Follow Us:

More Issues

  • Article
  • Comments

Megadeals: Is New Jersey Out of Control?

Does paying tens of millions of dollars to lure new companies here or convince them to stay qualify as a sound economic policy?

New Jersey ranks fifth among states in the number of “megadeal” incentives it’s granted to convince corporations to invest and create or retain jobs here. This largesse, however, is expected to be curbed somewhat by the Economic Opportunity Act of 2013, which is likely to pass the General Assembly this session.

According to a report released today by national policy resource center Good Jobs First (GJF), New Jersey ties with Alabama and Kentucky in awarding 10 corporate-incentive deals worth more than $75 million each. Goldman Sachs, the 80th highest-grossing company in the nation, is one of the state’s largest beneficiaries.

New Jersey’s current megadeal incentives total $1.4 billion, making it one of 21 states to surpass the billion-dollar mark. Though the authors of the report acknowledge the benefits of investment, job creation, and retention, they argue that the national average cost-to-job ratio of $456,000-to-one is wasteful. They also note that many award recipients bleed taxpayers without stimulating real wage or tax growth.

According to the authors, the practice of awarding incentives has ballooned since Pennsylvania negotiated the nation’s first megadeal with Volkswagen in the 1970s, with the average number and cost of these pacts doubling in the past five years.

Cost of Doing Business?

“This practice has gotten out of control,” said GJF Executive Director Greg LeRoy. “How high can you go as a cost of doing business?” asked report co-author Philip Mattera, who commented that in today’s economy, too many incentivized jobs go to unskilled manufacturing or clerical positions employing low-wage or even temp workers.

“In some cases, these deals are costing states more than one million dollars per job. One million dollars per job seems crazy,” he said.

But New Jersey Economic Development Authority (EDA) President and chief operating officer Tim Lizura counters that reports like these don’t take into account the fact that not all programs list job-creation as an objective. Some New Jersey programs are based on capital investment, designed to make transformative changes in communities suffering from lack of investment. Therefore, he said, assigning a cost-per-job figure without differentiating between the two is like “mixing apples and oranges to make a fruit salad.”

By statute, he adds, these programs intentionally assign large rewards to stimulate large investments.

“When you build under a job-creation program, those jobs may be in the state for the duration of the investment period or they may not be there after the period ends,” he said. “When you build a community, that stays for a generation. It’s enduring and transformative and eventually spurs jobs.”

Cross-Border Confrontations

Jon Whiten, deputy director of New Jersey Policy Perspective, claims some of deals -- investment and otherwise -- may not live up to politicians’ expectations. Goldman, cited in the report for the $164.3 million it won in 2002 to move some operations from Manhattan to Jersey City, serves as his primary example.

“The general understanding is that Jersey City has become ‘Wall Street West’ so those jobs probably would have happened anyway,” he said. What’s more, the relocated employees are “coming just one PATH stop over the river so perhaps they’re still living, dining, and paying taxes in New York.”

New Jersey leads the nation in intra- and interstate transactions. They follow a pattern that increasingly pits neighboring states against each other to lure prized companies across borders. Often, intrastate incentives arise out of “job blackmail,” which occurs when companies threaten to leave the state if incentives aren’t forthcoming.

According to Whiten, Burlington Coat Factory won $40 million from the EDA last spring to move its headquarters “down the road on Route 130” after threatening a move to Pennsylvania. But Whiten doesn’t believe the retailer was serious, considering the company already owned the land to which it relocated. “Companies are saying, ‘Give us some money or we’re going to take our precious jobs and go to another state.' The problem is you can never tell if it’s a real threat,” he said.

EDA spokeperson Erin Gold said that although she can’t confirm the circumstances, if the company hadn’t been serious about moving, it wouldn’t have received the incentives.

Regardless, this type of regional infighting infuriates Camden County freeholder Lou Capelli. He’s among the South Jersey leaders scrambling to put together an incentive package to convince Subaru not to take its American headquarters from Cherry Hill to Philadelphia, where Keystone Opportunity Zone credits have proved enticing to many other companies. (To be fair, Subaru has expressed a strong interest in staying in Camden County, and is not threatening to leave over subsidies alone.)

“This kind of wrangling, where Pennsylvania’s actively trying to take companies from New Jersey, does nothing for the region,” Capelli railed. “It doesn’t benefit anybody.”

Economic Opportunity Act

Capelli is lobbying Trenton to pass the Economic Opportunity Act, likely to be voted out of the Senate budget committee by Monday. He said the bill proposes new incentives that will equal or surpass Pennsylvania’s popular Keystone program. And Princeton real estate attorney Ted Zangari said the incentives will prove so lucrative, yet so fair, companies won’t be able to resist them.

“I call this the Goldilocks Effect. It’s not too stingy, it’s not too generous,” Zangari said. “I can say confidently it will be a rare occurrence where we sit awkwardly with a company that’s telling the lieutenant governor that another governor is offering a larger pot of money.”

It remains to be seen what the final bill provides after it emerges from negotiations in the General Assembly -- and whether megadeal critics find it too charitable. As written, it calls for $25 million caps on what will emerge as the state’s only job-based incentive program. However, with bonuses that businesses can earn for belonging to certain industries or locating in specific geographical areas, those awards could reach $300 million each.

“I see it as three steps forward, two steps back,” Whiten said.

Lizura said that whatever the amounts, his office issues grants and credits only to projects forecast to generate an economic impact that exceeds the incentive costs by at least 110 percent. Using a net-benefit analysis, the EDA calculates the project’s expected public revenues over 20 years then compares them to proposed incentives.

Plus, he said, unlike other states, New Jersey doesn’t release funds until the project is complete. Companies applying job-growth incentives must establish those jobs before receiving any money, and investment-based funds get released after structures have been rehabbed or built.

The act also streamlines current policy by consolidating all existing state programs into two. Grow NJ predominantly bases incentives on job numbers, while Economic Redevelopment and Growth rewards companies like Atlantic City’s Revel casino for construction and real estate development. Under the Grow NJ program, in-state companies will qualify for just 75 percent of the financial incentives offered to new or out-of-state firms.

Satisfied with this provision, Whiten said Trenton might finally control some of its costs while still working toward a friendlier business climate and economic growth.

“States are willing to go to war with each other and play these games. New Jersey policy didn’t differentiate between existing jobs and new jobs, and in our minds those have pretty different qualities. The act is going to change that,” he said.

Neither Goldman Sachs nor Burlington Coat Factory public relations teams responded to emailed requests for comment.

Tara Nurin is a freelance journalist based on the Camden waterfront. Since leaving a ten-year career as a TV news reporter in 2005, she’s worked as a national columnist, city editor, features reporter, publicity director and documentary producer. The award-winning reporter has lived all over the world and is fluent in Spanish and French.

Read more in More Issues, Planning
Sponsors
Corporate Supporters