The banking crisis has rattled markets over the past couple weeks, and it could worsen. If lending tightens, many companies, especially smaller ones, could lose ready access to financing. It could cause severe distress to our economy — and our leaders need to prepare now.
The uncertainty brought on by the banking crisis has changed our thinking here at the New Jersey Chamber of Commerce regarding how and when the state should use the $10 billion surplus projected in the upcoming state budget. Initially, we stated that some of the surplus should be immediately allocated in the budget negotiation for programs aiding the business community.
Now, given the new economic uncertainty, we believe the $10 billion surplus should only be used judiciously and, if the funds are used, it should be for programs that shore up New Jersey’s economy. If the banking crisis worsens and financial institutions pull back on lending, which many leading economists predict could happen, our companies will need direct assistance. Some economists put the chance of recession this year at 65%, up significantly from a few weeks ago.
Ben Casselman of the New York Times wrote this past weekend in regards to the banking crisis: “Tighter credit is likely to be a particular challenge for small businesses, which typically don’t have ready access to other sources of financing. Many businesses may not be able to obtain credit at all, forcing them to cut back on hiring, investing and spending.”
Working capital, the lifeblood of any business, could become a scarce commodity.
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If that’s the case, the projected $10 billion state budget surplus should be used for relief initiatives such as replenishing the state’s Unemployment Insurance fund, like many states have done, instead of through payroll tax increases on employers. The current payroll tax increase only adds to the business community’s costs and economic stress.
The state surplus could also be used to create a grant fund that would provide working capital to entrepreneurs and business owners in every industry and region that feel the impact of the crisis, an idea the New Jersey Chamber has long been seeking.
We cannot let our economy be driven down because businesses became “cash starved.” The surplus was created to mitigate economic pressure and therefore should only be used for those purposes until the full impact of the current crisis can be evaluated.
If we are to create a “next” New Jersey, as Gov. Phil Murphy called it, the Murphy administration must be ready to support companies in case the banking crisis worsens. More aggressive actions will be needed — and additional support for the business community will do just that.
Tom Bracken is CEO and president of the New Jersey Chamber of Commerce, based in Trenton.