The Land of Plenty?

The state trumpets its standing atop the household-income heap. So why are the wealthy fleeing, the middle-class struggling, and the poor getting poorer?

My mom decided last year to move from upstate New York to central New Jersey, to be closer to me. She put the house I grew up in—a three-bedroom, one-bath ranch in a suburb of Rochester called Greece—on the market for $89,900. She landed a healthcare job in Middlesex County at a salary $6,000 higher than she was making. She met with a financial advisor and a mortgage consultant and twice made the six-hour drive to New Jersey to look at homes.

At first, she was undaunted as she scouted $250,000 one-bedroom condos in East Brunswick. But her brave facade soon crumbled. “They are horrible,” she said of the condos. “They reminded me of my first apartment.”

Her realtor, Joel Compton, now with RE/MAX Preferred Professionals, says virtually every out-of-stater suffers the same fate. “It’s sticker shock,” he says. “My boss said to me, ‘Always bring a box of Kleenex.’ They’ll need it to wipe their eyes when they start crying in the car.”

In the end, Mom stayed put. I can’t blame her. Making ends meet down here is no picnic.

The stats make it seem as if all Jerseyans live on Easy Street. In 2005, Garden State households together posted the country’s highest median income, $61,672. That’s 33 percent higher than the national median of $46,242. But the figure is misleading. In reality, there’s a huge and still widening gap between rich and poor. Incomes of people in the bottom 20 percent grow at a much slower rate than incomes of people in the top 5 percent. But everyone, including those in the middle, feel squeezed.

“The strange thing about income distribution in New Jersey,” says Jon Shure, president of New Jersey Policy Perspective, “is that no one who makes $150,000 feels rich. But they’re making more than 90 percent of the households in New Jersey.”

The culprits, of course, are high taxes and high cost of living. According to the most recent statistics, for 2005, median mortgage payments are 50 percent higher for New Jersey homeowners than for the nation as a whole.

My mother, for example, looked in a part of the state where monthly mortgage payments exceed the national average by 174 percent. To maintain the standard of living she enjoyed outside Rochester, where housing costs are about 10 percent lower than the national average, she would have needed a raise of $40,000.

Renters don’t fare much better. On average, they fork over more per month than tenants anywhere except Hawaii and California.

Still, we grin and bear it. Okay, maybe it’s hard to grin when you’re tightening your belt all the time.  According to the latest Monmouth University/New Jersey Monthly Poll, 60 percent of us say their family income fails to keep pace with the cost of living. (By comparison, only 40 percent of families reported that problem in a 2006 nationwide survey by the Pew Research Center.)

Looking more closely at the Monmouth/NJM results, you can hear middle- and lower-income residents shouting Ouch! Seventy-two percent of households earning less than $50,000 a year—and 64 percent of those earning $50,000 to $100,000—say they are falling behind the cost of living.

And how is life at the top? Only 44 percent of New Jersey households making more than $100,000 say their income is failing to keep up with the cost of living. But it’s not as if they’re feeling flush. Only 13 percent said they’re outpacing the cost of living. (Nationally, 29 percent of households in that bracket say they’re ahead of the game.)

Higher income households are not coming by the money easily. Seventy two percent of Garden State households earning more than $100,000 a year have two or more incomes. “The rising cost of living in New Jersey is a major problem for families at every income level,” says Patrick Murray, director of the Monmouth University Polling Institute. “In fact, the large number of upper income families here who feel they can’t make ends meet is something you just don’t see in the country as a whole.”

Multi-income families are not socking money away, either. Two thirds said they need the dough to meet monthly expenses.

Given this pinch, it’s not surprising that many people are pulling up stakes. Last year, 72,547 more people left the state than moved in. At that rate, the state will lose  100,000 residents by 2009; recent figures suggest that New Jersey will lose one of its thirteen Congressional seats. Those moving in tend to be wealthier than those leaving, according to 2005 federal tax returns.

“You’re going to have a state that’s like a barbell economically,” Murray says, “where you have those who are wealthy enough to live here and do so because of its superior location and other attributes, and then you have those who are too poor to move out.”

And, he adds, “The state is losing two-income middle-class families, the backbone of New Jersey’s economy, because they decide  they can’t make it here.”

Pennsylvania is a popular place to resettle. The median annual tax on an owner-occupied home there in 2005 was $1,937, compared with New Jersey’s $5,352, the nation’s highest. Our property taxes ate up a median 6.75 percent of homeowner income in 2005, compared with 3.57 percent in Pennsylvania.

“If you work along Route 78 or the Route 1 corridor, there are real incentives to live in Pennsylvania,” says James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers. “Your income tax, property tax, and housing are more affordable.”

Brianne Phillips and her husband, both New Jersey natives, rented in Haledon for three years while they saved for their first home. “We looked here and it was outrageous,” Phillips says. “We couldn’t get anything for what we could afford unless we wanted to live in a flood zone or a shack.”

Phillips, a stay-at-home mom who writes grant applications, and her husband, a caseworker with the New Jersey Division of Youth and Family Services in Newton, visited Pike County, Pennsylvania, one Saturday afternoon with friends who live there. A hard decision was made easier when they found a three-bedroom, one-bath ranch on a third of an acre in Dingmans Ferry. Their property taxes are “way under $2,000,” says Phillips, who has met at least twenty couples who have relocated to the area from New Jersey since they moved in a year ago.

Merilyn and Carlos Ferretti are one of those couples. Merilyn is a realtor; Carlos works for Jet Blue. After renting in Rahway for two years, “We looked in Jersey, Connecticut, and New York and said, ‘I don’t think so,’” says Merilyn. “We couldn’t.”

Now Carlos  copes with a two-hour commute to Queens, New York. He leaves the house by 4:30 am to get to work by 7.  Depending on traffic, he gets home between 6:30 and 8 pm. He’s usually in bed by 9 pm, half an hour after tucking in their children.

“It is the decision that we made,” says Merilyn. “It’s a sacrifice for now…but the reason we are out here is for the sake of our kids.”

For the extremely wealthy, a way to remain in New Jersey is to set up legal residence in a state that doesn’t have an income tax­—Florida or New Hampshire, for example. They buy a home there, register to vote, obtain a driver’s license, switch cell-phone numbers, and live outside New Jersey more than six months a year. End result: they avoid paying New Jersey income tax.

Domenic DiPiero, president of Newport Capital Group, a financial-services firm in Red Bank, says that more than 50 of his clients with “ultra-high net-worth” ($50 million or more) are leaving or have left.

Another problem for the wealthy is New Jersey’s estate tax, which was increased in 2002. Moving out, says attorney Anthony Vitiello of the Connell Foley law firm in Roseland, “is contemplated by almost every high-net-worth client that does not have to remain here for business or other reasons.” When the wealthy leave, the state loses  tax revenue. Vitiello says he sees nothing that will “change the government’s mind [in favor of] reducing tax rates.

Surprisingly, DiPiero says he knows  residents worth $1 million or more who can’t seem to save. “Maybe people in other states might be content with less, but the people who live in New Jersey—at least those who join the rat race—want three cars, the big house, their kids going to the best schools,” DiPiero says. “They’re in consumer mode.”

Median home prices hover around $700,000 in the state’s wealthiest counties. In 2005, in the Bergen County borough of Alpine, homes sold for a median $1.79 million. Forbes ranked it fifteenth on the magazine’s 2006 list of the country’s most expensive zip codes. The nation’s biggest-ticket home sale, at $58 million, took place in Alpine last year.

Spending is oh-so-easy in New Jersey, with its many megamalls. Paramus has Garden State Plaza—New Jersey’s biggest mall—as well as three other major malls and dozens of smaller shopping centers. All of which add up to the borough’s $5 billion in annual retail sales. Even though blue laws, which keep stores closed on Sundays, are still observed in Paramus, the borough sees more retail action than any other zip code in the country.

While the middle class muddles along, the state’s poor residents struggle. Diana Pearce, a professor at the University of Washington School of Social Work, devised a calculation called the “self-sufficiency standard,” which measures the amount of money working adults need to meet basic living expenses without receiving subsidies.

Unlike the federal poverty standard, the self-sufficiency standard takes into account an area’s cost of living. In 2005, applying the federal guideline, a three-person family earning less than $16,090 a year was considered to be in poverty. In affluent Somerset County, by comparison, the self-sufficiency standard for an adult and two young children that year was $61,377.

Those who earn less than the self-sufficiency standard are “living on inadequate incomes,” or are the working poor, says Serena Rice, managing director of the Poverty Research Institute of Legal Services of New Jersey, which distributes Pearce’s numbers for the state. In 2005, 1.8 million New Jerseyans fell below the standard.

“Even though it looks like we’re doing great, 21.4 percent of us live on incomes that really aren’t high enough to sustain the cost of living,” Rice says. The working poor keep up with the rising cost of basic commodities by making “dramatic sacrifices,” she says. Those include doubling up with other families to share living quarters, foregoing health insurance, going without adequately nutritious food, and settling for “less than ideal child care.” Despite New Jersey’s high household median income, it also has the nation’s poorest city: Camden. “The general perception of New Jersey as a wealthy state draws attention away from people who are struggling,” Rice says.

Are we going to catch a break on property taxes? Governor Jon Corzine signed legislation in April that offered short- and long-term fixes. His plan offers immediate relief to homeowners in the form of rebates and a $1.6 billion credit program aimed at helping senior citizens and middle-class families. Long-term provisions of the law promise to reduce the state’s debt, modernize the pension system, update the tax code, and offer incentives to towns and schools willing to share services. Much more needs to be done, so it’s surprising that New Jerseyans aren’t making more noise to demand change. Then again, it’s not.

“As people are working more, they become less civically minded,” says Jon Shure, president of New Jersey Policy Perspective. “They’re too busy to do anything. Of course, people vote with their feet and they leave.”

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