End of the Road for the Urban Enterprise Zone?

John Reitmeyer | December 6, 2016 | Politics
The program is scheduled to start shutting down in five cities January 1, but lawmakers are scrambling to come up with a two-year extension

urban enterprise zone
A decades-old program aimed at giving an economic boost to struggling communities — known as the Urban Enterprise Zone — is scheduled to start shutting down in January. The program allows communities in which they’re located to charge a reduced sales tax to draw more business.

But lawmakers are scrambling to find a way to extend UEZs for two more years, giving the state time to come up with a new program. Gov. Chris Christie conditionally vetoed an earlier bill that would have extended the program for another 10 years.

The new measure has already been passed by the full Assembly, and the latest legislative schedule shows the UEZ bill will be put up for initial committee approval in the Senate early next week. That means the legislation is on course to go before the full Senate for final passage before January 1, 2017, which is when five communities are set to lose their special UEZ status — and the right to levy a 50-percent sales-tax break.

Whether Christie is willing to seriously consider the more modest, two-year UEZ extension remains to be seen. His office has so far declined to comment on the issue. But Christie has shown a willingness in recent weeks to work out compromises with Democrats who control the Legislature, such as his last-minute decision to reverse course and allow a longstanding reciprocal income-tax agreement with Pennsylvania to remain in place.

Last month he also decided to address the New Jersey League of Municipalities’ annual convention in Atlantic City after having skipped the event for the past several years. The League of Municipalities just passed a resolution during this year’s convention that called on state officials to adopt the temporary UEZ extension.

The UEZ issue is an immediate concern right now for the communities of Bridgeton, Camden, Plainfield, Trenton, and Newark. They were the first to become Urban Enterprise Zones in the 1980s, but that also means they are now in danger of becoming the first to lose the special designation because the UEZ program wasn’t set up by lawmakers to be permanent.

Administered by the state Department of Community Affairs, the UEZ program provides communities with other incentives besides charging half the state sales tax (now 7 percent but dropping to 6.875 percent beginning January 1). The other UEZ incentives include a break on energy taxes, business-to-business tax exemption, 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 20 years. But lawmakers voted in 2001 to allow a one-time extension of the program for another 16 years. It’s that 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.

Lawmakers tried over the summer to convince Christie to renew the UEZs for another 10 years, but he issued a conditional veto in late August that called on the executive branch to determine whether a different program should be put in place to help the UEZ communities.

The conditional veto also said the state would be able to generate an estimated $2.33 billion in additional revenue over the next decade as all of the UEZs begin charging the full state sales tax.

The legislation that extends UEZs for two years has been pitched by sponsors as a compromise, since it also calls for a new study of the issue. But the sponsors say the UEZ program has become a critical tool for many New Jersey communities that are still struggling to recover from the Great Recession, and should remain in place until any study is completed.

“Urban enterprise zones have been extremely beneficial in helping to reinvigorate downtowns in municipalities across New Jersey,” said Sen. Jeff Van Drew, a prime sponsor of the bill.

“Allowing these designations to expire would have a severe economic impact in some of our most challenged areas,” said Van Drew (D-Cape May). “It is a priority to keep them operating and we believe this narrowly tailored legislation is the best way to ensure that happens.”

Still, despite the last-ditch effort by Van Drew and other lawmakers, the state Division of Taxation has already issued a notice to businesses in Bridgeton, Camden, Newark, Plainfield, and Trenton that come January 1 they will have to begin levying the full state sales tax.

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.