Early Returns: Economic Opportunity Act of 2013 off to Solid Start

Tara Nurin | March 13, 2014 | More Issues, Planning
New programs are attracting businesses big and small to New Jersey's battered cities and aging suburban office parks, but questions remain

Jersey City
Three months after the biggest reforms to the state’s business attraction and retention policies went into effect, supporters of the new programs are hailing their early successes with phrases like “dramatic sea change.”

These advocates — which include real estate attorneys, brokers, and development professionals — may have good reason to believe that the Economic Opportunity Act of 2013 (EO13) is working as planned. In fact, they may have 63 of them.

That’s the number of projects already approved for incentives. And they include some global companies, like Forbes Media, which is considering moving its headquarters to Jersey City, and Thomson Reuters, which may expand its Hoboken holdings for approximately 450 employees from its tax and accounting unit.

And despite some concerns that the message isn’t getting out quickly enough for municipal decision-makers to court developers and corporate boards before the act expires in six years, backers feel strongly that the state’s blighted city neighborhoods, booming urban hubs, and aging suburban office parks can thrive at little to no risk to taxpayers.

“It’s a perfect storm with this compelling piece of legislation,” said Tim Lizura, president and COO of the New Jersey Economic Development Authority (EDA), the agency charged with administering the state’s business incentive programs.

Benefits of EO13

EO13 is being touted by the real estate community as the answer to incentives programs in New York and Pennsylvania that have crippled New Jersey’s attraction and retention efforts for years. Its goal is to create a more business-friendly climate by increasing tax incentives for companies to set up shop in New Jersey; lowering the minimum investment and job-creation thresholds; and creating dozens of special zones and conditions that help companies qualify for even greater rewards.

New Jersey’s new program allows companies to layer incentives for line items like location, proximity to transit, building an environmentally-friendly headquarters to create a package of incentives that supporters of EO13 say is difficult to turn down.

Additional incentives and lower thresholds available exclusively to companies that locate in Camden are giving investors reason to consider the city, perhaps for the first time,.

But bustling localities like Hoboken and Jersey City that underwent their first contemporary renaissances two to three decades ago can also benefit from incentives. Supporters argue that the EDA programs can attract businesses to locate there instead of in hip places like Brooklyn. Plus, they maintain, they can lure developers to re-revive old buildings that were initially rehabbed with 20th century incentives and are no longer compatible with modern technology or sensibilities.

As Brent Jenkins, vice president of the LCOR real estate investment firm, explained, “In those areas, because they’re urban and have been developed in the past, you have a lot of additional challenges in terms of infrastructure and uncertainty: assemblages of property because of density, community groups that can contribute to increased timeline and uncertainty with capital markets. (They all) boil down to risk. Incentives help mitigate some of these risks.”

But the more companies chase millennials into hot pockets of the cities, the more they leave behind the tired suburban office parks popularized in the ’80s. EPO13 addresses this, too, with incentives for complex owners who encourage developers to build residences on their campuses.

And because suburban property owners may not have access to incentives for locating near public transit or in a deep poverty zone, they can get creative by bundling investment-based incentives for developers with jobs-based incentives for tenants. That’s in addition to building packages with awards for things like LEED-certified construction.

“It’s going to be a really exciting elixir for suburban mayors,” said Ted Zangari, a real-estate attorney who helped write EO13. He points to one approved project that has redevelopers in Holmdel partnering with Toll Brothers to build housing on parking lots around a large Bell Labs structure.

Minimizing Risk to Taxpayers

With safeguards that require developers and corporations to put up their own money and reach certain goals before collecting from the state, observers say taxpayers are protected from unproductive investments.
“If we do our job right the state is at zero risk,” said Lizura.
For example, before the EDA disburses funds:

  • Projects undergo a net benefit analysis before approval to verify that “the revenues the State receives will be greater than the incentive being provided,” according to EDA literature
  • Where building or rehabbing is required, the state performs an audit of the construction materials and the actual cost of completed construction
  • For projects outside designated distressed areas and highly distressed Garden State Growth Zones (GSGZs), companies qualifying for employee-based tax credits can’t receive them in excess of 90 percent withholding per employee
  • Also, in some situations, tax rebates come out of the corporate or hotel taxes generated by the project itself, and the law is written so that EDA officials can determine eligibility based on whether or not the project is positioned to spur additional development nearby.

    Too Generous?

    The law has generated some criticism for being too generous in allowing GSGZ cities – Camden, Trenton, Paterson and Passaic — to enter into tax abatement agreements that require developers to pay property taxes on only the land value for the first 10 years of a new or rehab construction project while phasing in the value of improvements over the following decade.
    But Anthony Perno, CEO of the Cooper’s Ferry Partnership development association in Camden, argues that in the GSGZs, which count as those cities needing the most investment to replace decrepit structures or empty lots, any tax receipts help municipal government more than zero tax receipts.
    “Camden has not gained any new ratables in the last 20 years, and 50 percent of the city is tax exempt because of nonprofit and government entities like educational medical and faith-based institutions,” he said. “If the city didn’t do something dramatic the city would never be able to return the vacant lots and buildings back to the tax rolls.”
    As Lizura added, “We’re only giving away the taxes that wouldn’t have appeared if the project weren’t built.”

    Trouble Ahead

    Despite the buzz EO13 seems to be generating in Camden and elsewhere, Perno and others recognize some significant challenges for the future. They say with retail developers and entrepreneurs wanting to go where their prospective employees are, and prospective employees wanting to go where schools, transit, and recreation options contribute positively to their lifestyle, the development of Camden could stall before these benefits are realized.

    Here’s why: EO13 is a six-year program that provides benefits over a 10-year term to companies that remain in Camden for five years past their term, lest they risk paying back their incentives. In year 16 the company is free to decide where to locate its operations. If Perno and fellow Camden boosters can lure manufacturing firms to the city today and celebrate their completed construction and opening within this 15-year period, they may be able to welcome employees and their families to the city. Residential complexes may follow, to be chased by more residents, and then, finally, retail and niche companies. But by then the EO13 program may have ended. And that’s under ideal circumstances.

    In the meantime, Perno and others must work to attract, build, and improve the amenities and infrastructure that would make Camden a more desirable place to live . . . before it’s time for the early companies to renegotiate their leases or move out of town.

    “How do we go to employers and say, ‘Take a chance on us?’ unless you can also show them a plan of why they would want to stay and grow in Camden?’” he asked. “Then I have 16 years to work on the other factors and execute this plan. You have to hit the ground running if you’re a GSGZ.”

    And stakeholders worry that outside the GSGZs, word of the revised programs isn’t getting out quickly enough for municipal decisionmakers to tout their towns. But EDA spokesperson Rachel Hartman counters that the agency’s senior leadership and staff have promoted the program at more than 48 events across the state since its launch, and every board meeting is followed by a press release to highlight the new incentives. In addition, The Partnership for Action has helped advertise EO13, and Choose NJ just launched an “amplified” ad campaign.

    Plus, the EDA has created a searchable map to show which incentives can apply to each census tract.

    Sometime this legislative session, lawmakers will likely vote on the Economic Opportunity Act of 2014, which aims to clean up some of the language that was accidentally included when EO13 passed hastily at the end of the 2012-2013 session.

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