NJBIA’s updated 2022 Indicators of Innovation report, a comprehensive examination of how New Jersey’s innovation economy compares to other regional states, shows the Garden State slipping slightly in overall score and position from the 2020 report, but also taking key steps which could improve its future standing.
Released today, the study analyzes data for 12 indicators in three major areas that are key to a robust innovation ecosystem – capital, talent, and business – and makes a series of recommendations to improve New Jersey’s competitiveness in building a more robust innovation economy.
“While New Jersey’s standing in the region has decreased somewhat, some of the recommendations made in our 2020 Indicators of Innovation report have only been recently put into place,” said NJBIA Director of Economic Policy Kyle Sullender. “As a result, we hope to see some improvement in certain areas of the innovation economy going forward.
“At the same time, there are still several indicators where New Jersey very much remains an outlier regionally and nationally – notably in business tax climate and net migration of first-time, degree-seeking undergraduates. Those are areas where New Jersey continues to need great improvement.”
In the seven-state comparison, NJBIA scored each of the 12 indicators from 1 (least competitive) to 7 (most competitive), with a potential high score of 84 points.
Massachusetts (totaling 69 points) and New York (65) remain the regional leaders in innovation, as in the 2020 Indicator of Innovation report, followed by Pennsylvania (51) and Maryland (45).
New Jersey currently finds itself tied with Connecticut for fifth place with 41 points each. New Jersey’s standing in the 2020 report was fourth overall, with 44 points.
Delaware is currently ranked last out of the seven states with an innovation score of 26.
“As in past reports, we encourage multiple recommendations in the three areas which can help put New Jersey on a path of becoming an innovation leader within the region,” Sullender said. “Addressing continuing obstacles, especially regarding our tax climate, can help result in a stronger innovation ecosystem for the state.”
NJBIA’s full Indicators of Innovation report and graphics can be found here.
Key takeaways from the latest report include:
- Despite experiencing fast growth in venture capital deal flow during the pandemic, New Jersey ($4.8 billion) continues to trail states like New York ($149.4 billion) and Massachusetts ($120.2 billion) in Assets Under Management (AUM), which measures the value of all assets being managed in a state by Venture Capital (VC) funds.
- According to an analysis of data from the National Venture Capital Association, New Jersey is the only state to have experienced a decline in AUM (-2%) from 2010 to 2021. New Jersey still receives significantly less than regional states from two of the nation’s largest sources of early stage/high risk funding for startups and small businesses: the federal Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs. Massachusetts ($406.8 million) and Maryland ($191.1 million) led the region in total SBIR/STTR awards in 2020. New Jersey ranked fifth in the region, receiving $63.3 million.
- New York is followed by Pennsylvania ($103.1 million), Connecticut ($58.8 million), Maryland ($33.4 million), Massachusetts ($31.7 million) and New Jersey ($23.8 million). New Jersey is the only state in the region to see its R&D investment decrease from 2010 to 2020 (-38.5%).
- New Jersey saw an increase in National Science Foundation (NSF) funds to $183.5 million in 2021, up from $138.8 million in 2019. Massachusetts remains the regional leader with $565.6 million in NSF funds in 2021.
Capital Recommendations: Two of NJBIA’s previous recommendations from 2020 – increasing funding for the New Jersey Commission on Science, Innovation and Technology (CSIT) and forming public-private partnerships with state capital and venture capital funds – are in progress.
Outstanding recommendations to increase innovation capital in New Jersey include passing bill A-2487/S-2707, which increases credits awarded for R&D in strategic sectors to 15% of qualified expenses exceeding the base amount and at least 15% for basic research payments; continuing to maintain/increase CSIT funding; and monitor/analyze startup generation and job creation as a result of the new New Jersey Innovation Evergreen Fund.
- New Jersey continues to lead the region, and the nation, in net loss of first-time, degree-seeking undergraduate students leaving to attend schools in other states. According to the National Center for Education Statistics (NCES), New Jersey had a net loss of –27,556 students in the fall of 2020.
- Pennsylvania (+12,513), New York (+6,560), Massachusetts (+5,734), and Delaware (+1,011) all experienced gains in net migration of first-time college students in the fall of 2020.
- Educated employees are key to a successful innovation ecosystem and Massachusetts leads the region with 21.3% of its population holding a graduate or professional degree in 2020. Maryland ranks second (20.6%), followed by Connecticut (18.9%), New York (17.6%) and New Jersey (17.1%).
- In New Jersey, 0.37% of the population in 2021 met the criteria of a “new entrepreneur,” according to the Ewing Marion Kaufmann Foundation which uses U.S. Census data to estimate the percentage of a state’s population that starts a business. This is the second highest rate of any state in the region, just behind New York (0.38%).
Talent Recommendations: A 2020 recommendation to increase Public-Private-Partnerships (P3s) to pool financial resources and build relationships between industry professionals, academic researchers and government officials was launched earlier this year by NJBIA and the New Jersey Council of Community Colleges in the form of the NJ Pathways to Career Opportunities Program.
Another previous recommendation was to increase and annualize funding for the Innovation and Research Fellowship Program. However, Notice of Grant Opportunities decreased in FY21 and FY22.
NJBIA continues to recommend the allocation and administering of funds to New Jersey’s higher education research institutions to establish partnerships which would help entrepreneurs secure visas and allow them to build businesses and create jobs in the U.S.
- New Jersey takes the top spot in the region in Net Business Growth, with an increase of 4,516 new private establishments in 2019 – well ahead of second-place Massachusetts (641).
- New Jersey, however, continues to have the worst business tax climate in the nation, according to the Tax Foundation’s Business Tax Climate Index, which considers the individual income tax, the state sales tax, the corporate business tax, property taxes, and unemployment insurance taxes. New Jersey has ranked last in the foundation’s annual index for seven consecutive years.
- Neighboring Delaware and Pennsylvania continue to have the most business-friendly tax climate in the seven-state region, according to the index.
- Patent activity is an indicator of a healthy innovation ecosystem, and New Jersey ranks No. 4 in the region with 9,056 patents granted to investors and assignees in 2021. Massachusetts was No. 1 with 17,795 patents, followed by New York (17,119), and Pennsylvania (9,334).
- New Jersey is tied with Connecticut for fourth in the region with an 8.1% new employer actualization rate in 2021, an indicator used by the Kaufmann Foundation to calculate the percentage of businesses that make their first payroll within two years of a business application. Massachusetts was No. 1 in the region with a 12.1% new employer actualization rate, followed by New York (10%), Pennsylvania (9.6%).
Business Recommendations: In 2020, NJBIA recommended the establishment of the Government Efficiency Regulatory Review (GEARR) Commission to determine where rules and regulations are creating outsized burdens on New Jersey businesses.
In 2021, the bill was passed unanimously in the Senate and overwhelmingly in the Assembly (72-1-0). Gov. Phil Murphy, however, vetoed the bill. NJBIA maintains its recommendation to establish the GEARR Commission to help improve New Jersey’s business climate.
A 2020 recommendation by NJBIA to reinstate a corporate tax incentive program was completed with the establishment of the New Jersey Emerge program.
Other current recommendations include amending the current Angel Investor Tax Credit to provide additional incentives for investing in smaller, high-growth companies; and the implementation of Path to Progress reforms for New Jersey’s public employee pension and benefits system, state and local tax structures, county and municipal shared services and education reform.
New York’s R&D investment still far exceeds the spending of the other six states combined. In 2020, the Empire State spent $453.8 million in R&D, according to the National Center for Science and Engineering Statistics.