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Does New Jersey’s Largesse to Large Corporations Hurt Small Businesses?

Alliance of small-business owners demands temporary halt to tax-incentive programs; requests more study

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In a rare battle that pits New Jersey’s small-business community against its larger corporate counterparts, an alliance of small-business owners is demanding a moratorium on the state’s recruitment-and-retention tax subsidies until the programs can be studied.

Speaking at yesterday’s regularly scheduled Economic Development Authority (EDA) board meeting, members of the New Jersey Main Street Alliance, a consortium of 1,600 independent business owners, said the incentives favor politically connected corporations at the expense of taxpayers and communities.

“These incentives have simply gotten too big,” said Main Street Business Representative Jerome Montes. “What’s worse is we don’t really know what kind of benefit or what kind of effect this has on the overall New Jersey economy because there hasn’t been a mandated study.”

Rather than pour billions of dollars into programs that reward companies for moving around within the state’s borders, Main Streeters argue Trenton should better fund schools and facilitate easier access to small-business capital and credit.

Geetha Jayaraman, owner of Grab-Em Snacks in Hillsborough Township, spoke about her desire to build a gluten-free catering facility that would cost $100,000 to $150,000 – a relatively meager amount but more than she can afford.

“I’m not in a position to put out my own money and I’m equally deserving as Lockheed Martin,” she said, referring to the Moorestown aeronautical research and design firm that received $107 million in tax breaks to move a few miles to Camden. “I won’t simply move. I’ll hire cooks and servers and other staff, and profits will go back into the communities where we live and work.”

Though the New Jersey Policy Perspective, a liberal think tank that leads the state’s opposition to corporate subsidies, doesn’t track rewards by small versus big business, Deputy Director Jon Whiten emailed, “It's pretty clear that few or no ‘main street’ small businesses, which usually have less than 20, if not fewer, employees, have received subsidies after the 2013 subsidy overhaul.”

According the NJPP, the EDA approved $3.5 billion in subsidies between December 2013 and late 2015, with each job created or retained in 2015 costing taxpayers $98,930. Since January 2010, the total amount awarded has been $6.5 billion, though those who calculate these numbers often use 2013 as a dividing point because that’s when the Economic Recovery Act of 2013 overhauled the state’s incentive structure. The so-called Economic Opportunity Act disbanded certain programs and created others while greatly loosening regulations and expanding the amounts that could be awarded per company and in total.

At the meeting, EDA chairman Alfred Koeppe spoke calmly to the protesters, acknowledging the widespread disagreement over incentives, even within his own board. But, he said, the EDA has no power to change the law, only to implement it.

“We can provide our best advice and counsel (to applicants and opponents). What we can’t do is say, ‘Guess what, coach? We can’t approve these applications,’” he said.

However, after learning of the planned “protest,” the EDA went on the defensive, issuing a press release Monday and reading statistics at the top of the meeting that outline the awards that are available and have been approved for small businesses.

Among the most notable:

  • Approximately 37 percent of post-2013 approvals for the Grow NJ program have gone to businesses with fewer than 150 employees.

  • Small South Jersey companies accounted for three Grow NJ projects approved yesterday.

  • Though they don’t receive as much news coverage, the EDA manages several core lending programs through which the authority awards grants, loans, and access to low-interest commercial loans and tax-exempt bonds. More than 1,200 small businesses have been approved for grant and loan assistance under the Stronger NJ Business programs.

  • According to the EDA, “Across all incentive programs in 2015, under $37 million was actually paid out to businesses. That compares to $440 million in assistance provided to mainly small and mid-sized businesses through our traditional lending programs last year – roughly 12 times more.” Payouts sometimes come long after the applications are approved because some are contingent on construction, relocation, or job creation. Some credits don’t kick in until the company has inhabited its new space for a set period of time.

“While the legislatively created incentive programs EDA administers tend to get the most attention, it is important to point out that for more than 35 years the Authority’s central focus has been supporting New Jersey small businesses,” emailed EDA spokesperson Virginia Pellerin.

The New Jersey Chamber of Commerce went further than the EDA in defending the programs, opting to attack the credibility of the Main Street group itself. Despite NJ Main Street’s direct affiliation to a national group of the same name and its claim to represent 1,600 independent business owners, chamber Executive Vice President for Government Relations Michael Egenton said, “There’s some concern as to who they actually represent. My members say they don’t even know of them … We represent everyone from the Fortune 500 companies all the way down to the mom and pops who are actually on Main Street.”

New Jersey Business & Industry Association President and CEO Michele Siekerka, also an advocate for incentives, tempered her analysis of the group, saying only that it’s sponsored by NJ Citizen Action, a citizen watchdog group that often diverges from the business community’s stances on policy issues like paid sick leave and predictive scheduling. She also empathized with their pro-small business position, finding common ground by arguing that many Grow NJ incentives aid redevelopment that can spur small business growth in poor urban areas.

“There’s a positive impact on small businesses when you redevelop. The indirect economic impact is where Main Street comes in because that pizzeria on the corner is going to serve more pizzas,” she said.

Since the Economic Opportunity Act passed, revisions have been made to lower certain job-creation and investment requirements to allow smaller companies to qualify for the programs. Additionally, several bills are pending in the General Assembly to make them even more accessible and give greater advantage to the state. Notably, two bills would require the exact type of analysis Main Street is requesting. One would make the net-benefit analysis consistent with the number of years an award recipient must stay at the location to take advantage of the credits. The other would reduce the number of qualifying manufacturing jobs to 125 in certain situations, a number below the threshold of 150 employees that many regulatory bodies use to define a “small business.” Another bill waiting for a hearing in an assembly committee would bring back the Business Employment Incentive Program, which the EDA eradicated.

In order to offer assistance to the Main Streeters while these bills work their way through the system, Chairman Koeppe asked representatives from the state department’s Business Action Center to meet with them to find ways to address their concerns.

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