Lawmakers Refuse to Let Urban Enterprise Zones Die in Program’s 5 Charter Cities

John Reitmeyer | April 21, 2017 | Politics
Loss of UEZs’ 50 percent sales tax break, some politicians claim, makes it almost impossible for cities to compete with neighbors that are still home to zones

Trenton's Griffith Electric can no longer offer its customers a 50 percent sales-tax break after Gov. Chris Christie earlier this year refused to extend the city's Urban Enterprise Zone.
It’s already been several months since Gov. Chris Christie refused to extend a special sales-tax break that businesses in five New Jersey cities had been permitted to offer their customers since the 1980s as a way to stimulate economic activity. But with businesses in many other communities also in danger of losing the tax break over the next several years, some lawmakers are refusing to let the issue go.

The future of the state’s Urban Enterprise Zone program — and its key 50 percent sales-tax break — was one of the topics that lawmakers wanted to discuss yesterday with the head of the state Department of Community Affairs during an appearance before the Senate Budget and Appropriations Committee in Trenton.

Yesterday’s hearing came as lawmakers have begun the process of interviewing individual department heads about their spending requests as the budget committee members continue to look more closely at the $35.5 billion spending plan that Christie has proposed for the 2018 fiscal year. The hearings are typically the only chance that lawmakers get to directly question Christie’s cabinet members, and the lawmakers usually take advantage of them to bring up other topics that reach well beyond each department’s spending requests, as they did yesterday.

“There are UEZs that functioned, I think, quite well and helped to revitalize urban areas and revitalize inner cities, and create some economic activity that’s sorely needed,” Sen. Jeff Van Drew said to DCA commissioner Charles Richman during the hearing.

“We’ve lost a number of them, including in my district,” said Van Drew (D-Cape May). “I think it’s something that we’re still going to push for, and try to do, as time moves along.”

Bridgeton loses UEZ

Richman’s appearance before the Senate panel also came just a week after Bridgeton Mayor Albert Kelly urged the same group of lawmakers during another public hearing to intervene on the UEZ issue. Bridgeton was one of five charter UEZ cities that lost the right to offer the sales-tax break this year after Christie refused to extend the program before a December 31 expiration date. The others were Camden, Newark, Plainfield, and Trenton.

Kelly said stores in his city are now losing business to those in other nearby communities where the sales-tax break remains in place. He predicted it would lead to store closings that will ultimately hit the city’s ratable base and force homeowners to pick up the slack.

“We’re asking that the state reconsider (its) position, but in the meantime, our residents would welcome a funding program that would hold our municipalities harmless from the loss of ratables caused by the loss of the Urban Enterprise Zone incentives,” said Kelly, who is also president of the New Jersey State League of Municipalities.

Started in the 1980s as a way to give a boost to New Jersey’s struggling urban communities, the UEZ program’s main attraction has been the authorization for businesses to charge half the state sales tax, which right now is 6.875 percent. But the UEZ program, which is administered by the DCA, has also provided several other tax incentives in addition to the sales-tax discount. They include a break on energy taxes, business-to-business tax exemption, subsidy for unemployment insurance, and corporate-tax credits for hiring and investing.

The Original 5 UEZs

Bridgeton, Camden, Newark, Plainfield, and Trenton were the first cities to offer the sales-tax break after the UEZ program debuted in 1986. But since then, many other communities were added to the program, boosting enrollment to 32 designated enterprise zones in 37 municipalities, with approximately 6,800 private businesses.

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. That extension expired at midnight on December 31 for the UEZ program’s five charter communities. 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.

Last year, lawmakers asked Christie, a second-term Republican, to approve a 10-year UEZ extension, but the governor rejected their effort in a conditional veto. He said the program was only supposed to be temporary, and that the state would collect $2.33 billion in additional revenue over the next decade as businesses in all of the UEZ communities began charging the full state sales tax.

Commissioning a study

Christie also asked lawmakers to authorize the executive branch to study the issue more closely to determine whether a different program should be put in place to help the UEZ communities as the tax break phases out.

But instead of approving his conditional veto, lawmakers sent Christie a new “compromise” bill that allowed for the executive-branch study in exchange for a temporary, two-year UEZ extension. Christie responded in February with another conditional veto, rejecting the shorter extension while also renewing the offer to study the UEZ issue more closely. So far, lawmakers have yet to act on his veto, either with an override attempt or a concurrence vote.

In the meantime, Kelly said the loss of UEZ status by the charter cities has now left them at a competitive disadvantage with neighbors. For example, while businesses in Bridgeton now charge the full sales-tax rate, those in neighboring Millville and Vineland won’t lose their UEZ status until 2019.

“We’re losing businesses that cannot compete with communities that still have the UEZ designation,” Kelly said.

Minor benefits

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.

But yesterday Van Drew took issue with that study as he discussed the issue with Richman.

“We’re basing everything on one report that I think was very skewed,” Van Drew said.
State Sen. Nilsa Cruz-Perez (D-Camden) also pressed Richman on whether proper notice was provided to businesses in cities like Camden that were in line to lose the tax break in the run up to December 31. She also asked him to explain what the struggling cities are supposed to do to attract businesses now that they can no longer offer the 50 percent sales-tax rate. But Richman told her that the DCA can still offer downtown shopping districts support in other ways.

“Whether it’s our staff and our planners, or in some cases, we can help bring in some experts to do that,” he said. “We’re happy to make that available to the city.”

He also told the lawmakers that he remains ready to go forward with the study that Christie has called for as soon as they are willing to sign off.

“This is not a difficult study to do,” Richman said. “It can happen quickly.”