Elizabeth Mayor Asserts Proposed New Tax Could Kill Urban Enterprise Zones

Tara Nurin | April 17, 2014 | More Issues
Christie spokesman rejects assertion that proposed changes constitute ‘attack on the poor’

As New Jersey celebrates the 350th anniversary of its founding, the original state capital lags pitiably behind in terms of income, education and home ownership.

The city of Elizabeth — the fourth-largest in the state — has an unemployment rate that’s 3.4 percent higher than the rest of the state and 4.5 percent higher than the national average. Nearly one-fifth of its population lives in poverty.

So it’s not surprising that Mayor J. Christian Bollwage gets a little defensive over news that Gov. Chris Christie is proposing what Bollwage and others view as one more damaging blow in a series of blows dealt to a program that’s brought his city more than 7,000 new jobs and $2 billion in new economic development over the past 25 years.

“Taxing businesses will almost be the final dagger to the UEZs,” the six-term Democratic mayor said.

He was referring to the Urban Enterprise Zone (UEZ) program, a state initiative launched in 1983 that designates portions of 37 blighted New Jersey cities as areas that can offer sales-tax exemptions and reductions along with special financial programs to participating businesses.

Boasting the highest participation rate in New Jersey and recognition (by the National Association of State Development Agencies) as the best UEZ program in the nation, Elizabeth has enrolled more than 1,000 businesses and reaped $100 million in direct reinvestment funds. In 1998, Bollwage founded and chaired the UEZ Mayors Commission.

But in his proposed FY15 budget, Christie is attempting to impose a 3.5 percent sales tax on UEZ businesses that purchase capital equipment and make investments to build, expand, or upgrade their facilities. Currently, UEZ businesses pay no tax on these transactions.

The state Treasury Department says the move would generate $70 million annually and bring fairness to a system that exempts these UEZ business-to-business purchases while requiring consumers to pay a 3.5 percent sales tax when they patronize a UEZ business. Another benefit offered UEZs is that consumers only have to pay half of the regular 7 percent sales tax when shopping in a district.

‘Attack on the Poor’

Bollwage and other Christie critics call the proposed tax an attack on the poor.

“I find it ironic that the Administration has a philosophy of less taxation for the rich, plus tax credits as an economic incentive, yet here in the UEZs they’re using tax hikes without any analysis, which is unfair,” said Assembly budget committee member Joseph Cryan (D-Union).

During a budget hearing earlier this week, Cryan asked Department of Labor and Workforce Development Commissioner Harold Wirths if the governor had requested an analysis of whether his proposal would have an adverse impact on hiring in the UEZs.

Labor Department spokesperson Brian Murray said the department hadn’t received any such request and, “To put things into context, the Legislature has introduced and continues to introduce many pieces of legislation that may impact businesses, employment, wages, employer taxes and worker benefits and it is all done without anyone asking for any analysis by this department, either prior or subsequent to the actions going into effect.”

But critics like Cryan also noted the timing of the proposal, pointing out that just four months ago a Christie-supported law went into effect that significantly expands available tax incentives to companies locating or relocating in even the most affluent parts of New Jersey.

“Honeywell got (Economic Development Authority) money to redevelop in Morris County. You and I would both like to live there,” he said. “The contrast couldn’t be clearer.”

Last month, the EDA approved $40 million in tax incentives for Honeywell International to move and redevelop a facility in Morris Township, five miles from its current location in Morris Plains. This new incentives law, called the Economic Opportunity Act of 2013, doesn’t mention UEZs, although it does create new zones and incentives designed to boost the economic competitiveness of struggling cities.

In response to Cryan and Bollwage, Christie spokesperson Michael Drewniak said in an e-mail: , “I would challenge you to ask these ‘critics’ what actual evidence they can point to that affirms in any way the UEZ program is getting the results intended. I would also add that the Economic Opportunity Act — passed last year with overwhelming bipartisan support and enthusiasm — specifically targets real, effective business development and investment incentives to urban areas in a manner that is objectively more productive than the UEZ system.”

UEZ Changes – For Better or Worse?

A spokesperson for the Department of Community Affairs (DCA), which administers the UEZ program, says that an independent report conducted in 2011 concluded that the program needed to be run more efficiently, and as a result, many changes were made. However, it’s some of those changes that have Bollwage fearing the impending demise of the program.

Most notably, before 2011, money generated from the 3.5 percent consumer sales tax collected in all of the UEZs went to a central fund that each UEZ could draw from to fund municipal operations like policing, marketing and streetscape beautification. Since 2011, however, taxes now go straight to state coffers.

The program is run at the local level, so municipal leaders no longer have money from the program that they used to employ administrators for it.

“When Gov. Christie took office he slowly eliminated benefits of the UEZs throughout the state,” Bollwage said.
Bollwage also laments that the UEZ Authority, which used to have sole jurisdiction over granting final approval to UEZ project and program applications, has cancelled 14 out of 20 scheduled meetings since 2011, and that Christie has vetoed the minutes of many of the meetings that were held. DCA spokesperson Lisa Ryan counters that because the authority is no longer required to approve projects, it doesn’t have to meet as often. She says this actually benefits cities like Elizabeth.

“(It) eliminates red tape and allows the zones to focus on economic development projects,” she said.

What Will Remain of UEZs

If the governor’s budget passes as is, UEZ businesses will still benefit from the following:

• 3.5 percent consumer sales tax (reduced from 7 percent charged statewide);

• $1,500 one-time tax credit for each permanent full-time employee hired by UEZ employers ;

• Tax credit against the Corporate Business Tax up to 8 percent of qualified investments

• Possible priority financial assistance;

• Subsidized unemployment insurance costs for certain employees who earn less than $4,500 per quarter;

• Electricity and natural-gas sales-tax exemption for manufacturing firms with at least 250 employees, over 50 percent of whom are involved in a manufacturing process.