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Grade inflation: New Jersey gets low marks in many business surveys, but not everyone agrees

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Anthony and Karen High of Special Ops Security Services believe New Jersey's taxes, workers' compensation and a perceived lack of funding make the state a tough environment to set up shop in.
Anthony and Karen High of Special Ops Security Services believe New Jersey's taxes, workers' compensation and a perceived lack of funding make the state a tough environment to set up shop in. - ()

Every now and then, New Jersey turns into the equivalent of a red-faced child.

At least when it comes to report cards that give poor grades to its small business environment.

Back in June, the Garden State scored a dreadful D in a survey released by Thumbtack, a San Francisco-based startup that connects consumers with service providers.

That followed the release of a policy-based index conducted by the Small Business & Entrepreneurship Council, which ranked New Jersey 49th among all states last December — no different than the year prior.

Don't forget the Tax Foundation's 2014 edition of its national index, which placed New Jersey in the exact same spot; again, nothing the state was unfamiliar with.

Whether the bad marks reflect reality — as well as whether recent efforts are improving the situation — depends on whom you ask. Opinions also differ on what the problem is.

A TRAINING DRAIN

The more than 300 small business owners who responded to the Thumbtack survey — a tougher group than the sternest of parents — primarily hold the state accountable for the poor availability of training and networking programs.

Deborah Smarth, associate state director of the New Jersey Small Business Development Centers, said that's partly due to a lack of education about what programs there are. Another piece of it is the lack of funding to those programs.

Not that the latter is a separate issue from the former. Smarth said the budget of her New Jersey division of the nationwide training program offers few extra resources for advertising.

The state's SBDC networks offer assistance in the form of management consulting and financial advice. The program once received $1 million from the state, but ended up with just $250,000 by the time former Gov. Jon Corzine — who proposed eliminating the funding as he grappled with a severe revenue shortfall — left office in early 2010.

The allocation has remained there ever since — despite Gov. Chris Christie's first budget in 2010 again proposing the elimination of the funding. It's still only half of what it was nearly 20 years ago.

The average state investment into SBDC networks nationwide is $1.1 million. Just next door, Pennsylvania Gov. Tom Corbett's latest budget proposal called for adding $500,000 to its own SBDC funding, for a total $4 million allotment.

“We would think with these recent surveys rating New Jersey so poorly that our state's government would want to invest a little more in a program like this,” Smarth said. “That way, we could get a larger share of the market.

“There are more than 795,000 small businesses in the state all considered,” she said, including those operated by a single person. “We do one-on-one counseling for a little more than 5,100 small business owners, and another 10,000 small businesses in training programs. It's a huge market share.”

OPPORTUNITIES ARE THERE

Smarth reported that 644 clients of the NJSBDC started new businesses last year — significant given that “the ease of starting a business” was New Jersey's second-weakest category on the Thumbtack survey.

Charles Schlapfer can attest to the benefit of having a guide through a company's beginning phases. He relied on NJSBDC when starting Environmental Infrastructure Solutions, a Toms River construction materials products and services company.

“I've sought their assistance on every aspect from the initial registration onward,” Schlapfer said. “I sat in their office and filed all the regulatory paperwork. I sat through a large number of workshops and meet-and-greet programs.

“I take advantage of a lot of what they do because there aren't a whole lot of other resources that hold your hand in the small business sector. … I'd like to think I could have done it myself, but I'm glad I didn't have to.”

It would just take some financial support from the state, Smarth reiterated, for NJSBDC to have the resources required to see even more new businesses like Schlapfer's started.

The response from Michael Egenton, New Jersey Chamber of Commerce senior vice president of government relations, is that the state has some serious fiscal challenges.

“Unfortunately, there just isn't enough money to go around,” he said. “We've had to prioritize.”

HELP IN OTHER WAYS

There are other avenues through which Christie has worked for businesses small and large, Egenton added.

The governor's latest budget continued the phase-in of two tax reform initiatives: one that allows small businesses to carry forward net operating losses and deduct them from income in future profitable years, and another that changes the calculation of corporate business taxes to a formula based on a single sales factor.

Egenton also points to Christie's efforts to “level the playing field” for local brick-and-mortar stores competing with out-of-state online businesses. The recent budget made it so that these businesses must collect sales taxes on sale to New Jersey customers.

“These are a couple prime examples of the budgeting process helping, assisting the small business community,” Egenton said. “Whether or not things are getting better overall, it's a work in progress. We'll continue to have challenges.”

But, at least in the subjective measure that is the Thumbtack survey, the environment is worsening. New Jersey earned a C- in last year's survey, as opposed to this year's D.

There's some suspicion on the part of Alfred Titone, director for the U.S. Small Business Administration's New Jersey district office. His numbers paint a picture of small business attitudes on the upswing.

“I'm going against what the survey says,” Titone said. “From a lending perspective, we've seen a decrease in the dollar amount of loans, but we've seen an increase in the number of loans. That tells me that more businesses are getting into better shape.

“We're seeing folks more interested in making investments into their businesses. They're ready to take the chance, as all entrepreneurs are. We have more people leasing and buying properties, putting money into growing the business.”

Titone reported that 810 small businesses participated in his organization's loan programs from the beginning of the year to May, as opposed to exactly 100 fewer during the same period last year. The total value of those loans was $392 million and $404 million, respectively.

“I'd rather see more small businesses getting money than those small businesses borrowing in big amounts,” he said. “It's a good sign.”

It's also right in sync with surrounding states — such as Pennsylvania or New York — numbers-wise, and it's aligned with the national trend.

THE BIG PICTURE

But, again, in nearly all of the Thumbtack survey's categories — and especially in the other recent tax and policy surveys — New Jersey is shown to lag behind its neighbors in terms of the grander outlook on the small business landscape.

“The results are not at all surprising to me,” said Karen High, who runs Special Ops Security Services Inc. with her husband Anthony.

“From personal experience, and in the consensus of business owners we meet, there are few — if any — positives to being here,” she said, pointing to taxes, workers' compensation and a perceived lack of funding and cash incentives. She believes the state “caters to large companies, without a doubt.”

While High said resources like the SBDC can lessen a startup's burden, she's convinced New Jersey has impediments that make it nothing less than a hazardous environment for small businesses to set down roots in.

So just like the warnings parents may give to an imperfect student dreading that next report card's arrival, High is clear about the state's need for change.

“I saw a commercial just the other day for New York — promoting their state's incentives for small business,” she said. “New Jersey needs to do something. People want to do business here, but right now, there's absolutely no reason to.”

E-mail to: brettj@njbiz.com
On Twitter: @reporterbrett

What constitutes a small business?

The U.S. Small Business Administration has established numerical definitions of small businesses, or “size standards,” that can be referred to when determining where a company lands on the business spectrum.

“There are a number of formulas involved, each different depending on the industry,” said Alfred Titone of the SBA. “If they’re over 500 people they are generally considered large. Everything under that is small.”

That 500-employee maximum holds true for most manufacturing and mining industries, while many other industries gauge it by being in surplus of $7 million in average annual receipts.

But, as Titone noted, there are many exceptions.

For example, a company in the waste collection, treatment and disposal industry can retain its small business status until it exceeds $35 million.

These classifications determine eligibility for SBA’s financial assistance and for other programs. It’s also used for the purpose of collecting consistent statistical data.

“By federal standards, a small business can be what someone may consider fairly large,” Titone said. “The bulk of small businesses are still going to end up being much smaller.”

Perhaps because of that, 97 percent of the respondents to Thumbtack’s survey were companies with 20 or fewer employees.

According to the survey’s methodology report, the Thumbtack sample was largely representative of the nation’s distribution of small businesses.

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Brett Johnson

Brett Johnson

Brett Johnson covers a wide array of sectors as a general assignment reporter. Before joining NJBIZ in 2014, he lived on the West Coast and wrote for a newspaper in Davis, Calif. You can contact him at brettj@njbiz.com or @ReporterBrett on Twitter.

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