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Biggest Business Incentive Overhaul in State History Wins Final Approval

econ oppty vote
State Senate during vote on Economic Opportunity Act.

New Jersey state lawmakers have given final legislative approval to what some are calling the biggest overhaul to the state’s corporate incentives system in history. This, despite the lack of a spending cap on the total award, making it impossible to predict the cost to the state.

Yesterday afternoon, senators quickly and nearly unanimously consented to a conditional veto of the New Jersey Economic Opportunity Act of 2013 -- a bill that streamlines and expands access to tax credits for businesses that create jobs and make capital investments in the state. With approval granted by the General Assembly on Tuesday, the bill now moves to Gov. Chris Christie’s desk for his expected signature.

The 82-page bill took 14 months to wind its way through Trenton. Along the way it encountered bitter opposition from environmentalists, foes of big government, members of the majority party, and even the primary senate sponsor himself. Last spring, it passed both houses in forms too different to be reconciled and, after months of negotiations and the addition of enough amendments to double its length, it met the governor’s conditional veto pen before finally passing both chambers this week.

But the drama didn’t end there. On Wednesday, one day after pushing the act through the assembly, primary sponsor Al Coutinho (D-Newark) suddenly resigned. Yesterday morning, the circumstances surrounding his resignation grew clearer when the attorney general’s office announced charges that the 44-year-old chair of the commerce and economic development committee had stolen funds from his charitable foundation and filed false disclosure statements. Before the announcement, Coutinho, who suffered from cardiac arrest this spring and withdrew his petition to run for re-election last week, had already pleaded guilty.

Fortunately for its supporters, the news didn’t affect the bill’s final outcome. Minutes before yesterday’s vote, primary senate sponsor Raymond Lesniak (D-Union) told reporters that Coutinho’s plea, and the charges filed against him, didn’t damage the credibility of the bill, which went on to pass his chamber by a vote of 35-to-1.

Lesniak did, however, take the unusual step of railing against his own bill and the changes mandated by the governor.

“This is a flawed bill and the governor sent it back with more flaws,” he said to reporters and in open session.

Specifically, he expressed unhappiness that Christie vetoed a provision that would have required a prevailing wage for construction and custodial workers in buildings housing incentivized companies. He has also made known his disappointment over a mandate that subsidized residential housing developers include at least 20 percent affordable-housing units. Although it seems counterintuitive, the long-time advocate for low-income housing feels the continuation of the affordable housing mandate will deter builders from small, impoverished cities because residential builders have to offset the lower rents they collect on affordable units by charging more for market-rate units. It follows that in low-income cities with small populations, there are too few market-rate tenants who can afford to pay those higher premiums to justify the expense of the project.

He promised to address both of these issues at a later date and urged his fellow senators to approve the bill.

“It’s not perfect but it’s necessary for job creation,” he implored them.

Emphasizing Jobs and Lowering Risk

On its most fundamental level, the bill streamlines the state’s incentive programs by phasing out the Business Retention and Relocation Assistance Grant Program (BRRAG), the Business Employment Incentive Program (BEIP), and the Urban Transit Hub Tax Credit Program while boosting the Grow New Jersey Assistance Program (GROW NJ) and the Economic Redevelopment and Growth Grant Program (ERG). Supporters say that by eliminating the majority of programs that incentivize construction and significantly boosting the GROW NJ program, whose requirements emphasize job creation over capital investment, they’re placing the emphasis directly where it should be: on jobs.

Perceiving them to be too risky, many welcome the elimination of BRAGG and BEIP. The former focuses only on job retention and allows for up to a $2,250 annual per retained-employee tax credit to companies that preserve at least 50 jobs and commit to relocate in-state with capital investments or leases significant enough to “yield a net positive benefit to the State.” The latter provides businesses with annual cash grants to relocating or expanding companies based on the number of new jobs created, up to 80 percent of each employee’s withheld state income taxes for 10 years.

On the other hand, ERG assists redevelopers with incentive grants based on annual incremental state and/or local tax revenue. Unlike the first two, it rewards companies for high performance and buffers the state from losses.

GROW NJ also ties rewards to success. It credits companies based on the amount of jobs created or retained, as long as they meet the capital investment threshold. Therefore, the program incentivizes the creation or retention of as many jobs as possible in order to maximize subsidies.

In order to make these programs more inclusive, the economic opportunity act lowers their barriers to entry. Critics complain that with its high minimum threshold of $20 million in investment and 100 jobs retained or created, GROW NJ restricts recipients to only the largest corporations and penalizes parts of the state that can’t attract that caliber of occupant. Instead, the new legislation bases GROW NJ’s subsidies on a dollar amount per square foot of gross leasable area of a building and sets the base minimum job requirement at 50 for jobs retained and 35 for jobs added. Supporters are applauding the access this gives to small and medium-sized companies.

Sprawl

But what is one person’s inclusiveness is another person’s sprawl. Most geographic restrictions have been lifted from both programs. This removes the limitations that clustered incentives primarily in urban and distressed areas and opens up virgin and remote land to developers who can soon apply incentives to building infrastructure and, in some cases, high-density development.

An earlier assembly version of the bill drew geographic boundaries that adhered to the state’s Strategic Plan and avoided environmentally sensitive regions like the Highlands Planning Area and the Pinelands. But over the vehement objections of some left-leaning assemblymen, the final version incorporates a senate amendment to remove those provisions, which also infuriates environmentalists who cry that the state is now promoting development in some of its last remaining open spaces, in fragile coastal areas and near drinking-water supplies.

“This bill. . . will create more flooding and development in areas that were just destroyed in Hurricane Sandy,” wrote New Jersey Sierra Club Director Jeff Tittel in a statement, echoing a refrain sounded by at least 10 of the state’s environmental and smart-growth organizations. “There are projects that would never happen without this law . . . because they could never get the financing, or the costs of bringing in infrastructure like sewer lines would be too expensive.”

Before resigning, Coutinho countered these charges with his own familiar refrain. “No one will be able to build anywhere they can’t already build today.”

Coutinho, who says he spent months trying to incorporate the environmental lobby’s demands, did manage to work in some protections. Developers using ERG funds can qualify for greater benefits if they contribute to urban revitalization, build near transit hubs, fill vacant industrial facilities, adhere to green building design, erect markets that bring fresh produce to underserved areas, or rebuild in any of the four cities with the state’s lowest median family income, now designated as Garden State Growth Zones (GSGZ): Camden, Trenton, Passaic and Paterson. However, preservationists lament the clause that allows any land that ever housed any type of structure to be considered for redevelopment dollars -- even if the previous structure consisted of a rural shack and the new structure will house the headquarters of a multinational company.

Regional Planning

By lowering its minimum job threshold and some of its capital investment requirements and applying per-job credits on a sliding scale, GROW NJ is meant to work in tandem with ERG to help the state advance its goals for geographic and industry-specific planning. Companies in high-growth industries, like tech startups and manufacturers, for example, can qualify for credits by adding 10 jobs or retaining 25. Those who locate in the state’s southernmost counties can receive subsidies by creating as few as seven jobs and investing 33 percent less than typically required.

For a time, the South Jersey distinction divided lawmakers into northern and southern camps. But legislative leaders convinced dissenters to accept the terms to move the bill forward and appease the South Jersey contingent, whose members claim North Jersey profits inequitably from corporate investment, due in part to a more tightly clustered and less agricultural workforce.

“The new system developed in the bill finally creates an equitable formula that promotes growth in the eight southern counties -- one that reflects that region’s unique industry and population profiles,” read a statement released by senate cosponsor Donald Norcross (D-Camden).

“One size doesn’t fit all in New Jersey,” he added.

Some critics who took exception to the South Jersey exemptions also critiqued additional benefits they say appear to be specifically written for projects in Camden and Cherry Hill. One loophole allows subsidies to retail facilities in GSGZs that are at least 150,000 square feet and at least half-filled with a full-service supermarket or grocery store. It also waives the ban on subsidies to these companies whose employees work less than 35 hours per week and do not receive health benefits.

The think-tank New Jersey Policy Perspective (NJPP) calls this a “state policy that rewards the creation of low-quality jobs,” and others have suggested that it was written to benefit the developers of a ShopRite and shopping center scheduled to open in Camden in 2015.

And while NJPP approves that the revised programs offer lower eligibility thresholds to companies bringing new jobs to the state vs. those simply threatening to leave (with the exception of in-state businesses relocating after being damaged or destroyed by a federally declared disaster), the group does point a finger at a loophole that doesn’t distinguish between a new arrival and the U.S. headquarters of an automobile manufacturer located within specific areas. NJPP speculates that this clause is intended for Subaru, who’s outgrown its American base in Cherry Hill and is weighing a move to Philadelphia.

Indeed, in an interview earlier this summer, Camden County Freeholder Director Lou Cappelli lamented New Jersey’s difficulty in competing with Philadelphia’s popular Keystone Opportunity Zone program and expressed hope that Trenton lawmakers would hurry and pass legislation to entice Subaru to stay put. He said at the time, “This kind of wrangling where Pennsylvania’s actively trying to take companies from New Jersey does nothing for the region and doesn’t benefit anybody.”

Keeping Up With the Carolinas


But proponents of the act say like it or not, that’s how the modern corporate real estate market works, and New Jersey needs to do better in keeping up with places like Pennsylvania, New York, North Carolina, and even France, where incentives are larger or the cost of doing business is smaller. They cite New Jersey’s 8.6 percent unemployment rate, which exceeds the national average by 1.3 percentage points, and they highlight companies like Hertz, which are being lured elsewhere.

But opponents argue that the high unemployment rate proves precisely that incentives don’t work. NJPP has found that between February 2010 and January 2013, New Jersey has awarded $2.1 billion, as compared with $1.25 billion throughout the previous decade. NJPP’s deputy director, Jon Whiten, notes in a report that not only have the aforementioned companies moved out, but that companies like Panasonic, Goya and Burlington Coat Factory accepted incentives to “move down the street.”

On top of that, they argue that incentives don’t bring business. Instead, groups like NJPP reference studies and surveys that show CEOs instead look for locations with good schools, low-crime, modern infrastructure, and a “well-trained, highly-educated workforce.” They insist that the more the state loses on tax credits, the less it has to spend on improving these quality-of-life measures.

Deriding the act as pure corporate welfare, the liberals who posit these arguments find themselves siding with libertarians, who smear it with the same label. But even though their arguments get them to the same place, the fiscal conservatives’ reasons are in direct opposition to those given by the people-first contingent.

Yesterday, the lone dissenting vote came from Republican senator Michael Doherty (R-Washington), who likely summed up the sentiments of the five members of his party who voted against the identical assembly bill on Tuesday: “Let the free-market system operate,” he said. “I don’t think this bill is doing anything to address [the state’s] high regulatory burden, high taxes, and energy costs, and the fact that the New Jersey Department of Environmental Protection is making it extremely difficult for businesses to operate.”

Whatever their motivation, opponents fear the loss of revenue to the state may reach skyscraper proportions. The measure would raise the maximum per-company subsidy to $350 million, more than seven times the current cap of $40 million under GROW NJ. And by eliminating the existing limits to tax expenditures doled out by the Economic Development Agency (EDA), which administers these programs, there’s no predicting their cost.

The nonpartisan Office of Legislative Services wrote in a fiscal analysis of the bill that it “cannot project the direction or magnitude of the bill's net fiscal impact on the State and local governments” in part because “the bill will produce an indeterminate multi-year State revenue loss.”

Lesniak said he has “lots of confidence in the EDA” and noted that companies won’t be able to take unfair advantage, given that CEOs threatening to leave New Jersey for greener incentives elsewhere will be required to prove that they “have another credible location” outside the state.

And although supporters like Sen. Joe Kyrillos (R-Monmouth) sent out self-congratulatory statements yesterday lauding their bipartisan efforts to write and pass this landmark piece of legislation, an unscientific NJ Spotlight readers’ poll showed that as of 7:30 last night, only 15 percent of respondents approve of the legislation. Half of those not in favor called it “corporate welfare at its worst” and the remainder split evenly in their opposition, with half fearing it will lead to too much sprawl and half remarking that it’s a “big grab-bag with something for everybody."

"Something in this case is spelled p-o-r-k.”

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