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Sunday, November 12, 2017

NJ's Uneven Fall in Births Foretells Starker State Aid Inequalities, Economic Stagnation


Since the 1980s the number of births in New Jersey has been steadily falling year to year, but not steadily falling place to place.

According to state statistics, The number of births in NJ peaked in 1990, when 123,125 babies were born in the Garden State.  Despite the overall growth in our population,  in 2015, only 102,199 babies were born here, a 17% fall.

The slowdown in births since 1990 has only had momentary and tiny letups since 1990. The number of births falls more steeply during recessions than in times of growth, but it hasn't completely rebound after recessions either.



Update: 99,549 babies were born in NJ in 2019, so the decline has continued.
Without going too far into the causes, I think there are two major ones:
1.  The disproportionate departure from New Jersey of Millennials, who are the largest generation in
Millennials Are Abandoning NJ.
American history.
2.  A cultural trend toward having smaller families in general.

New Jersey's Total Fertility Rate has fallen from 2.09 in 2007 to only 1.8 today, which is the 15th lowest in the United States.

Given that populations grow and shrink exponentially, the decline in the Total Fertility Rate will have accelerating demographic consequences for NJ.  If a society's TFR is 1.8 instead of 2.0, then in two generations it will have 19% fewer children, not 10% fewer.  (81% = 1.82/2.02)  Thus, the number of births in New
Jersey should decrease further as the steadily smaller cohorts of children born in the 1990s and 2000s enter their childbearing years.

So, unless there is a massive increase in immigration, the demographic challenge will not end.

(The difference in two generations between 2.09 and 1.8 is 25%.)

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As you would expect, the decline in births has been highly uneven.  Since 1990, Sussex County's births have fallen by 49%, from 2,274 in 1990 then to 1,154 per year today.  Warren has fallen by 45%, Hunterdon by 38%, and Monmouth by 30%.


199020002015Change Since 1990Change since 2000
Ocean62776542849435.3%29.8%
Hudson98288868103905.7%17.2%
Cumberland234820261958-16.6%-3.4%
Gloucester353831782805-20.7%-11.7%
Passaic841479366982-17.0%-12.0%
Middlesex10346105909313-10.0%-12.1%
Union7,6537,7276,782-11.4%-12.2%
Bergen10,50710,8979,413-10.4%-13.6%
Mercer507746724027-20.7%-13.8%
Atlantic4,0703,4212,936-27.9%-14.2%
Camden8,8697,0286,020-32.1%-14.3%
Essex144691215610294-28.9%-15.3%
Cape May1,3731,043881-35.8%-15.5%
Burlington5,9495,1864,353-26.8%-16.1%
Salem899811649-27.8%-20.0%
Somerset403144253297-18.2%-25.5%
Morris588264384717-19.8%-26.7%
Monmouth837980515849-30.2%-27.4%
Sussex227417781154-49.3%-35.1%
Hunterdon14871441916-38.4%-36.4%
Warren14491328792-45.3%-40.4%

The only two counties that have had growth in births are Ocean County and Hudson County, both of which are demographically and educationally unusual.

If Lakewood were excluded from the Ocean County count, Ocean County's number of births would have declined by 12% (there were 4,598 births to non-Lakewood Ocean County women in 2000 but only 4,030 in 2015)

If you know anything about Lakewood, you know that most of the children born to Lakewood-resident mothers will not go to public school.  The increase in the non-public student population will create strain on the Lakewood Public Schools for transportation and Out-of-District tuition, although the strain would not be as much as it would be if those students were enrolled in public schools.

Hudson County's family size is average, but it has a disproportionately large population of people of child-bearing age.  What I see as educationally unusual about Hudson County is that many of the parents there move out before their kids enter public school.

For instance, there have been over 1,000 babies born to women resident in Hoboken for the last five years, but the first grade cohort in Hoboken (charter and public), has about 350 kids.  Likewise for Jersey City - although not as extreme - there 4,300-4,400 babies are born per year, but the first grade cohort there has about 3,000 kids.

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Implications for Public Schools

Due to the fall in the number of births, New Jersey's student population actually peaked in 2005-06 at 1,393,782.  It has fallen now to 1,373,267.

That decline is only 1.6% and may not sound like a lot, but it occurred despite a lower drop-out rate, closings of Catholic schools, and some PreK expansion.  (source, NJ Enrollment Files)

The chart below shows the percentage change in births from 2000 to 2015.


There are many implications of the decline of births for New Jersey's public education system, state aid distribution, and the economy.

1.  The State Aid Distribution Will Become Even More Uneven

As the populations of rural districts fall, their formula aid will decline even more and be replaced by Adjustment Aid.  This enrollment decline will continue to push up the state's total of excess aid, even as the deficit grows for underaided districts.

SFRA, as it was written in 2008, does allow a district to lose state aid if its post-2008 enrollment loss exceeds 5%.  It is likely that more districts will encounter the enrollment loss threshold that allows some aid loss under SFRA's status quo.

Since the state has severe budgetary problems, the huge excess aid totals of permanently shrinking districts will be harder to justify when scores of other districts are severely underaided.

The distribution of PreK aid will also need to be redistribution.

Some districts will need more PreK money, like Hoboken and Jersey City.

 In 2015 there were 1,124 babies born to Hoboken mothers, up from 729 in 2005.  In 2015  there were 4,495 babies born to Jersey City mothers, up from 3,733 in 2005.)

On the other hand, other Abbotts have had a decline in births.  In 2015 Union City mothers only had 954 babies, compared to 1,119 in 2005.  In 2015 Pleasantville moms only had 303 babies, compared to 363 in 2005.

2.  Shrinking Areas Will Continue to Shrink

Consolidating New Jersey's rural counties into superdistricts won't just be a "could do" or "should do," but a "must do."  Cape May, Salem, Hunterdon, Warren already have fewer than 1,000 babies born per year, and Sussex is just 1,154 per year.

These five counties are New Jersey's smallest.
  • Sussex's total enrollment is 20,512.00
  • Salem's total enrollment is 10,906.50.
  • Hunterdon's total enrollment is 19,474.50.
  • Cape May's total enrollment is 12,583.00.
  • Warren's total enrollment is 16,443.50.
    And there's more contraction ahead for all of them.

    As districts shrink, many will find it difficult to sustain the classes and extracurriculars that most parents think their kids should have.

    As shrinking districts shrink further, their per student costs will become even higher.  If these districts actually lose Adjustment Aid, their taxpayers may not be able to make up the difference, since a district's fall in costs is not proportional to the fall in enrollment.

    (see "Sussex County Consolidation.")

    3.  The State's Economy will Face a Demographic Headwind

    Population growth isn't, by itself, a good thing, but it is something that an economy usually needs to grow and is, itself, a sign of economic growth.

    New Jersey already has the country's worst net outmigration rate and has 80,000 more people leave the state than it has new arrivals from other states.

    As New Jersey has smaller cohorts enter the labor force (and so many young New Jerseyans leave
    Source, http://bit.ly/2ib9Zmb.  NCES.
    anyway) employers may struggle to find enough workers.  Many employers who contemplate a New Jersey expansion or investment will decide against it, given concerns about the labor supply.

    The shrinking population will also harm the economy on the consumer-side, since there will be less aggregate demand, ie, less spending, less household formation etc.  Less aggregate demand equals less sales tax, less corporate tax etc for the Treasury.

    New Jersey's unemployment rate should stay low, which is a plus.  Housing prices will be lower than they would otherwise be, which is another plus.  Perhaps an equilibrium will be established by our net outmigration decreasing.

    But the state economy will grow very slowly and New Jersey will struggle mightily against its debts until there is a federal rescue or another round of pension cuts.

    37% of New Jersey college students already go to college out-of-state.  When the students look back home towards New Jersey in its death throes, it'll be hard to think of a reason to come back.

    After more NJ-born college students don't come back, the demographic headwind will become a hurricane.

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    State Aid Deficits and Surpluses are Dynamic


    The fact that NJ's population continues to grow in some places and shrink in others underscores how dynamic the state aid distribution is.  

    Given the continued decline of births in NJ - and outright collapse in some places - the districts in NJ that have lost enrollment over the last few years have not seen the end of it.

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    See Also:
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    2020 Update.  NJ's birthcount has continued to fall.


    Wednesday, November 1, 2017

    Having 21 Fortune 500 Companies Doesn't Mean NJ has a Strong Economy


    There are many ways to assess the a location's business climate, such as quality of workforce, quality of life, quality of transportation, access to capital, cost of living, proximity to professional services, litigation exposure, labor laws, and yes, tax rates.

    There are many groups who try to rank states by "Business Climate."   CNBC has a very broad based ranking that depends, in part, on economic growth itself.  US News's ranking relies entirely on innovation and entrepreneurship.  Forbes's ranking goes by low costs for things like energy and labor, lax regulations, and then "quality of life" thrown in too.  The Tax Foundation, for its part, has a ranking entirely focused on tax rates.

    New Jersey does terribly in the Tax Foundation ranking, coming in 50th place (dead last) for several years in a row.

    Jon Whiten, Vice President of the New Jersey Policy Perspective and NJ's most prolific economics commentator, doesn't dispute that NJ's taxes are indeed comparatively high, but he claims that low taxes can't be identified with "good business climate" and our high taxes aren't hurting the state.

    To construct an argument that New Jersey's taxes aren't damaging the state and taxes can go even higher, Whiten points out that 21 Fortune 500 companies are headquartered in NJ.  He adds that Fortune 500 headquarters are concentrated in other high-tax states too and that they are relatively absent from the lowest-tax states.

    In sum, Whiten says that the presence of 21 Fortune 500 companies here proves that "High-Tax States Are Great Places to Do Business."

    The latest update to the annual Fortune 500 list of the largest American companies was released this week, and 21 Garden State businesses made the list. It’s an impressive showing for a state that usually falls to the bottom of misleading national rankings that claim to measure how attractive different states are to business investment. In fact, most of these so-called “studies” are promoted by organizations that are not advocating for a truly stronger business climate but only for lower corporate taxes.
    Perhaps the most popular of these rankings is the Tax Foundation’s annual “Business Tax Climate” index. Business lobbying groups in New Jersey and anti-tax lawmakers frequently cite New Jersey’s perennial dismal ranking on this survey as proof that the Garden State’s taxes are stifling business investment and creating a drag on economic growth.
    But an interesting trend emerges when one cross-references the Fortune 500 with the “Business Tax Climate” index: The “worst” states in the Tax Foundation’s index have a disproportionate share of America’s largest corporations, while the “best” states hardly have any. ...
    In fact, not a single state that ranks in the top 10 of the Tax Foundation’s index has more Fortune 500 companies than New Jersey, which ranks dead last in the index. And the entiretop 10 states, with just 28 Fortune 500 companies, barely have more of these big businesses than the Garden State alone. [Whiten's emphasis]
    And then Whiten provides:



    While I don't think that tax rates are the end-all-be-all of business climate, neither are they unimportant, and I do see NJ's high taxes creating drag on the economy.  The fact that New Jersey has 21 Fortune 500 headquarters is interesting, but not important when it comes to the real measures of health of our economy.

    If having Fortune 500 Headquarters Vindicates High-Tax Economics, What Does Their Absence from South Jersey and Central Jersey Mean?

    As Whiten says, is tied for sixth place with Pennsylvania for having the most Fortune 500 companies, after New York (54), Texas (54), California (53), Illinois (36), Ohio (25), and then Virginia (22).

    But even if you agree with Whiten and you believe that the presence of Fortune 500 companies vindicates high-tax economics, the distribution of New Jersey Fortune 500 companies exposes NJ's economic weaknesses as well, as well as undermines the NJPP's constant denunciation of tax incentives.

    Of the 21 Fortune 500 companies in NJ, all but four are in northern NJ.


    NJ's Fortune 500 Companies, 2017
    Name & RankLocationFounding Year
    Johnson & Johnson, #35New Brunswick1886
    Prudential Financial, $48Newark1875
    Merck, #69Kenilworth1917
    Honeywell, #73Morris Plains1906
    PBF Energy, #172Parsippany2008, grew by acquisitions
    NRG Energy, #205West Windsor, Op HQ is in Houston1992
    Cognizant Technology Solutions, #205Teaneck1994
    Newell BrandsHoboken1903
    Becton Dickinson, #225Franklin Lakes1897
    Bed Bath & Beyond, #233Union1971
    ADP, #240Roseland1949
    Toys 'R' Us, #244Wayne1957 (is now in Chapter 11)
    Celgene, #254Summit1986, spinoff from Celanese Corp.
    PSE&G, #306Newark19th century
    Avis-Budget, #319Parsippany1940s, 1950s
    Campbell Soup, #339Camden1869
    Quest Diagnostics, #366Secaucus1967
    Ascena Retail Group, #384Mahwah1962
    Realogy Holdings, #449Madison1990s, 2006, Spinoff from Cendant
    Wyndham Worldwide, #461Parsippany2006, Spinoff from Cendant
    Burlington Stores, #463Florence1972

    Central Jersey has exactly two Fortune 500 headquarters, NRG Energy (actually a co-headquarters) and Johnson & Johnson.  South Jersey has two small ones, Burlington Stores and Campbell's.

    There is contrast between the Pennsylvania-side suburbs of Philly and NJ-side suburbs.  The PA suburbs have seven Fortune 500 companies and Allentown has another two. 

    Proximity to New York City might be an asset that companies will tolerate high taxes to have, but the farther away a location is from New York City, the less tolerant businesses are of NJ's tax premium.  The tax rates that Whiten defends do unequal damage to NJ; the parts near New York are less vulnerable than outlying regions.

    States are artificial entities and the presence of Fortune 500 headquarters means anything, it means something for the five counties in North Jersey alone that host 19 of them, not the entire state.

    Also, several of these companies only stayed in New Jersey or came to New Jersey under the tax incentives that Whiten loathes.  Newell came to New Jersey from Georgia after a $27 million award. Honeywell stayed for $40 million, NRG Energy stayed for $37.5 million, Quest Diagnostics stayed for $18.6 million, Burlington Stores stayed for $40 million.  Campbell's and the Prudential might have been bluffing on their threats to leave, but they have got large tax incentives too.

    Job Gains Count

    But I think counting Fortune 500 companies misses the forest for the trees because most job creation takes place in small businesses, subsidiaries, US branches of multinational companies, back offices, and the headquarters of big businesses that are below the Fortune 500 cutoff.

    Even headquarters themselves do not necessarily have many employees.  Only nine of the 21 Fortune 500 companies in New Jersey even appear among New Jersey's 100 largest employers and that includes retailers like Bed Bad & Beyond and Toys 'R' Us and service employees at Quest Diagnostics.  NJ's biggest company is Johnson & Johnson, but J&J is down to 9,600 New Jersey employees out of 127,000 worldwide.

    If you look at comparative jobs gains from the start of this decade, the lowest-taxed states have done better, so the contention that high taxes are "stifling business investment and creating a drag on economic growth" doesn't seem to be invalidated to me no matter how many Fortune 500 company headquarters high-tax states have.

    From Q1 of 2010 to Q1 of 2017:

    Source, https://www.bls.gov/cew/datatoc.htm. Jobs include public sector + private sector.
    Note, WY, AK, and LA are affected by swings in energy markets.

    New Jersey actually does even worse if you look at business creation than it does in overall job gains.  According to the Bureau of Labor Statistics's "Establishment Count," New Jersey only gained 2,260 private-sector businesses from 2010 to 2017 (264,287 to 266,547), or 0.9%.  The US gained 10.9%.

    The salary of jobs counts as well, and here NJ does terribly. According to Richard Hughes of the Bloustein School at Rutgers, since the Great Recession NJ has approximately 100,000 fewer jobs paying above-average wages and 135,000 more jobs paying below-average wages.

    That's great that Jon Whiten thinks New Jersey is still a "great place to do business" despite its high taxes, but real businesses aren't convinced and there are fewer well-paying jobs here than in the past.


    Of course the fastest growing states listed here have advantages other than low-taxes, like lower costs-of-living for non-tax expenses, warmer weather, and right-to-work, but the lack of Fortune 500 headquarters seems to not reflect meaningfully on their economic health, nor does the presence of Fortune 500 headquarters reflect health for New Jersey.

    Utah's economy grows by over 3% a year, but it has zero (0) Fortune 500 headquarters.  Utah's economy thrives in nearly everything, including high-salary fields like technology and finance.  I doubt the lack of a Fortune 500 headquarters matters to many people there.

    Likewise, I don't think that New York State's 54 Fortune 500 headquarters matters to anyone living in Buffalo, since New York City is a world away from that part of New York.  While Upstate New York might be part of the same state as dynamic, booming New York City Upstate New York suffers from significant economic erosion and population loss.

    Despite it having the high taxes that Whiten believes lead to growth, Upstate New York is in permanent decline.  Depending on the year, Upstate New York only has 2-4 Fortune 500 headquarters (Corning, Constellation Brands, newcomer Wegman's, and M&T Bank off-and-on).

    If Upstate New York were an independent state, it would have fewer Fortune 500 companies than any other state bordering the Great Lakes.

    The Disproportionality is Partly a Coincidence

    Whiten is factually correct that NJ and the nine other highest-tax states have dramatically more Fortune 500 headquarters than the ten lowest-taxed states, but then again, this is something you would expect based on the fact that the highest-taxed states's population is 240% as large (102 million versus 42 million) as the lowest-taxed states.  On a per capita basis there is still a disproportionality, but not as wide as the raw-numbers comparison that Whiten uses.

    This trend of the ten highest taxed states having a lot more Fortune 500 companies than the ten lowest taxed states is also partly a coincidence created by the Tax Foundation's rankings, because if you look at the next five highest-taxed states and the next five lowest-taxed states, the next five-lowest taxed states have more headquarters than the next five highest-taxed states.


    Comparing the Next Five Highest-Taxed and Next Five Lowest-Taxed States (ranking by the Tax Foundation)
    # of Fortune 500 Comps# of Fortune 500 Comps
    Total Ten Highest Taxed199Total Ten Lowest Taxed28
    Georgia17North Carolina12
    South Carolina1Michigan19
    Arkansas7Tennessee11
    Wisconsin10Texas54
    Iowa2Missouri10
    Total Next Five Highest37Total Next Five Lowest106
    Total 15 Highest236Total 15 Lowest134


    So the next five highest taxed states only have 37 Fortune 500 companies, but the next five lowest taxed states have 106.  To be sure, the fifteen highest taxed states still have more Fortune 500 companies (236) than the 15 lowest taxed states (134), but the gap isn't nearly as wide as between the highest-taxed ten and lowest-taxed ten.

    Whiten "Don't even think of cutting taxes!"

    Whiten closes his argument with a warning against tax decreases.

    The bottom line: Despite the drumbeat of anti-tax groups and politicians, there is a long list of factors – like location, workforce, quality of life and more – that are far more important to most businesses than low taxes. And in a cruel and ironic twist, the more our elected leaders travel down the tax-cutting path, the less money there is to ensure the state is nurturing these far more important assets.
    There's a lot to unpack here, but a state can have a good location, good workforce, and a good quality of life without having high taxes.

    Location is completely independent from taxes, since states are immobile parts of the North American continent. Raising taxes would not "nurture this important asset" since New Jersey is immoveable.

    Contra Whiten, what is mobile is a workforce.  Hence the thousands of New Jerseyans, Illinoisians, Upstate New Yorkers, and Connecticutians who leave every year to get jobs or retire elsewhere.

    Of course quality of life counts, but for many workers, quality of life includes the ability to save money for retirement and children's educations, which are better met in lower-taxed states.

    The thing that Whiten doesn't like to explain is how New Jersey can already have good schools, already have a good location, already have a highly-educated workforce and yet still have decades of economic underperformance behind it.  
    Whiten would probably blame our problems on Christie's neglect of NJTransit, but the parts of New Jersey that are doing the worst - like South Jersey and northwestern New Jersey - don't have train service into New York as it is and New Jersey's economy lagged the nation in the McGreevey-Codey-Corzine years too. 
    I agree that NJ is hurt by a high non-tax cost of living and I think Pennsylvania's own stagnation is evidence that taxes aren't the end-all-be-all of business climate, but I find it hard to believe based on NJ's recent economy history, polls of business owners about taxes, and my own anger at our sky-high taxes, that taxes aren't stifling economic growth in this state.
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    See Also: