State Lobbying: Part IV of a Series
Federal lobbying might be a $4 billion industry, but another $2 billion goes to lobbying in state capitols. Sometimes, the stakes are higher there than in Congress.
The fourth installment in a five-part series. You’ll find links to the others here.
Heading the government affairs function for a Fortune 250 company for 16 years came with many interactions with government officials. Not just in Washington, DC, but in international and state capitals. Also, mayors and county officials, too.
If you thought navigating the intricate web of federal lobbying and related laws, regulations, and rules was Byzantine enough, try the states. My employer at the time had manufacturing operations in several countries, from Europe to Malaysia, and 14 US states, notably California, along with our home state of New Jersey. I was a one-person show and the first full-time government affairs person in the company’s history for the first few years. Then it doubled, to two. Aside from a contract lobbyist in California and another trade lobbyist in Washington, that was my massive lobbying empire. Trade associations were indispensable where we had them.
Still, I frequently consulted a thick book on state lobbying laws to ensure I didn’t trip up anywhere. Since my state lobbying was limited, and usually done through trade associations, I only needed to “register” in one state, New Jersey. Washington state requires you to register before lobbying, or to do so within 30 days of making a lobbying contact. New Jersey charges over $500 annually for registering to lobby, and you have to wear a badge when traipsing through the capitol corridors in Trenton.
In the Garden State, lobbying was also broadly defined, and 20 hours per year required registration and periodic disclosures, including travel time to and from Trenton. In New Jersey, a notorious “pay to play” state, most requests to meet with a legislator usually resulted in a political fundraising invitation, often before the meeting. Since I didn’t have (nor want) a state political action committee and didn’t want to use my federal PAC, it meant ponying up personal funds. Aside from that, given the nature of the issues, I found state legislators very accessible and generally easy to work with. Ideological differences were often brushed aside, given the practical nature of most state issues.
Side note: You’d be surprised which companies didn’t employ Washington lobbyists until the 1990s. When the 1990s started, neither Microsoft nor Walmart had Washington offices. They quickly learned that if you’re not at the table, you’re on the menu. Both companies are now very sophisticated major players in the Washington (and elsewhere) lobbying game. Both companies were under attack by Congress and regulatory agencies, and special interests who fed them and realized they needed boots on the ground. That’s often how it begins.
If you’re not at the table, you’re on the menu.
Harry Truman is credited with saying that if you want a friend in Washington, get a dog. Today, he might suggest getting a lobbyist. And if you’re going into business, you will discover that you need friends and help navigating official Washington and many state capitals.
It is common for “customers” to leverage their “suppliers” on public policy issues. The New Jersey legislature, around 2003, was about to enact legislation to force “big box” retailers to conduct intensive and expensive environment and community impact studies. I was told by a Walmart executive, my employer's biggest customer, to get then-State Senator Tom Kean Jr., a Republican, off the bill (he was a cosponsor). They knew that Sen. Kean was an acquaintance. Kean is now a Member of Congress.
I didn’t do what I was told since many of our other customers - independent grocers, particularly - were fond of the bill. It was a competitive issue. Walmart has wisely since ended such heavy-handedness, which typically backfires.
Income Tax Reciprocity Agreements
Having spent most of my early professional years in Washington, DC, I took for granted that I paid income taxes based on where I lived, not where I worked. That’s because of income tax reciprocity agreements between states. About 20 states have them; the most famous are between the District of Columbia, Virginia, and Maryland. DC’s exorbitant income taxes often send workers scurrying to reside in suburban locations with friendlier tax climates. DC government has long tried to impose “commuter taxes,” but since DC’s government answers to Congress, the Virginia and Maryland congressional delegations will have nothing to do with such nonsense.
Upon relocating to the greater Philadelphia area, I was pleased to learn that the Keystone and Garden States had a nearly 40-year-old income tax reciprocity agreement signed by the late Brendan Byrne (D-NJ) and Milton Shapp (D-PA), although then-Gov. Jim McGreevey in 2002 threatened to terminate it about the time I arrived in the region. Pennsylvania has reciprocity agreements with six states, including its neighbors (except New York), plus Indiana and Virginia.
The goal of such agreements is obvious: to simplify tax compliance for their respective residents, as Sidamon-Eristoff admitted.
Both states had imposed new and nearly identical personal income tax rates of about two percent in 1977. Byrne reportedly approached New York with a similar agreement since many North Jersey residents work in Manhattan and nearby environs, but then-Gov. Hugh Carey (D-NY) said no for obvious reasons.
New Jerseyans who work in New York get to file income tax returns in both states, getting a “credit” on their NJ taxes for what they have to cough up to the Empire State and Manhattan. This means New Jersey, even with its highly progressive income tax rates, gets no revenue from its citizens due to even higher New York and Manhattan Borough taxes imposed on Garden State commuters, who also have to file two state tax returns. Sidamon-Eristoff estimated the tax loss to the state from the lack of an agreement with their northern neighbor at $2 billion annually.
But he suggested canceling the deal with Pennsylvania for $180 million in estimated revenue.
A quick story. In 2002, I accepted my new job in lovely Camden, NJ; my realtor wife and I identified three houses that interested us: two in New Jersey and one on a nice acreage in Pennsylvania. “Let me run the numbers,” my realtor wife said. A day or so later, she gave me the news as a question - was it worth spending $15,000 more on income and real estate taxes annually to buy a home and reside in New Jersey?
We chose Pennsylvania.
Fast forward to December 9, 2015. While perusing my usual array of national and state news that morning, I shuddered as I began to read an op-ed in a relatively new online publication at the time, NJ Spotlight News, by a former State Treasurer of New Jersey under Gov. Chris Christie, a Republican now in his second term.
Andrew Sidamon-Eristoff was a former New York City councilman in Manhattan who also served as finance commissioner under Mayor Rudolf Guiliani. The Princeton graduate was nominated by newly-elected Gov. Christie in 2010. “Time to Revisit the New Jersey-Pennsylvania Reciprocal Tax Deal,” his op-ed was headlined.
Let me start by taking on the mother of all South Jersey sacred cows: New Jersey should withdraw from the Reciprocal Personal Income Tax Agreement with Pennsylvania. This simple move, which does not require the state Legislature’s approval, would generate an extra $180 million a year for New Jersey. That won’t solve all our funding needs, but $180 million is real money.
Gov. Christie also read his op-ed. In July 2016, he publicly threatened to pull the plug on the four-decades-old tax deal during budget negotiations with Assembly and Senate Democrats. He directed the Attorney General and new State Treasurer to explore how it could be done and the fiscal consequences. As I researched what the impact would be to my company and especially our employees - almost half of whom lived in Pennsylvania and, like me, commuted to Camden - I realized the massive tax increases and inconvenience it would cause, especially to many of our leading executives who, like me, opted for Keystone State residency over its tax advantages.
However, a 2002 legislative study showed that a middle-income New Jersey resident working in Philadelphia would be stiffed with higher taxes if the treaty was abrogated.
I reached out to my friends at the Chamber of Commerce of Southern New Jersey, one of the nation’s best regional chambers with excellent bipartisan political relationships in Trenton, where I had served as chair. They jumped on the issue. I began identifying other associations, including the New Jersey Food Council and manufacturers and businesses near the Delaware River border. I reached out to my new neighbors at Subaru, who had just located their North American headquarters next to us in Camden and, like me, were incensed. Given the paucity of media coverage, it took a while to educate employers on the powerful and negative impact Christie’s termination of the tax agreement would have on their pocketbooks and businesses. Some New Jersey business lobbyists in Trenton were slow to sign on, fearful of angering Gov. Christie.
It really was a sacred cow, as Sidamon-Eristoff described the tax agreement. The potential revenue, which I argued they would never collect, wasn’t worth the cost of disrupting businesses and raising taxes on employees in southern and western New Jersey and eastern Pennsylvania. Many assumptions and promises where made to attract employers to New Jersey, and this tax treaty had long been part of the equation.
We made the case that both New Jersey residents working in Philadelphia would pay more taxes, thanks to the City’s onerous “wage tax.” And, of course, Pennsylvania residents like me would see their income tax rates shoot up from about 3 percent to 6 percent or more in New Jersey. I was hardly alone. The abrogation would disrupt employer-employee relationships at companies near the state border and force some to relocate. Many threatened to. In southern New Jersey alone, 65,000 commuters to work in Philly were likely to be adversely affected. In all, some 250,000 people on both sides of the Delaware River were impacted by Christie’s move.
At my employer, we actively explored setting up satellite offices in Pennsylvania and had plenty of help from Pennsylvania officials such as then-St. Sen. Tom Killion (R-PA). I made sure New Jersey officials knew what we were up to. I also suggested legislation to require legislative approval to ratify or abrogate any tax reciprocity agreement.
What was that about “Taxation without representation?”
But we did something unusual for state lobbying, where relationships are the grease that makes the flywheel move. We went “grassroots” and engineered thousands of emails, letters, and calls from employees. That had never happened before, at least on a state issue in New Jersey and Pennsylvania. And it had an impact more than any high-priced lobbyist in Trenton.
I was extending a strategy I had successfully employed at my employer to mobilize employees on an issue that mattered to their jobs and livelihoods. This was a no-brainer since it meant a tax increase and complexity for nearly half our workforce. I helped set up the means for employers and employees elsewhere, mostly in New Jersey, to blitz their elected state officials with thousands of emails and messages to the Governor and legislators opposing the threat. The South Jersey Chamber’s board and our regional business colleagues were enthusiastically engaged - if not enraged - and terrific allies.
One southern New Jersey assemblyman, a Democrat, said he’d never seen anything like it. Grassroots lobbying was relatively common for nonprofit groups, but not businesses in New Jersey.
Employer-employee (E2E) engagement is a mission of the Business-Industry Political Action Committee (BIPAC), a non-partisan trade group that helps employers engage workers on issues affecting their jobs. I’d served on BIPAC’s board of directors and knew from their prior research that employees trust employers more than political parties, the media, and unions for information on issues that affect their jobs. For not a lot of money, BIPAC helps companies, big and small, set up nonpartisan employee engagement websites and programs, from voter registration to helping educate and mobilize employees.
In 2018, the Moore Information Group surveyed over 2,000 employees for BIPAC and found that the vast majority expect their companies to welcome information and be involved in public policy issues that benefit the employer. I would add they also are willing to engage when asked. Where there are always employees who don’t want to engage and don’t even think their employer should be involved in politics, the vast majority feel otherwise.
We never pressured employees to engage; everything we did was voluntary. If employees felt uncomfortable writing a legislator, federal or state, they didn’t have to. It was never a job requirement. But many did, often enthusiastically. Senior executives at the time were very supportive and appreciative.
Christie, who raised the issue after leaving his first run for President (he withdrew after the New Hampshire primary, endorsing Donald Trump) would eventually pull the trigger on abrogating the agreement. Weeks later, he quickly rescinded it as he and legislative leaders worked out a deal to reduce state healthcare expenditures. The public pressure we applied “helped” the legislature and the governor resolve their budget disputes and reach an agreement. I don’t think Gov. Christie fully appreciated the firestorm he created using the reciprocity agreement as leverage to score budget savings. He was fingered for trying to raise taxes on working people in southern and western New Jersey. Support for his gambit was scant and made many people angry.
We hosted a victory party at my company’s headquarters to thank our region’s legislators, including then-State Senate President Stephen Sweeney (D-Gloucester) and the trade groups that helped lead the charge and restore the agreement.
Christie left office a year later with the worst approval rating, 15%, ever measured by the Quinnipiac University poll. It wasn’t because of this issue. Around the time of his reelection in 2013, his office had been embroiled in a political scandal, “Bridgegate,” involving a traffic “issue” near Fort Lee, New Jersey, purposely tying up traffic into New York to get local politicians in trouble with commuters, among other overtly political actions. The Christie campaign made a big deal about endorsements from local Democratic officials, and those who didn’t were sometimes punished, including closing off toll lanes into New York from Fort Lee under the guise of it being a “study.” The US Attorney investigated, as did the legislature. Even the US Senate’s Transportation and Infrastructure Committee got involved. Ultimately, three Christie staff were found guilty of federal offenses but saw their convictions overturned by the US Supreme Court.
With tens of thousands of New Jerseyans facing tax increases from Christie’s threat to abrogate the tax treaty, it ultimately did him no favors, nor his Lt. Governor, Kim Guadagno, who was running (unsuccessfully) to replace him.
The last installment: My best lobbyists and my most effective places to lobby.