Fine Print: Senate Passes Measure to Tighten Limits on Development Subsidies

New legislation would prevent companies that have accepted tax incentives from making campaign contributions in New Jersey

The Economic Development Authority awarded a $210 million, 10-year tax credit to Prudential Financial in 2012 for the construction of a new tower in Newark.
What it is: Companies that qualify for lucrative tax incentives from the New Jersey Economic Development Authority would have to choose between accepting those tax breaks or making campaign contributions to politicians here, including the governor, under a bill approved by the New Jersey Senate last week. The goal of the legislation, its Democratic sponsors say, is to ensure that the tax incentives are being awarded for economic-development purposes only, and to eliminate any appearance of political influence peddling.

What it does: New Jersey already has strict “pay-to-play” rules in place for companies that work under contract for the state, and the legislation would create even tighter restrictions for those receiving state “development subsidies,” which do not under current law trigger the pay-to-play protections.

Under the bill, any company receiving state tax incentives worth $25,000 or more would be barred from making any political contributions to “candidates for nomination or election to any public office in the State.” The prohibition would last for the duration of the subsidy, which can stretch out for decades under some of the development authority’s programs. And in addition to the company itself, the prohibition would also apply to “any holding company or affiliate of the business, or an officer, director, or key or principal employee of the business.”

If passed, the bill would also carry strict punishments for those who knowingly violate the campaign-contribution ban. Fines of up to $200,000 for individuals and up to $500,000 for businesses could be assessed, and any business found to have “willfully and intentionally” violated the prohibition could be stripped of its development subsidy and barred from working for the state or receiving other tax incentives for an up to five years.

The legislation also prohibits candidates in New Jersey from soliciting or accepting campaign contributions from recipients of the development authority’s tax incentives.

Growing scrutiny on state development incentives: Lawmakers significantly overhauled the state’s tax-incentive programs in 2013 to help New Jersey, which is still struggling to recover all of the jobs lost to the most recent recession, generate more economic development. And during Gov. Chris Christie’s tenure, which began in 2010, the state has now awarded more than $6 billion worth of tax incentives through the development authority, triple the amount distributed during the decade before he took office.

One of the bigger projects to come out of the state Economic Development Authority in recent years was a $210 million, 10-year tax credit awarded to Prudential Financial in 2012 for the construction of a new tower in Newark. Yesterday, Lt. Gov. Kim Guadagno attended a news conference in Newark to celebrate the opening of the 20-story building, which is expected to create 400 new jobs.

[related]The tax incentives are not outright grants, but instead provide companies with a break on future tax bills if certain requirements, including job-creation goals, are met over time. Their advocates say they allow New Jersey to remain competitive with neighbors like New York and Pennsylvania, which have aggressively tried to lure companies out of New Jersey with their own lucrative incentives. But critics have questioned whether the tax incentives have now gone too far, making them ultimately a bad deal for taxpayers even when projects create or retain jobs.

Lawmakers have proposed several pieces of legislation seeking to beef up state oversight of the incentive programs to ensure companies are meeting the requirements of the tax breaks, including providing taxpayers with a “net benefit” in return for their investment. But Christie, a second-term Republican now seeking the GOP’s 2016 presidential nomination, in May vetoed a bill that would have required rigorous yearly reviews of the incentives.

Concern about campaign contributions: In addition to seeking tighter oversight of the tax incentives, lawmakers have also raised concerns about campaign contributions that have been made either directly to Christie or other Republican candidates or groups at the same time his administration has accelerated the pace of the tax-incentive programs and the size of the awards. Those concerns have also been raised as Christie has risen to become a national figure in the GOP, including as a leader of the influential Republican Governors Association and now as a presidential candidate.

Several news stories published last year documented examples of companies that have received lucrative state incentives that have also made political contributions, including to the Republican Governors Association and to Christie. But Christie administration officials have strongly denied the contributions have played any role in the awarding of the tax incentives.

Still, sponsors of the bill — including Sen. Ray Lesniak (D-Union), who is an outspoken advocate of the economic-development subsidies — have said the tighter rules on campaign contributions are needed to protect the reputation of the state’s tax-incentive programs.

What happens next: The Senate voted 21-11 last week in favor of the measure, which had already been passed in committee last year. An Assembly version of the bill, sponsored by Assemblyman Gordon Johnson (D-Bergen) has been assigned to the Judiciary Committee, but has yet to come up for a vote.

But if the bill ultimately clears the Assembly, Christie may think twice about issuing a veto. He is now almost midway through his last term in office, meaning the tighter restrictions, if enacted, could have a bigger impact on the state’s next governor – and Lesniak is one of the Democrats who will be seeking the job.