Targeting Tax Breaks for Urban Enterprise Zones in NJ’s Struggling Cities

Democrats want to give zones in five cities a 10-year extension before they expire next year

Urban Enterprise Zone UEZ
Business districts in dozens of cities and towns in New Jersey have for decades enjoyed a special designation that allows stores to charge only half of the state’s sales tax. The longstanding incentive has been lauded by urban leaders over the years as a crucial economic-development tool for struggling downtowns.

But some of the highest-profile communities that host Urban Enterprise Zones, or UEZs, are now in danger of losing that designation — and the perks that come with it — thanks to a provision in state law that established sunset dates for the special zones.

To keep those from going into effect, lawmakers yesterday took an initial step toward extending UEZ status for another 10 years in five communities with looming January 1, 2017, sunset dates. They are Bridgeton, Camden, Newark, Plainfield, and Trenton.

The push to extend the UEZ program, however, appears by no means to be a slam dunk.

Over several years Gov. Chris Christie has regularly diverted sales-tax revenue that’s supposed to go back to the UEZ communities for public improvements and economic-development projects. Those funds, totaling more than $400 million now, have instead gone into the state budget’s general fund.

Though he’s yet to go so far as to call for a complete shutdown of the UEZs, at one point members of Christie’s administration did call attention to a 2011 consultant’s report that questioned the efficacy of the tax break and recommended that the UEZ program eventually be eliminated.

A bill seeking to extend the UEZ status for the five communities facing sunset dates was passed out of an Assembly committee yesterday along party lines, with Democrats who hold a majority on the committee providing the votes needed to move the measure along.

The UEZ program administered by the state Department of Community Affairs, was enacted in 1983, beginning with zones in 10 municipalities. It now covers approximately 6,800 private companies in 32 zones across 37 different municipalities.

Companies in the special zones are allowed to collect just half of the state’s 7 percent sale tax and some purchases are permitted to be tax-free. There are also incentives affecting energy taxes, unemployment insurance for UEZ businesses, and for hiring and investing.

Under state law, the UEZ designation expires after 20 years, with one 16-year extension allowed.

Assemblyman Reed Gusciora (D-Mercer) is among the sponsors of the bill currently moving through the Legislature that would extend the UEZ status for another 10 years for the five communities facing UEZ expiration next year. Trenton, one of the five, is in his district.

Gusciora, appearing yesterday before the Assembly Commerce and Economic Development Committee, said the zones have helped struggling downtowns in both Republican and Democratic districts.

“It creates jobs for urban areas and opportunities for revitalization,” he said.

In addition to extending the UEZ status, his bill calls for 10 percent of the sales-tax revenue generated in those UEZs to go to the New Jersey Urban Enterprise Zone Authority, the state agency that administers the program. The measure also sets up a distribution schedule for the remaining 90 percent of the revenue, with all of it initially going back to the communities. By the last year of the 10-year extension, however, the state would receive all of the remaining funds.

But Assemblywoman BettyLou DeCroce (R-Morris) asked Gusciora to explain what kind of precautions are included in the legislation to prevent the funds that would be sent back to the UEZ communities from being misused. A former deputy commissioner at the Department of Community Affairs, the agency that oversees the program, DeCroce cited examples of UEZ funds that were misused at the local level during her tenure.

“It was being used for salaries and other things that weren’t appropriate for the monies,” DeCroce said.

Gusciora, in response, said he shares a similar concern, and he welcomed a request from DeCroce to insert an amendment into the bill with tighter language to ensure the funds couldn’t be used for anything but economic development.

“I agree with your criticism 100 percent,” he said.

Still, with the amendment not drawn up immediately, DeCroce ultimately abstained when the measure came up for a vote. Two other Republicans on the panel voted against the bill, while all eight Democrats voted in favor.

There was a similar party-line vote moments later on a Democratic-sponsored bill seeking to prevent Christie from continuing to use all of the sales-tax revenue from the UEZs to help balance the state budget.

According to the nonpartisan Office of Legislative Services, the budget Christie has proposed for the fiscal year that begins July 1 would divert all sales-tax revenue from the UEZs into the general fund, a total of $78.6 million. In all, $425 million has been diverted back into the state budget over the past several years.

Lawmakers last year sent Christie a bill seeking to allow the UEZs to retain 30 percent of the total sales-tax revenue, but the governor vetoed the measure, citing concerns about making the change outside of the annual budget process. Citing OLS research, Christie said in a veto message that enacting the bill would “reduce State revenues by roughly $82 million in Fiscal Year 2016.”

The latest version of the legislation sponsored by Assembly Speaker Vince Prieto (D-Hudson), seeks to establish the same 30 percent/70 percent revenue sharing. But this year it’s advancing at the same time lawmakers are also evaluating Christie’s budget proposal in advance of a June 30 deadline.

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