Democratic Lawmakers Hope to Compromise with Christie On Urban Enterprise Zones

John Reitmeyer | October 18, 2016 | Planning
Proposal would give a two-year extension to five cities while state studies whether another program would be more effective for hard-pressed cities

plainfield UEZ
Dozens of communities across New Jersey are facing the loss over the next decade of a special Urban Enterprise Zone designation thanks to Gov. Chris Christie’s recent rejection of a measure seeking to extend the economic-development program for another 10 years. The phase out of the decades-old UEZs — and their treasured state sales-tax break — will start at the beginning of 2017 in Bridgeton, Camden, Newark, Plainfield, and Trenton.

But rather than mount an effort to override Christie’s veto — something that has yet to happen since the Republican governor took office in early 2010 — the lawmakers who sought the 10-year extension are instead offering to compromise with the governor. They’re working to send him a new piece of legislation that seeks a temporary two-year extension of the special designation that would apply to just the five communities in danger of losing their UEZ status at the end of the year.

Christie has already shown a willingness to work with Democratic lawmakers this year on several key issues, including transportation funding and the takeover of Atlantic City’s struggling government, but it’s unclear right now whether he’s open to striking a deal on the UEZ issue. A conditional veto of the legislation seeking the 10-year extension that he issued last month said the tax incentive was never meant to be provided on a permanent basis. He also said the state could use the billions of dollars in tax revenue that’s now being sacrificed to the UEZ program.

Still, the sponsors say they remain hopeful, especially since their new bill incorporates Christie’s call for a study to be conducted to see if the urban centers would ultimately be better served by some other economic-development effort.

Bridgeton, Camden, Newark, Plainfield, and Trenton were the first cities to offer the sales-tax break after the UEZ program debuted in 1986 as a way to give a boost to struggling downtown shopping districts. But since then, the UEZ program has grown to 32 designated enterprise zones in 37 municipalities, with approximately 6,800 private companies.

Administered by the state Department of Community Affairs, the program provides communities with other incentives in addition to being allowed to levy only half of the state sales-tax rate, which right now is 7 percent. The other UEZ incentives include a break on energy taxes, a business-to-business tax exemption, a subsidy for unemployment insurance, and corporate-tax credits for hiring and investing.

Under the original terms of the UEZ program, the special designation was to sunset after an initial 20-year term. Lawmakers, however, voted in 2001 to allow a one-time extension of the program for another 16 years. It’s that last extension that’s now set to expire at the end of the year for the first five UEZ cities. And under current law, all of the remaining UEZs across the state will see their designations run out between 2019 and 2026, according to DCA records.

Assemblywoman Elizabeth Maher Muoio (D-Mercer) is one of the primary sponsors of the bill that is now seeking the two-year UEZ extension for Bridgeton, Camden, Newark, Plainfield, and Trenton. She said yesterday that UEZ tax incentives are critical for cities like Trenton, where many businesses cater to contractors from other parts of New Jersey and even other states who regularly make bulk purchases of items like countertops and electrical supplies.

If the Christie administration wants to analyze ways to better serve the state’s urban centers, businesses in the UEZ cities “shouldn’t be left with nothing” while the issue is being studied, Muoio said.

“In the meantime, these cities need to have this incentive available to them,” she said.

During a recent legislative committee hearing on the new bill, Michael Cerra, assistant executive director of the New Jersey League of Municipalities, said his organization is also supporting the two-year extension. He called the measure a compromise, saying it is “about as reasonable a compromise as I’ve ever seen in my 15-plus years in Trenton.”

“It sends the message to the businesses in these districts that the state is committed to the districts and trying to create economic development in these zones,” Cerra said. “The bottom line is this is about economic development, this is about job creation and job retention.”

“I commend the sponsors for this initiative and for taking one last crack at it,” he said.

But not everyone sees the issue the same way that Cerra and the bill sponsors do. Assemblyman Robert Auth (R-Bergen) voted against the two-year extension during the committee hearing. He suggested that the UEZ tax incentives should be allowed either statewide or not at all.

“I don’t think the bill’s scope is wide enough,” Auth said. “If it’s so good, we should distribute this great package throughout the entire state.”

It was a study commissioned by Christie’s administration in 2011 that first questioned the efficacy of the UEZ tax break, finding only minor evidence of the program generating a “ripple effect” of economic activity. The study recommended that the entire program eventually be eliminated.

In the conditional veto issued by Christie in September, the governor said the state would be able to generate an estimated $2.33 billion in additional revenue for its own budget over the next decade as all of the UEZ businesses begin levying the full state sales-tax rate. That estimate, however, was prepared before Christie struck a deal with lawmakers earlier this month to renew the state Transportation Trust Fund that calls for a series of new tax cuts, including a lowering of the sales-tax rate to 6.625 percent by 2018.

Muoio, the lawmaker sponsoring the two-year extension bill, said she’s yet to get any indication from Christie’s office about whether he’s willing to consider the compromise. When asked about the issue yesterday, a spokesman for Christie pointed to the governor’s general policy to decline comment on any pending legislation.