, because it can be spent over a three-year period, for capital projects, for state projects. You got school projects that it could be used for. We all know that we have very significant issues in some of our schools around all areas of the state. Another billion dollars we would say would go directly for businesses and our nonprofits and some with the EDA programs that have been out. The EDA, I think, has done a pretty good job of getting the money that they have out to the program, but they only can give out what they receive. Unfortunately, the programs have been way over subscribed and they are woefully underfunded. So, I would say, you got at least a half a billion, right around there that, we all know that state computer systems are horrible.
Jeff Kaszerman: Oh, yes.
Senator Oroho: And listen, I've been, in terms of the Legislature, we’re 25 years behind business, so there’s no need to create a new roadmap. But the investment has to be there. All you have to do is look at the Motor Vehicle situation, the unemployment insurance programming and so many other, our 911 watch systems and stuff. And that’s clearly things that can be used. Then we had, we would say, another half a billion approximately for expanded mortgage and rental assistance for landlords as well as tenants. Not everybody has been significantly affected, but those who have been significantly affected by the pandemic, you got potentially utilities shut off, so there’s a number of things, I think, for those people who have been affected by the pandemic. Now, unfortunately with some of the moratoriums, and we know this as financial planners and CPAs and whatnot, that a lot of times if somebody is given the ability not to pay a bill, even if they can pay a bill, they’ll use it for something else. And unfortunately, I think the state, in not being strict enough as to who qualifies for some of these programs, has created an unintended hazard for these people, that quite frankly, now when the Governor lifts the moratoriums, they had the money at the time, now all of a sudden they’re going to be faced with a big bill and now they don’t have the money, because it went someplace else.
Jeff Kaszerman: Right. As a financial planner, I’m sure you warn your clients all the time not to do that kind of thing, but I’m sorry, I digress.
Senator Oroho: Absolutely. Right, very, very true. And the last thing I would say is, probably about the last half a billion or whatever money is left, it’s actually in the hundreds of millions, we have about 200 school districts that are getting cut in school aid, because of the changes in school funding, the S-2 program, and this is not a time when any school should be having any kind of cuts in aid. Listen, I'm all for fiscal discipline and responsibility, but we all know that this has been a heck of a period, so I do think that for a period of time, that we should hold our schools across the state at least at the same level, so that they’re not, quote, unquote, using existing operating cash for some of the additional expenses that they have to do right now, because of the pandemic. Those are numbers that we can adjust a little bit here and there, because as you said, a lot of the local schools and the municipalities and the counties, received a significant amount. So, we have to be flexible in that area, but we don’t want to see any... I don’t want to see any of our schools losing or not taking the appropriate steps to actually keep our students or our teachers safe.
Jeff Kaszerman: Right. And I would assume that $4 billion or so going to local governments, that a lot of that will be used for schools. Okay, yeah, so maybe we’ll have a year where property taxes don't go up as much, though somehow I doubt that. I was surprised to learn last week that the American Rescue Plan funds can be used by the Governor unilaterally without any legislative approval. However, there has been an outcry from legislators of both parties that they want to have a say in how that money is spent. So, do you think legislation will be passed as part of the budget to allow legislative input or is this going to be another one of those long, drawn-out fights between the Governor and the Legislature?
Senator Oroho: No, Jeff, that’s very interesting and I was there when there was this surprise and this is an issue we’ve brought up many, many times, because it’s interesting, there is wording in the budget, the Appropriations Act, that basically says it’s really meant for states and situationally, such as Super Storm Sandy. Something comes in very quickly, you’ve got to be able to make decisions very quickly. And in the early part of this pandemic, I would say that was true as well, right? But the Legislature working with the Governor, we showed that we could do things pretty quickly. But the real concern is that there is language in the Appropriations Bill that gives the authority to the governor. And that’s any governor, it's not just the Murphy administration, it goes way back. And basically it says that they can use any money coming in case of emergency from the federal government at their sole discretion. The only thing we’ve got to do is take that wording out. And then, because the Legislature has the responsibility, constitutional responsibility, for appropriations. So, there can be wording that said specifically for a specific period of time. I want to be very, very careful, because when the Appropriations Bill, and that’s why I think the easiest thing to do is just strike out the wording completely and the Legislature will react quickly if the Governor needs it. Because, in any Appropriations Bill, the way it works is when it gets to the Governor’s desk, the governor can line item veto. And what that means is, the Governor can reduce amounts, numbers, the Governor can’t add anything in, but they can also strike out words. So, in a number of times the Governor’s administration can get pretty cute, by just striking out specific wording to give a sentence a completely different meaning. So, I just think it’s easy enough, just take it out, we could put in wording that the Legislature will act in an expeditious manner in the event that there is a recurrence, and say, specifically with respect to COVID-19.
Jeff Kaszerman: Do you think the Legislature will do that, what you just said?
Senator Oroho: Yeah, I’m hoping that’s what they do. I know, certainly, Chairman Sarlo on the Budget Committee has been very adamant, and he’s probably said it almost at every single budget meeting with the Treasurer, when the Treasurer has been there. So, he has voiced significant concern about that. I know Senate President Sweeney feels the same way. So, I am hoping that we can, like I said, just strike out the wording or put into wording that the Legislature will work expeditiously with the Murphy administration or the governor’s administration. If there happens to be another state of emergency, with respect to, we can name them, if it happens to be a hurricane or something like that, that’s a different kind of story, in a situation where Super Storm Sandy came about.
Jeff Kaszerman: Well, one last thing on this issue. Has Governor Murphy indicated any resistance to this idea of sharing responsibility for the money?
Senator Oroho: I don’t recall any kind of public comment from the Governor, but I will tell you, any governor is going to say they don’t want to share much responsibility, that they look at... And it’s the same argument we have, that I've been saying for a long time, about we’re a coequal branch of government and we shouldn’t be on the sidelines, we should be in the game.
The Hiring Crisis
Jeff Kaszerman: Right, right. Okay, so as you know very well, I’m sure, businesses are having a very hard time finding low-wage workers, like restaurant and retail employees, having a hard time getting them to come back to work. Many of these folks are receiving $300 weekly in federal unemployment benefits, which is going to continue to September, so you really can’t blame them for choosing to get paid to not work. I think about that every now and then. That being the case, how do we deal with this labor shortage? Is there anything the state can do?
Senator Oroho: Well, I think first of all, I think what the state can do is a number of parents are at home, because there’s been the hybrid school situation and we really do have to fix the daycare situation. And I really do congratulate Senator Sarlo and Senator Ruiz and Senator Singleton, at the beginning of the process, when the Murphy administration really wasn't having any kind of like reopening meetings or anything, we held some public hearings. Senator Sarlo chaired them, and the first meeting we had was on the childcare situation. And after that public meeting, the Murphy Administration did relax its mandates, so that many of them could open up, at least on a limited basis, and they continued to relax the restrictions. But that’s a major issue, so people have to be able to go back to work, and that means that your children have to be cared for somewhere, that being school or daycare, or even obviously during the summer. And I know the summer camps will be open, but there has to be the ability for a parent, you can’t be leaving the children home alone, that’s for sure. And I think that’s one of the critical things we have to get done. The other thing is, in New Jersey, the idea of collecting unemployment is you had to demonstrate that you were ready, willing and able to go back to work. And, unfortunately, the administration has relaxed those rules and you’ll see everybody that’s out there, all the signs are out there, help wanted all over the place. And quite frankly, it’s time that we go back to that standard about being ready, willing and able to work if you’re going to certify that you’re still in unemployment, right? And I think that’s a critical issue. And once, obviously, some of this other money that gets out under the American Rescue Plan, quite frankly, that will help, I think, the situation as well.
Jeff Kaszerman: Yeah, I know I went to a restaurant nearby on a Friday afternoon for lunch on a day off — and I’ve done that a lot of times before coronavirus, usually no wait at all or five minutes. There was an hour-long wait and I’m sure that is because they didn't have enough people there, so it's affecting me personally, so we've got to put an end to this.
Jeff Kaszerman: So, liberal groups and legislators that don’t buy the argument that people and businesses are fleeing New Jersey due to high taxes, they’re citing new census data that just came out showing that the population of New Jersey grew by half a million people over the last 10 years. So, what’s your take on this? Doesn’t this demonstrate that there really isn’t any outmigration problem?
Senator Oroho: Well, first of all, just using population as a gauge is not really the best gauge. The best gauge is what’s happened with capital streams like the net worth. And there was a study done by Boston College a bunch of years ago, and that’s really something that I would hope a research group, or maybe Boston College, and I think it was done by, I think it was the Chamber of Commerce and I think it was also done by some of our nonprofits, because they were losing a bunch of charitable contributions. And that showed the issue of population, but it also showed the capital flows in and out of New Jersey. And I would hope that somebody would take up that study again. The population is not necessarily the best indicator. I do think one of the reasons why, maybe capital has gotten better, and I do think it does affect the population as well, is that a number of years ago, we eliminated the estate tax. We got rid of the estate tax. And the other thing we did and this, obviously Senator Sarlo, myself, Senator Sweeney, we all worked on a bipartisan basis and eliminated the estate tax. We also raised the retirement income exclusion to $100,000 for a couple filing a joint tax return. We also raised it commensurately for somebody who was single, single household and whatnot. And then, the other thing we did was raised the veteran’s exclusion for personal exemption. And so, those are things that we had done, and I actually think that that has had a favorable impact on our sales tax numbers. I think it’s had a favorable impact on our income tax numbers. And I think once some more of the data, the granulized information about the census data, as well as, I’ve said that the issue of capital flows is probably, I think, the best indicator of anything. But, I do think that from a positive standpoint, the elimination of estate tax, raising retirement income exclusion, which was a big, what can I say, strategy and objective for Senator Sweeney. And I'm hoping that we can raise it still again. I’d love to see us get rid of any kind of tax on any kind of retirement, because keeping our senior population here is, first of all, I think it’s one of the reasons why during the pandemic, many states and New Jersey, didn’t do nearly as bad as people had predicted, because people who had disposable income, they spent it and they really did help. They really did help those businesses who were able to squeak by.
Jeff Kaszerman: I forgot to mention this at the beginning, but in that survey that we did of our members, and this sort of goes along with what you just said, even if there has been an increase of half a million people, 70 percent, I think, said that they are seeing a decrease in the number of high-income clients. So, I think the issue is, sure, more people may be coming in, but more high-income people are leaving and-
Senator Oroho: That’s a major concern.
Jeff Kaszerman: I mean, just having, and you’re the financial planner, so you can help me with this, it's something I’ve been wondering about. If you have 500,000 people coming in, and then, let’s say, you have 20,000 wealthy people leaving, I would think, and this could be totally wrong, that the 500,000 people coming in, sure, that’s more revenues going to the state, but there’s also a lot of state spending on those 500,000 people. Whereas the 25,000 people who was just leaving were bringing an awful lot of income, who are taking a lot of income with them that’s taxed at a higher rate, don't require as much state spending, so you’re really mainly just losing those 20,000 people and their money. Does that make any sense?
Senator Oroho: Oh yeah. No, that’s been a big issue for a long time. And I think I’d have to look back at the statistics, but I think 1 percent of the taxpayers pay nearly 40 percent of the income tax.
Jeff Kaszerman: Yes, you’re right. I thought about that.
Senator Oroho: So, there’s always an issue of mix of, if you lose in the higher earners and obviously you’re bringing in... Listen, New Jersey is a very welcoming state, but it’s just a matter of fact that the higher-income earners provide the resources in order to provide the safety nets and whatnot, so therefore, you absolutely have to keep those kinds of... And we had, remember that one year, one of the individuals had left, and it was the first time, I think, I ever heard Office of Legislative Services say when that individual left, that one individual, who’s going to have a big impact on the state budget and that’s just giving one example. One example. I understand that individual may have come back and we’re glad to have him back.
State Taxation of Remote Workers
Jeff Kaszerman: Yeah, he lives in the town next door to my town. Let’s turn to taxes and something you’re very involved with, which is state taxation of remote workers. What’s the status of New Hampshire’s lawsuit filed with the U.S. Supreme Court in which they contested Massachusetts’ taxing of New Hampshire residents who are working online from home. Has the Supreme Court indicated if they will hear that case?
Senator Oroho: The last thing, Jeff, I know about this, right now in update, is that they haven’t indicated just yet, but they have asked, from what I understand, the attorney general's office, to weigh in on the issue or get some information on the issue, which I think that shows that they know that this is a very significant concern for a number of states. It affects, if you take a look at it, it probably directly affects over, I'm understanding, over two million people. But in those states that it affects, because — just take the case of New Jersey, you said 2 billion. And that’s probably, I think, that's right around the right number, because I think it’s clearly about a billion dollars a year issue and I think it’s an issue that's not going to go away. More and more people will... So, it probably affects about 100 million people, because those states are, particularly a state like New Jersey, 9 million people, you have about 400,000 people that are going across to work in New York and they pay about $4 billion worth of taxes. Those 400,000 pay about $4 billion worth of taxes to New York. And so, and let’s just say 25 percent of that would be allocated to New Jersey. That’s a billion dollars right there, okay? And obviously, when I talked to some of the bus companies around here lately, I said, “What's your average ridership right now?” They said like 10 percent. So therefore, it's 90% of the people. And we do know that for a long period of time, most people were working remotely, so it’s a huge issue. So, the Supreme Court hasn’t indicated just yet, but, Jeff, there’s more things that New Jersey should be doing and not just waiting on the Supreme Court, because New York is extremely aggressive and New Jersey is very passive. And I’ll just give you one case, and something we can do immediately to help everybody and particularly those employees who would then save money. New Jersey still has, on its Division of Taxation, the instruction basically telling New York employers to continue withholding New York taxes. And go back to last April, April 2020. I'm sorry, not April 2021, April 2020, I actually asked the Murphy Administration, “Why do you have that in there?” Because they said, normally the way it works, if you’re in New Jersey, you allocate the income to New Jersey and you allocate days to New York, the other days that you’re physically in New York. New Jersey actually has an instruction that says, we are basically going to change that for the temporary period. And told the employers, “Continue sourcing the income as you normally do.” Which says, “New York keep withholding taxes on New Jersey residents.” This is no temporary situation. It hasn’t been temporary. And unfortunately, as I said, New York has always been very aggressive and let’s face it, Governor Cuomo knows the more money he gets from people from out of state, the less money he has to get from his own people. And I am so passionate about this, because, Jeff, this is a billion-dollar issue. It’s going to continue to be a huge issue, because... I read an article today that said 70 percent of the people are going to be asking their employers to allow them to have more telecommuting. Maybe not full time, but at least a decent percentage of time. And this is real money, and what we use this money for, Jeff, you want to talk about helping our property tax relief? That money goes into the property tax relief fund, which is K-12 education, homestead rebate and senior freeze program. That’s all property taxes.
Jeff Kaszerman: Right, right. So, Senator, I know you have a very busy schedule today, as well as the rest of the week, so I want to thank you for being with us again today. It’s always a pleasure to have you on. You are one of our favorite legislators.
Senator Oroho: The only CPA.
Jeff Kaszerman: The only CPA. Well, we would love you anyway. Anyway, again, thank you and I want to let you run on to your next appointment.
Senator Oroho: Jeff, thank you so much. It’s always a pleasure to be with you guys. Thank you.