New Jersey’s Urban Transit Hub Tax Credit program has become popular with corporations and residential developers recently, with more than half of the program’s $1.5 billion committed to 13 projects over the past two years.
But the nine cities currently eligible for the program, which provides a tax credit of up to the full value of capital investments in very large projects within a half mile of urban rail stations, may have to share the wealth with suburban areas that can attract large construction investments that retain or create jobs. Bills moving through both houses of the legislature seek to divert $200 million initially from the cities for new Grow New Jersey credits.
The proposals have prompted more debate over a program that is already somewhat controversial. Smart growth and planning advocates worry that further changes in the UTHTC will encourage too much development in the wrong places and detract from its main purpose — to help create pedestrian communities around mass transit in the cities. Housing advocates complain the program does nothing to advance affordable housing. Still others question the program’s efficacy in general, saying its benefit is questionable as part of a haphazard economic recovery effort.
“It’s a little hard to say if it’s been effective,” said Deborah Howlett, president of New Jersey Policy Perspective. “All the job creation numbers are self reported … The problem is none of it is part of a coherent strategy. All it is is spaghetti thrown at the walls to see what sticks.”
Adam Zipkin, Newark’s deputy mayor of economic and housing development, is grateful for Newark’s share of the pasta: $686 million invested in five projects expected to bring more than 1 million square feet of corporate offices and some 375 new residential units, as well as space for shops and charter schools.
“For some of these larger construction projects, the cost to build makes it very difficult without a significant subsidy,” Zipkin said. “This urban transit hub tax credit program has enabled these projects to be financially viable.
“It’s great for Newark,” he continued. “It’s very smart state policy to encourage development near transit hubs.”
Initially enacted in 2008, the program was designed as a way to bring new capital investments to cities with transit stations: Camden, East Orange, Elizabeth, Hoboken, Jersey City, Newark, New Brunswick, Paterson and Trenton. Developments within walking distance of rail stations would increase transit ridership and take cars off the roads.
The program has been amended twice. The major changes include reducing the capital investment needed to qualify to $50 million for a commercial property, making it easier for mixed-use developments to qualify, opening the program up to properties within a mile of freight rail lines, increasing the benefit for residential developments to 35 percent of the investment, and eliminating the automatic requirement that 20 percent of residential units be set aside as low- and moderate-income housing.
Two governors of different parties have had a hand in the program and both touted its benefits.
“The bill supports the revitalization of New Jersey’s urban centers by leveraging valuable transit assets that provide a strong foundation for economic growth, while encouraging increased transit ridership,” said Gov. Jon Corzine in signing the law on Jan. 13, 2008.
Gov. Chris Christie, in signing amendments to the UTHTC last July, said the changes would make an important program even better.
“Putting in place targeted incentives to encourage businesses to build, develop and expand in the state is a critical piece of our broader efforts to drive New Jersey’s economic recovery,” he said.
To date, 13 projects — nine commercial and four residential with some office, retail or school space — were approved to receive more than $823 million in tax credits between February 2010 and last month, according to the New Jersey Economic Development Authority, which administers the program. Almost half of those are in Newark. The projects represent a total capital investment of nearly $1.5 billion and are expected to bring the state a net economic benefit of $800 million over a period of as long as two decades. They are expected to lead to the creation of about 2,200 new jobs and keep another 2,300 that were at risk of being moved out of state.
Jobs are among the most controversial benefits of the program, because in several cases — Pearson, Goya and Panasonic — the jobs that will remain in New Jersey are moving from a more suburban location into the cities. Secaucus is the loser in two of those instances, with 425 Goya jobs moving to Jersey City and 806 Panasonic spots moving to Newark.
“From what we’ve seen, I don’t think it’s drawn in many businesses from out of state,” Howlett said, questioning the benefit of using state tax dollars to move a company from one location in New Jersey to another. “You shouldn’t develop one at the expense of another.”
Howlett said Goya’s move from Secaucus to Jersey City will result in only nine new jobs.
“Is it really enough to warrant that kind of investment?” she asked.
Tim Lizura, the EDA’s senior vice president of finance and development, said the program was designed to spur private investment in the nine cities and it has done that.
“It is changing the face of the cities,” he said. “It’s going to get people off the highways and onto trains.”
Lizura said the tax credits are bringing close to $3 billion in investments to the cities, and while the bill was not originally designed as a job creation bill it is expected to lead to the creation of more than 2,200 new permanent jobs in the 13 projects approved to date.
“The basic proposition of capital investment in these cities is good policy,” he said. “Even with it not being a jobs program, an awful lot of jobs are being retained and created.”
Lizura said the EDA’s net benefits test ensures that a project provides at least a 110 percent return on investment, and one aspect of that test involves a calculation of the number of jobs created, including temporary construction jobs, or retained. In this economic climate, New Jersey finds itself competing as heavily to keep jobs in the state as much as it is vying to bring jobs in from elsewhere. There is even a provision in the law that states any business that lays off 20 percent or more of its total complement of workers in New Jersey forfeits its tax credits.
“The jobs maintenance program required in the bill is really draconian,” he said.
Among the other program rules:
* The corporation’s chief executive must certify that the tax credits are needed to keep at-risk jobs in New Jersey or create new positions.
While $824 million in credits have been approved, none have been issued yet because no credit is issued before a project has a certificate of occupancy. Lizura said the state expects to award the first $41.7 million in credits soon to the Daily News, which is spending $100 million on three new presses at its site in Jersey City.
Some speculate that lawmakers are pushing bills to use some of the money earmarked for UTHTCs for smaller projects outside the cities through a new Grow New Jersey Assistance Program to appease local officials who have or may lose businesses to urban areas.
“Some companies feel they’ve lost to the urban transit hub program,” said Robert Freudenberg, director of the New Jersey office of the Regional Plan Association. “This is a sharing the love kind of thing.”
“Everyone wants a piece of it,” Howlett said, adding she counted 14 bills seeking to expand the program. “There’s no shortage of people lining up at the trough.”
But sponsors of the measures see it differently.
“With the problems we have today, we can’t be picky in terms of where we want the jobs to go,” said Sen. Raymond Lesniak (D-Union) and a sponsor of one of the Grow New Jersey bills. “We can’t ignore many of these areas that statistically have suffered job losses.”
His bill, S-3033, and a comparable Assembly measure, A-4306, would give tax credits to businesses that invest at least $20 million and create or keep at least 100 full-time jobs in certain areas targeted for growth, including designated centers under the state plan, former military bases, and vacant commercial buildings with at least 400,000 square feet of space. The projects also must provide a net positive fiscal benefit to the state. An estimated $200 million would be earmarked from the UTHTC program, but the bill allows for the EDA to divert more money to Grow New Jersey if it deems appropriate.
“Nothing is more important right now than doing whatever we can to help New Jerseyans and the businesses that employ them survive this difficult economy,” said Assemblyman Albert Coutinho (D-Essex) and chair of the Assembly Commerce and Economic Development Committee. “Creating jobs and economic growth is a must.”
Not if too many of those jobs are in sprawling suburbs, say smart growth advocates, who are seeking to cap the amount diverted from cities at $200 million.
“We’re hearing that commercial brokers are lining up with projects, it’s not that hard in the suburbs,” said Chris Sturm, senior director of state policy for New Jersey Future.
“There’s a general controversy about corporate incentives … If you’re going to incentivize corporations, you ought to be doing it with other strategies, for instance, to grow where there is already infrastructure.”
“The ultimate goal is to not undermine the urban transit credit,” Freudenberg agreed. “The future of New Jersey is in its urban centers.”
Smart growth advocates can live with a small redirection of money but are not convinced that is the goal.
“Is this a limited diversion of funds or a subtle way of changing policy?” Sturm said. “You have to question the intent.”
“You’re talking about a state with scarce resources that cannot even fully fund its education system. Spending a billion-five without any real strategy to it seems to us to be the strong policy,” Howlett said. “At the end, public dollars are being spent.”
Lesniak said the state investments are bringing results. He is proud of the economic activity resulting from both the urban transit hub and Economic Redevelopment and Growth program, which was created by his first UTHTC amendment and provides incentives for developers to build in centers and areas designated for growth under the state plan.
“In a sluggish economy throughout the world, the legislation produced capital investment of $3.35 billion, 15,800 construction jobs, 11,300 new jobs and $96 million [in] annual net tax revenues,” Lesniak stated in an email. “Pretty good. And it will only get better.”