Trying to Get Companies to Stay Put in NJ

Colleen O'Dea | May 22, 2013 | More Issues, Planning
Bipartisan plan merges, expands economic incentives, corporate tax breaks

goya truck
New Jersey is working on a bipartisan plan to overhaul its always controversial business economic incentive program, this time putting a greater emphasis on attracting jobs to the state, rather than just retaining them.

But critics warn that it could lead to spending even more money on a program that some see as a boondoggle for companies that will eventually choose to either stay or relocate based on criteria other than tax breaks.

The Assembly passed the New Jersey Economic Opportunity Act, A-3680, on Monday by a 53-6 vote.

Designed to merge five different tax-incentive programs into one, the bill has 26 sponsors, six of whom are Republicans. GOP Assembly members cast all six votes against the measure and there were 15 abstentions, by both Democrats and Republicans. A similar but not quite identical bill, S2583, passed the Senate Economic Growth Committee two months ago. That measure is sponsored by one Democrat and three Republicans. The bills will have to be reconciled before being sent to the governor.

New Jersey’s economic incentive programs have been controversial. An analysis of the Economic Development Authority’s 2012 annual report shows $314 million in incentives to 55 closed projects throughout the state. In total the EDA report indicates it distributed $698 million to 228 projects last year, including loans, bonds, and other funds.

Critics complain that the state has been giving companies money to merely move from one community to another – Secaucus will lose about 1,200 jobs when Panasonic and Goya both move their headquarters to Newark with the help of $184 million in state tax incentives.

But supporters say the incentives are needed to keep firms from leaving the state, as Hertz recently announced it will move about 700 jobs to Florida over the next two years.

New Jersey Policy Perspective, a liberal-leaning think tank that studies state issues, has been critical of the incentives, but sees the overhaul legislation as a mixed bag.

“While it’s better than what we currently have, a number of big problems remain,” said Jon Whiten, NJPP’s deputy director. While the legislation on the one hand would be “making subsidies smarter” it would also lift the cap, which could cost the state a lot more in the long term.

Currently, New Jersey has five economic incentive programs administered by the EDA, which reported that the tax benefits approved last year the will create 4,822 new permanent jobs and 3,030 temporary construction jobs, while retaining 10,912 positions at risk of being transferred out of state, according to the EDA’s annual report.

The Assembly bill would phase out the Business Retention and Relocation Assistance Grant Program, the Business Employment Incentive Program (BEIP) and the Urban Transit Hub Tax Credit Program. Left would be the Grow New Jersey Assistance Program, which would become the state’s primary incentive program, and the Economic Redevelopment and Growth Grant Program.

The BEIP, created in 1996, has been the state’s largest provider of assistance, having given roughly $1.6 billion to create or retain nearly 102,000 jobs, according to a fiscal analysis by the nonpartisan Office of Legislative Services.

Assemblyman Albert Coutinho (D-Essex), one of the bill’s sponsors, said the state’s economic incentive programs are important, but the current system can be complicated. Coutinho said he consulted with business leaders, developers and union officials in drafting the legislation to revise the programs.

“Our tax incentive programs have been invaluable to our state’s economic development planning, but — with five programs with varying goals — we clearly need to streamline these programs and make it easier for businesses to understand and take advantage of them,” said Coutinho, who chairs the Assembly Commerce and Economic Development Committee.

Assemblyman Troy Singleton (D-Burlington), nother sponsor, said the new programs would be designed to allow New Jersey to better compete with other states.

“It would be built to better match or surpass the financial incentive packages being offered by neighboring and other competing states, while also providing bonuses to drive development to smart growth areas in the state,” said Singleton.

The expanded programs would be extended to other parts of the state – currently, some are targeted at only urban areas – and it lowers the eligibility thresholds for applying. Additionally, the new programs would give a boost to projects that meet certain public policy objectives, such as bringing fresh produce to urban areas currently without easy access to it and rebuilding tourist attractions destroyed by Superstorm Sandy.

Assemblyman Herb Conaway (D-Burlington), another sponsor, said the bill will help “small and mid-size companies … to expand their businesses in place, and to create and retain New Jersey jobs.”

Whiten said the bill has several positive aspects. For instance, it differentiates between bringing new jobs to the state and simply keeping those purportedly at risk of being moved out of state, giving less of a break for those jobs the state already has and wants to keep. It also targets industries the state is trying to expand, including high-tech and manufacturing.

But the bill could also cost the state a lot more.

“There is no cap on the total amount that can be spent under the Grow New Jersey program — setting up a potential revenue loss of billions of dollars that could be better spent on more proven ways to attract good jobs,” Whiten said.

The measure would raise the maximum per-company subsidy to $300 million, more than seven times the current cap of $40 million under Grow NJ, according to Whiten. Similarly, the highest per-job subsidy would increase to $15,000, almost double what is currently allowed.

Whiten also criticized the geographic expansion, saying it would essentially underwrite sprawl.

Clean-energy advocates, meanwhile, oppose a portion of that bill that taps into a state clean- energy program fund financed by surcharges on customers’ electric and gas bills. The measure would allow developers to be repaid money they pay into that fund along with other utility taxes. Lawmakers and administrations have repeatedly diverted funds from the clean-energy program to help balance the state budget.

In its analysis, OLS wrote 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 that may amount to billions of dollars from the awarding of additional financial assistance.”

NJPP was part of a report issued last January by Good Jobs First that called various state incentive programs a “job creation shell game.” The report contended that states like New Jersey and metropolitan areas across the country waste billions of dollars every year giving out economic development subsidies to entice companies to move from one state or one area to another.
That said, if other states continue to give subsidies, New Jersey will have to play the game, too, Whiten said.
“Barring some sort of armistice or multi-state treaty on giving these incentives, it will not go away,” Whiten said. “New Jersey needs to operate within that reality.”

Editor’s note: The numbers for the EDA’s incentives and distributions have been corrected since this story was originally published.