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New Lease on Life for Urban Enterprise Zones, but Is Murphy Onboard?

Legislation hopes to maintain UEZ benefits, like 50 percent sales-tax break, in dozens of communities where zones are scheduled to expire

Pleasantville UEZ

State lawmakers tried in vain to get former Gov. Chris Christie to agree to extend a longstanding economic-development program that helps boost struggling cities and downtowns with a special sales-tax break and other incentives. But with a new governor now in office who is emphasizing economic growth and a bigger role for small businesses, lawmakers have decided to go for it again.

A measure that would renew the state's Urban Enterprise Zone program for an additional 10 years has been reintroduced for the latest legislative session, and it's already cleared one key committee hurdle in the Senate.

Like the previous efforts, the new legislation is seeking to ensure a 50 percent sales-tax break and other incentives remain in effect in dozens of communities across the state that have been granted UEZ status through an economic-development program that was launched more than three decades ago. But the bill would also reinstate the special designation in five original UEZ communities that lost it at the start of 2017, after Christie refused to work with lawmakers to keep it in place, even on a temporary basis. They are Bridgeton, Camden, Newark, Plainfield, and Trenton.

New take on Urban Enterprise Zone

The new version of the UEZ-renewal legislation is being backed by the chief lobbying group for the state's towns and cities, the New Jersey State League of Municipalities, which says some 6,800 businesses across the state now participate in the UEZ program, particularly in communities with high unemployment and lower-than-average household incomes. It also has the support of business-lobbying groups that want to see the program extended, at least until a more effective alternative is identified.

But it's unclear right now exactly where Gov. Phil Murphy, who replaced the term-limited Christie earlier this month, stands on the UEZ-renewal effort. Murphy has called for more diverse economic-development initiatives in New Jersey that emphasize more than just trying to recruit big companies to come here. And while a report on urban-growth issues that was just released late last week by his transition team highlighted the longstanding role of the UEZ program, it also left its future up in the air. The report, meanwhile, also called for a study of best practices that are being used to sustain economic activity in other states and cities, among other recommendations.

Started in the 1980s as a way to give a boost to small businesses in New Jersey's struggling urban communities as they tried to compete with suburban malls, the UEZ program's main attraction has been the authorization for businesses to charge half the state sales tax, which right now is 6.625 percent. But the UEZ program, which is administered by the Department of Community Affairs, also provides several other tax incentives in addition to the sales-tax discount. They include a break on energy taxes, business-to-business tax exemption, subsidy for unemployment insurance, and corporate-tax credits for hiring and investing.

Bridgeton, Camden, Newark, Plainfield, and Trenton were the first cities to offer the sales-tax break after the UEZ program debuted in 1986. But many other communities were added to the program, boosting enrollment at one point to 37 municipalities.

One-time extension of UEZ

Under the original terms of the UEZ program, the special designation was to sunset 20 years after it was first established in each respective community. But lawmakers voted in 2001 to allow a one-time extension of the program for another 16 years.

The extension for the UEZ program's five charter communities expired at midnight on December 31, 2016. All of the remaining UEZs across the state are also now on course to see their designations run out between 2019 and 2026, starting with Millville and Vineland in 2019, according to DCA records.

During his first term in office, Christie, a Republican, issued a report that questioned the efficacy of the UEZ sales-tax break, finding only minor evidence of the program generating a "ripple effect" of economic activity. The report also recommended that the entire program eventually be eliminated.

As the first five UEZ communities faced the deadline for renewal in 2016, lawmakers asked Christie to approve a 10-year extension of the program to allow for another study to determine whether the UEZ program could be replaced with a more effective economic-development initiative. But Christie rejected that effort in a conditional veto arguing the program was only supposed to be temporary. He also said the cash-starved state budget would get $2.33 billion in additional revenue over the next decade once the businesses in all of the UEZ communities began charging the full state sales tax.

The latest UEZ legislation, sponsored by Sens. Shirley Turner (D-Mercer) and Nilsa Cruz-Perez (D-Camden), once again seeks to tack on another 10 years to the UEZ designation in each of the communities that still have it. The bill would also retroactively reinstate the UEZ program in Bridgeton, Camden, Newark, Plainfield, and Trenton.

"By extending the UEZ designation, we can provide an opportunity for disadvantaged communities to not only attract new companies that bring jobs for local residents, but also to keep existing businesses and to keep our residents working," Turner said.

The bill cleared the Senate Economic Growth Committee last week, gaining support from groups like the New Jersey State League of Municipalities and the New Jersey Business & Industry Association.

No free ride

Jon Moran, senior legislative analyst for the League of Municipalities, said businesses in the UEZ communities don't get the sales-tax break and other incentives "for free." Instead, they have to meet several requirements, like hiring a certain number of local residents, or those who've faced long-term unemployment.

"We want to make sure that the businesses in those towns, that agreed to the conditions in the (UEZ) act, will be able to participate," Moran said.

Andrew Musick, NJBIA's vice president of taxation and economic development, suggested the program has a proven record of being an effective tool for small businesses in the UEZ districts.

"Small businesses still need the help that the UEZ program provides, so we should keep it in place until more effective alternatives can be found," Musick said.

If the new bill eventually makes it through the Legislature, it will now be up to Murphy, a Democrat, to determine what happens next. Murphy's press secretary, Dan Bryan, declined to comment on the issue yesterday, citing a general policy of not weighing in on pending legislation. The 12-page report issued by Murphy's Urban and Regional Growth Transition Advisory Committee mentions the UEZ program briefly in a discussion of a proposed study of best practices that would look at ways to help New Jersey towns and cities stabilize property taxes and ease spending pressures. But the report didn't specifically call for a renewal of the UEZ program.

Other recommendations from the committee include implementing a statewide strategic-growth plan; improving New Jersey Transit's bus system; taking steps to strengthen women- and minority-owned small businesses; and bolstering community resilience efforts to combat climate change.

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