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Fine Print: Beefing up Oversight of State Economic Development Tax Incentives

Legislation on governor’s desk would spell out specific goals of incentive programs and assess their effectiveness more rigorously

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What it is: Lawmakers have sent to Gov. Chris Christie a bill, A-939, that attempts to enhance state oversight of the economic-development tax-incentive programs that have been ramped up in recent years to jumpstart New Jersey’s sluggish economy.

The bill was introduced last year, a year after lawmakers in the Democratic-controlled Legislature got together with Christie, a Republican, to revamp the incentive programs administered by the state Economic Development Authority. The incentives are generally designed to create jobs, attract investment, or prevent companies from leaving the state. Companies are offered a break on their future tax bills if they meet program employment and investment requirements. More than $2 billion in incentives have been awarded in just the past two years, according to legislative estimates.

What it does: The bill would update a law passed in 2007 that requires the state to review tax incentives and evaluate whether they have met certain goals. The measure upgrades the current law by requiring the specific goals of each tax expenditure be spelled out, and by changing the way the effectiveness of the incentives is measured. Data collection would also be performed on an annual basis and there would be a comprehensive presentation of state costs for each tax expenditure.

The bill would also mandate the expiration of new tax incentives after 10 years. And a legislative amendment added language to ensure that certain information, including so-called trade secrets, would remain confidential during the reporting process. That’s been one of the primary concerns with the current law.

Supporters of the bill: Democrats in the Legislature have been pressing for the enhanced reporting on the tax-incentive programs, although some Republicans have also praised that goal. The measure has also been endorsed by the liberal think tank New Jersey Policy Perspective, which has been critical of the state’s reporting of the outcomes of the tax-incentive programs. Also supporting the measure is Better Choices for New Jersey, a coalition of more than 60 groups including labor, environmental advocates, faith-based organizations, and others who share a common goal of protecting public investments.

The supporters have said increasing transparency is crucial given that the state’s unemployment rate remains higher than other states and above the national jobless average, raising questions about the effectiveness of the incentives. The incentives have also received more scrutiny as they’ve risen in value, and as state revenue collections have grown slowly coming out of the recession, potentially leaving the state with less money for investment in transportation infrastructure, the public-employee pension system, and other priorities.

Support for the tax incentives: Though many Republicans would argue the state should simply lower income and corporate-tax rates to attract more investment, they portray the tax incentives as another useful tool to create and retain jobs. Business advocates have also argued that other states in the region and across the country have been extremely aggressive in courting corporations to relocate and that New Jersey has to be “in the game” by offering incentives if it wants to remain competitive.

Officials at the Economic Development Authority have also stressed that the incentives are not simply handouts, and that corporations must live up to specific requirements or they will not receive the tax incentives. And supporters of the incentives have also said it’s far too soon to pass judgment on their effectiveness, given the investments that have been attracted by the incentives in recent years could take several more years to deliver full returns.

Impact on the state budget: Since the revamp of the incentive programs occurred relatively recently, legislative analysts are still trying to gauge the way the tax breaks are influencing revenue collections in coming years. But they have started to see some impact on corporate-business tax collections, one of the larger single sources of revenue for the $32.8 billion state budget, with about $103 million in credits counting this fiscal year, according to legislative analysts.

Harder to evaluate has been the impact the incentives are having on revenue growth, something their supporters maintain is the reason to offer the credits in the first place. Analysts say there is no way right now to precisely track the increased income taxes, property taxes, sales taxes, and other revenues collected as a result of a company coming to New Jersey, expanding here, or at least choosing not to leave.

What happens next: The bill passed the Assembly last week by a 43-31 margin. That followed the Senate’s approval of the measure last year in a 23-14 vote. But it’s unclear right now what Christie is going to do during the 45-day window he has to take action. A spokesman has said only that the governor will give the legislation a close review.

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