Have Tax Incentives to Lure Companies to NJ Really Been Worth the Price?

It’s impossible to say, lawmakers assert, without legally-required annual report on whether billions handed out have really fueled job growth, helped state’s economy

State Sen. Raymond J. Lesniak
Gov. Chris Christie has made corporate tax incentives a signature program of his administration – which he achieved with the help of Democratic lawmakers who denied him across-the-board income-tax cuts, most recently in 2012.

Since then, billions of dollars have been committed to companies across the state to create jobs — and Democrats are seeking to get more information from the Christie administration to find out how these incentive-programs are being run.

So far, however, they’ve had no luck, despite the fact that legislation requires a detailed report to the Legislature each year. The report, which is also supposed to be released publicly by the Department of Treasury, has not been compiled because Treasury officials say doing so would break federal IRS privacy rules.

In all, more than $5 billion in potential tax breaks have been awarded through the state Economic Development Authority since Christie, a Republican, took office in 2010.

Companies are offered a break on their future tax bills if they meet certain employment and investment requirements.
More than $2 billion has been approved in just the last few years alone since the tax-credit programs were overhauled by Christie and lawmakers in 2013.

Some of the larger incentive packages approved in recent years include $225 million in tax breaks that were used to lure JP Morgan Chase Bank to Jersey City and $82 million offered to the Philadelphia 76ers to entice the professional basketball team to build a new practice facility in Camden. And the American Dream project in the Meadowlands could receive as much as $390 million in tax credits.

In March, lawmakers decided they wanted more specific information about the credits so they sent Christie a bill that called for the specific goals of each tax incentive to be reported in detail, along with requiring a measurement of their effectiveness. But Christie has yet to take action on that legislation.

Now, the liberal groups and others who have been calling for years for more information to evaluate the incentive programs are trying a different approach. And it’s not just Democrats putting pressure on the Christie administration.

Republicans are now turning up the heat as well, saying the incentives create an unequal playing field and distract from the bigger goal of lowering tax rates.

But the most notable development could be the activism of Sen. Ray Lesniak, a Union County Democrat who was the primary sponsor of the 2013 revision of the incentive programs, which are administered through the state Economic Development Authority. Lesniak is now sponsoring new legislation that would put a hold on awarding any future incentives until there’s more disclosure by the Christie administration.

Lesniak said the threat of a moratorium is really intended to try spur Treasury to be more transparent.

“I hope this moratorium never has to go into effect,” he said.

His bill would also make some other technical changes, including requiring prevailing wages for some of the jobs created through the incentive programs and requiring companies that accept credits to stay in New Jersey for the same period of time that is used to calculate a net benefit to the state, a calculation required to win an incentive. Under the current rules, in some places where the state is trying to see more development, the net benefit of a project can be tabulated over three decades even if the company has only made a promise to stay at most for half that term.

The focus on the tax credits has come as part of Christie’s ongoing attempts to help the state recover jobs lost to the last recession. He’s also cut business taxes and sought to reduce burdensome regulations.

Yet New Jersey’s unemployment rate still ranks at the bottom among U.S. states and, at 6.5 percent, is more than a full percentage point above the federal jobless average.

Lesniak’s decision to join the push for more scrutiny of the tax incentives didn’t go unnoticed by the groups that have long been critical of them. And it’s a partnership, at least on this issue, that is a bit unlikely.

“We don’t always see eye-to-eye on a lot of stuff,” said Analilia Mejia, director of the progressive group New Jersey Working Families. “We are glad to stand here with the senator and push for what we think is the right thing to do in New Jersey.”

But it’s not just Democrats and liberal activists who have been raising questions about the incentive programs.

During a recent Assembly Budget Committee meeting, Assemblyman Jay Webber (R-Morris) gave Christie administration officials a hard time during a discussion of the latest incarnation of the tax incentives.

Webber suggested the 2013 revision has resulted in the state now favoring larger companies and corporations over small businesses. He also said it’s not fair when a firm is given a credit to come to New Jersey and then begins competing against businesses already here that aren’t benefitting from the same advantage.

“Now you have an un-level playing field between firms in New Jersey who have massive tax breaks and firms in New Jersey who don’t get them, but might be in the same industry,” Webber said. “We talked about the bread maker who came over from Philadelphia across the Delaware a year or two ago. What about the bread makers in New Jersey now who don’t get the same subsidies?”

Senate Minority Leader Tom Kean Jr. (R-Union) said in an interview that his caucus has also been trying to generate more information about tax-incentive programs, making such efforts the subject of several measures that are part of a
Senate GOP 36-bill jobs package. But he said the effort should be carried out in a way “that does not cause a stutter step.”

[related]Even raising the issue of an incentive moratorium could have an impact when you’re talking about programs that are trying to entice companies to make 10- and 15-year commitments to New Jersey, Kean Jr. said.

“The message is that New Jersey is potentially changing its mind,” he said.

Michele Siekerka, president of the New Jersey Business and Industry Association, said businesses place a high value on predictability. She also preached patience in evaluating the effectiveness of the tax incentives.

“We are at a critical juncture and we must give these incentives time to work,” she said. “Success does not happen overnight.”

And the federal privacy issues are a real concern, Treasury officials said. That’s why the agency has been unable to publish the Unified Economic Development Budget Report that a 2007 law originally sought to have in place by now.

“The current statutory language contemplates collecting data across numerous agencies,” Treasury spokesman Joseph Perone said. “This implicates legal restrictions concerning the safeguarding of confidential taxpayer information.”

“The Internal Revenue Code, related regulations and Internal Revenue Service guidance do not permit ‘sharing’ of Tax IDs for purposes not specified when the Tax ID was originally collected,” he said. “Doing so could jeopardize information sharing arrangements between New Jersey and the IRS that help New Jersey collect millions of dollars annually.”

“Treasury has suggested legislative changes which would allow an aggregated reporting of data for the various development subsidies and a total for all development subsidies,” Perone said.

Still, Lesniak and the groups pushing for more information said the issue comes down to credibility. Long a champion of the incentives’ effectiveness, Lesniak said more data from Treasury should prove him right.

“We’re hoping to get bipartisan support for this,” Lesniak said. “This is not a Democrat or Republican issue.”
Gordon MacInnes, executive director of the liberal think tank New Jersey Policy Perspective, stressed the importance of getting the moratorium bill passed.
“This is crucial legislation at a crucial time,” MacInnes said.