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View Count: 61 |  Publish Date: November 21, 2013
New Jersey Towns Face Tax Vacuum Minus Drugmakers: Muni Credit
By Elise Young & Michelle Kaske - 2013-11-21T17:33:54Z
Four northern New Jersey towns facethe loss of $29 million of combined revenue as some of theworld’s largest pharmaceutical companies depart, complicatingRepublican Governor Chris Christie’s drive to boost business andcut the highest U.S. property taxes.
Merck & Co. (MRK), the second-biggest U.S. drugmaker by sales, isshutting its headquarters in Readington and a complex in Summitas part of a 16,000-job reduction. Roche Holding AG, the world’sbiggest maker of cancer drugs, by year-end is closing its campusspanning the municipalities of Nutley and Clifton. The latterhas seen the extra yield investors demand on some of its debtalmost double in the past six weeks.
Nearly half of New Jersey’s life-sciences jobs are in itsnorthern region. Summit and Readington, which are 16 miles (26kilometers) and 50 miles, respectively, west of New York, bothcount Merck as their largest taxpayer. Roche is the biggest inNutley, 8 miles from Manhattan. The closings are a creditnegative for the localities, with pressure on taxes andrevenues, Moody’s Investors Service said in an Oct. 10 report.
“New Jersey generally has not been attracting a lot ofgrowth in the employment area, and this is not helping,” saidHoward Cure, director of municipal research in New York atEvercore Wealth Management LLC, which oversees about $4.7billion. Residents “may be asked or may be required to pay moreto balance budgets.” Medicine Chest
The state bills itself as “the medicine chest of theworld,” as it is home to 17 of the 20 largest pharmaceuticalcompanies, according to New Jersey’s website. The industry hascut jobs by 23 percent since 2006, according to Moody’s.
While the industry accounts for about 3.8 percent of NewJersey’s non-government jobs, double the national average, thecompanies’ moves are more damaging for localities than at thestate level, according to Moody’s.
“Site closures are more credit negative for New Jerseymunicipalities than layoffs because property taxes are the mainrevenue source for local governments,” Michelle Choi, ananalyst for New York-based Moody’s, said in the report.
Even with the companies’ job reductions, New Jersey debt isbeating the $3.7 trillion local-debt market, earning 3 percentin the past three months, compared with 2.5 percent for theentire municipal universe, Standard & Poor’s data show. Tax Breaks
Christie, a 51-year-old Republican who won a second term onNov. 5, has touted the addition of 142,400 jobs in New Jerseysince he took office four years ago. That tally, though, is only59 percent of the amount lost during the recession that began inDecember 2007. Neighboring New York has regained more than itlost.
Under Christie, the unemployment rate fell to 8.4 percentin October, the lowest since 2009, from 9.7 percent in February2010. The level still eclipsed the 7.3 percent U.S. average forAugust, and tied for the seventh-highest among the 50 states.New York’s August rate was 7.6 percent and Pennsylvania’s was7.7 percent.
Christie has awarded at least $2.1 billion in tax breaks tokeep or lure businesses, including Panasonic Corp. (6752) and RevelEntertainment Group LLC. During his first term, the state’sBusiness Employment Incentive Program gave at least $10 millionin grants to drugmakers, including Amneal Pharmaceuticals LLC inEast Hanover, Kashiv Pharma LLC in Piscataway and FerringPharmaceuticals Inc. in Parsippany-Troy Hills, according tostate records. Funding Veto
In June, the governor vetoed legislation to give funding totowns that lose drugmakers and other companies whose departuresmay stress the tax base. Colin Reed, a spokesman for Christie,declined to comment and referred to the governor’s veto message,in which he lumped the measure with others that he said shouldhave been part of annual budget negotiations.
Merck is seeking a buyer for its 88 acres (36 hectares) inSummit, which has Moody’s highest Aaa rating. Residents therepaid an average property-tax bill of $16,051 in 2012, more thantwice the statewide figure.
“We’re mildly concerned at this point,” said Mayor EllenDickson, 61, a Republican. “They are 7.2 percent of our taxbase. They pay $9 million a year in real-estate taxes. They’recommitted to paying the taxes through 2014, but of coursethey’ll be doing a tax appeal effective 2015.”
Kelley Dougherty, a spokeswoman for Merck, declined tocomment on the company’s plans for the sites. She referred to anOct. 1 news release that said the closures were part ofworldwide cost reductions. Cut Caution
Roche, which is firing 1,000 employees by the end of 2013,plans to pay Clifton and Nutley property taxes totaling $14.5million annually through mid-2014, according to Darien Wilson, acompany spokeswoman. It wants to sell the site, zoned for officeand manufacturing, within two years, she said.
Nutley is rated Aa2, Moody’s third-highest level. In anAugust report, the company said the township could have itsrating lowered if it’s unable to make up the revenue lossescaused by Roche’s exit.
“These towns are left high and dry,” said AssemblymanRalph Caputo, 73, a Democrat from Nutley. “Now they’re goingto have to cut police, fire, school funding.”
Clifton sold bonds last month to finance road improvementsand sewer upgrades, according to bond documents.
General obligations maturing in October 2023 and ratedthree steps below AAA traded Nov. 5 with an average yield of2.96 percent, or 0.51 percentage point above benchmark munis,data compiled by Bloomberg show. That difference is almostdouble the 0.28 percentage point spread on Oct. 1, when thebonds first started trading. Budget Context
A Democratic-sponsored bill to give $13.5 million in aid totowns hit by corporate departures was met with Christie’s vetoon June 28, the same day he signed the $32.9 billion statebudget. The measure was among eight he rejected because theywould increase spending above the amount he negotiated with theDemocratic-controlled legislature.
“While each bill may have merit, consideration of thatmerit is better accomplished in the context of a balancedbudget,” he said in a veto message.
“This is something the state has to think about, in termsof these drastic moves of large companies,” said Caputo, asponsor of the bill. “How are we going to deal with these largespikes?”
To contact the reporters on this story:Elise Young in Trenton at eyoung30@bloomberg.net;Michelle Kaske in New York at mkaske@bloomberg.net
To contact the editor responsible for this story:Stephen Merelman at smerelman@bloomberg.net

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