New Jersey may be vulnerable to the next economic downtown, according to a new report released Tuesday by New Jersey Policy Perspective, just as it was with the Great Recession.
Authored by a practicum of Rutgers University Bloustein School of Planning and Public Policy graduate students, the report compared New Jersey’s preparedness for and response to the Great Recession to five other states: Connecticut, Illinois, Maryland, Massachusetts and North Carolina.
“Knowing how comparable states reacted during the Great Recession, and how those decisions have affected their overall economic recovery, is critical to understanding what options are available to New Jersey during the next economic downturn,” Sheila Reynertson, senior policy analyst at NJPP, said. “New Jersey had one of the slowest economic recoveries in the nation after the last recession. State lawmakers cannot afford to repeat those same mistakes.”
The report used a set of economic indicators to identify budgetary issues that made New Jersey vulnerable to the Great Recession and policies that helped other state economies recover.
“Our comparisons of policy and budget decisions across states and interviews with experts from each state suggested that actions taken before the onset of the Great Recession played an important role in the range of options available to states as they faced the challenges of the downturn,” Vineeta Kapahi, graduate student at the Bloustein School and co-author of the report, said. “Policy and budgetary decisions made before the recession ultimately influenced the strength and speed of each state’s recovery. As economists predict another recession in the near future, New Jersey would benefit from successful practices utilized by other states.”
A number of budgetary actions, including using nonrecurring revenues for recurring expenses, skipping pension payments, using debt for recurring expenses and not investing into the state Rainy Day Fund resulted in New Jersey’s particular vulnerability of the Great Recession, the report found.
“Looking at how New Jersey went into and emerged from the last recession, and how prepared it is now for the next economic downturn, it’s very hard to conclude anything other than a massive failure of state government,” Cliff Zukin, emeritus professor at the Bloustein School and report advisor, said. “Former governors of both parties are culpable, along with the complicity of the New Jersey Legislature, for some two decades. Residents of the state deserve much better from Trenton.”
The report also found specific trends in states with strong economic recoveries. States with well-funded Rainy Day Funds were able to get through the recession with less financial impact and states that raised taxes during the recession had to deal with more budgetary shortfalls in the future.
“The state has not done enough to prepare for the next economic downturn,” NJPP President Brandon McKoy said. “Lawmakers must act with a sense of urgency to make sure the state is positioned to successfully weather the next recession or natural disaster. On behalf of NJPP, I sincerely thank the Bloustein practicum group for writing this report and bringing these important findings to light.”
NJPP recommended that New Jersey raise revenue and invest heavily into the state’s Rainy Day Fund.
“Despite being one of the most educated and affluent states in the country, New Jersey ranks in the bottom five in debt and unfunded pension liabilities, in how long the state could run on what it now has in the bank, and was dead last in its total revenue as a share of expenses in 2017,” Zukin said. “New Jersey is as prepared for the next economic downturn as a skydiver without a parachute.”
