Explainer: How Tax Breaks and Funds Might Put Bounce in Camden’s Rebound

Tara Nurin | December 9, 2014 | Explainer
NBA team and three mega-companies lured to troubled city by Economic Opportunity Act of 2013 incentives, but critics says resulting jobs come at too high a cost

Credit: newsworks.org
The site of the new Sixers practice stadium is located on the southeast corner of Martin Luther King Blvd. and Delaware Ave. in Camden.
When the state Economic Development Authority (EDA) holds its monthly meeting this morning, its members are expected to approve a $118 million financing package to bring Subaru of America’s headquarters to Camden.

The approval will make Subaru the fourth major commercial entity to announce plans to locate in Camden in the past six months. What’s happening in the nation’s poorest city to generate sudden enthusiasm among two international corporate powerhouses, a National Basketball Association team and a heavy-hitting power plant supply manufacturer?

In six words: the Economic Opportunity Act of 2013.

When Gov. Chris Chri stie signed the so-called EOA13 into law in September of last year, he breathed life into the most massive overhaul of tax incentive programs in state history. The bill not only streamlined several existing programs, it permitted certain cities, regions and newly defined “zones” to qualify for additional bonuses. Of any city, region or zone in the state, Camden fared best by far.

The law certainly has its share of critics, namely those who oppose “corporate welfare” and those who decried the law’s extremely generous allocations to South Jersey and Camden.

But there’s no denying that with Subaru, Lockheed Martin, the Philadelphia 76ers and Holtec International all relocating to Camden, EOA13 is already making a tremendous impact on the city’s real estate sector and, its advocates and observers hope, its future.

“In the 35 years I’ve been writing about Camden, the city has often appeared to be on the verge of a comeback,” wrote Philadelphia Inquirer South Jersey columnist Kevin Riordan on Sunday. “But while a bit of skepticism is advisable … I do get a sense of actual optimism in the air. Because the latest proposals look stronger, smarter, more realistic, and less grandiose than many of their predecessors.”

What did EOA13 Provide for South Jersey and Camden? Against the wishes of some North Jersey lawmakers, South Jersey politicians pushed through provisions that heavily favored the southern counties of Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Ocean, and Salem. For example, in order to qualify as a “mega-project” under the Grow NJ program, a project can be located in an existing area “designated in need of redevelopment” within the eight southern counties. Mega- projects are entitled to special benefits. Also under Grow NJ, minimum qualifying capital investment amounts are one-third lower in South Jersey than in the rest of the state and minimum employment numbers are one-quarter lower.

On top of this, the law and its subsequent revisions designated Camden as one of five impoverished “Garden State Growth Zones” (GSGZ) that qualify to receive incentives with lower requirements for investment, job creation and job retention. And Camden even gets its own special incentives. To wit: Under the Grow NJ provisions, the law reads, “the capital investment and the resultant creation of eligible positions will yield a net positive benefit of at least 110% of the requested tax credit amount (100% for Camden).” And the Economic Redevelopment and Growth (ERG) program authorizes $250 million for qualified residential projects in South Jersey, of which $175 million is set aside for Camden and Atlantic City. (Atlantic City was designated a GSGZ in a later version of the act.)

The law also includes what some might call “pork projects” for South Jersey. A ShopRite grocery store that was already being developed in Camden took advantage of bonuses that seemed to be written just for it. Another provision contains language that appears tailored to either keep Subaru in Cherry Hill or encourage it to move to Camden.

How EOA13 Brought Subaru to Camden: Subaru has made no secret of its three-year search to find new ground for the 500 employees and contractors who’ve outgrown the car manufacturer’s U.S. headquarters in Cherry Hill and its annexes in Pennsauken. Both South Jersey and Philadelphia officials tried to entice the company but the game likely changed in Camden’s favor when Trenton lawmakers inserted a provision into EOA13 that extends extra bonuses to “the United States headquarters of an automobile manufacturer.”

The law makes special provisions for this class of company no less than three times:

  • Once, when defining a mega-project as a qualified business facility located in a Garden State Growth Zone, or in an “area housing the United States headquarters and related facilities of an automobile manufacturer … having a capital investment in excess of $20,000,000, and at which more than 250 full-time employees of such business are created or retained.”
  • Again, when gifting an additional $1,500 in tax credits per each new or retained full-time job “for a project in which a business retains at least 400 jobs and is located within the municipality in which it was located immediately prior to the filing of the application … and is the United States headquarters of an automobile manufacturer.”
  • And a third time, in entitling the U.S. headquarters of a car manufacturer to collect tax credits “equaling 100 percent of the gross amount of tax credits” for locating in a GSGZ instead of the usual 50 percent allocated to other types of companies.
  • It was clear to anyone who followed local real estate news in 2013 that the language targeted Subaru. If the EDA approves its application as expected, Subaru will receive a per-employee tax credit that equals its total amount of capital investment in the project divided by the number of jobs created or retained. Subaru estimates a $118 million investment in the city; in exchange, under the Grow NJ program, it will receive an annual credit of $11.8 million for 10 years.

    But here lies one of critics’ main points of contention with these arrangements: Subaru and other beneficiaries can only qualify for this program if the project represents a net positive benefit to the state over a 35-year period. Most of these deals last only 10 to 15 years. So, according to skeptics like Rutgers-Camden Assistant Professor of Public Policy and Administration Stephen Danley, “In 15 years these companies come back asking for another deal.”

    Though Subaru didn’t mention incentives in the statement it released Friday to announce site selection, U.S. Rep. Don Norcross (D-Camden), who pushed for the set-asides when he served the city as state senator, says the decision shows EOA13 is working as intended.

    “People understand now that Camden has turned the corner. You don’t have these kinds of investments unless people have confidence in the city,” he said.

    Subaru says it expects to open its new doors near Campbell Soup Company’s international headquarters in late 2016 or early 2017.

    What are the Other Projects?

    Lockheed Martin

    In mid-November, the EDA approved $107 million in tax breaks to Lockheed Martin through the Grow NJ program. The defense contractor will move 250 jobs from its headquarters in Moorestown to two downtown Camden facilities that it will construct in existing buildings in the Waterfront district. In return, the project promises to generate $248,000 for the state over 35 years.

    But critics say those numbers don’t add up.

    “Lockheed, which has posted $17 billion in profits in the last four years, will shift 250 jobs from one part of New Jersey to another, at the steep cost to taxpayers of $428,000 per job,” NJ Policy Perspective wrote in a statement.

    A Lockheed spokesperson told the EDA that the subsidy will help save jobs that are in danger of being eliminated. The offices should open next year.

    Philadelphia 76ers

    Philadelphia’s struggling NBA team will cross the river to a new practice facility to be constructed on Camden’s waterfront next year. In a controversial move, the EDA will give the 76ers an $8.2 million annual tax credit for 10 years in return for a promise that the team will employ 250 people and stay in the city for 15 years. The team will move 200 existing employees to Camden and hire 50 more.

    According to published reports, Sixers CEO Scott O’Neil told reporters after the receiving the EDA’s approval in June that he’d been strongly considering Philadelphia’s rehabbed Navy Yard until four months earlier, when New Jersey’s incentives convinced him to take “a whole other step in terms of size and scope of the project.”

    Earlier, Philadelphia Mayor Michael Nutter told the Philadelphia Inquirer that his eastern neighbors made it hard for Philly to compete by “literally throwing money at the 76ers.”

    Under the arrangement, the Sixers will collect a tax break equal to the amount the team is spending to build the practice center. After 35 years, the state should net $158.6 million in revenue from the facility. But NJPP president Gordon MacInness says the company has no reason to stay past its 15-year obligation. He calculates that once adjusted over 15 years, the stated benefit becomes a loss of $14.5 million.

    “The cost amounts to an astonishing $328,000 in lost tax revenue per job, very few of which will be available for Camden residents in desperate need of new employment opportunities,” he wrote in an op-ed published on the organization’s website.

    Holtec International

    Holtec International may not carry the name recognition or cache as the other beneficiaries but it’s received an awards package that dwarfs the others. In July, the EDA approved $260 million in tax breaks to the energy equipment supplier to build a 600,000-square- foot manufacturing and design facility near Camden’s port.

    In order to receive the full amount, Holtec, which is headquartered in Florida, must keep 395 jobs and stay for 15 years. 160 of those jobs are being retained from another location in New Jersey and 235 will be new to the state. Camden officials have said that the plant could ultimately support several thousand employees.

    But MacInness critiques, “That means each of the 395 jobs has a cost to taxpayers of $658,228 – a sky-high number that has never been seen before in New Jersey and is even far higher than the average per-job cost of the largest ‘megadeals’ across the country.”

    This is the third-highest incentive awarded in the state, behind the shuttered Revel casino, which received $261.4 million in 2011, and the American Dream shopping and entertainment complex in the Meadowlands that was approved for $390 million last year

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