The state’s tax-incentive programs are often generous and controversial. So Gov. Phil Murphy, who repeatedly raised questions about their effectiveness on the campaign trail, has asked one of the state’s top fiscal watchdogs to audit them.
Murphy signed an executive order on Friday that calls for the Office of the State Comptroller to begin conducting a full-scale performance review of the incentive programs, with an eye toward evaluating whether they truly generate the type of job creation and economic growth that was regularly touted during the tenure of Republican Chris Christie.
Murphy has signed three other executive orders since taking office, one over the weekend that requires state departments to help promote the Affordable Care Act, the federal subsidized insurance program. The other two relate to gender pay equity and ethics.
A complete review
The order regarding the state's tax-incentive programs, among other things, requires a review of the Grow New Jersey and Economic Redevelopment and Growth programs administered by the New Jersey Economic Development Authority. The audit will include an evaluation of the economic benefits that were realized versus those projected going back to 2010, which is when Christie’s tenure began.
A review of the application process, including the role played by consultants and lobbyists, will also be required as part of the performance review. The results of the audit will be due before the end of the year, according to Murphy’s executive order.
“This Executive Order ensures that we make critical tax incentive decisions based on the facts, and that we always look toward a real return on our investments,” Murphy said.
The EDA issued a statement after the executive order was issued that emphasized the agency’s “obligation to protect the public interest and commitment to the highest level of fiduciary oversight.”
“We welcome the opportunity to enhance the measures we have taken to ensure maximum impact and results,” the statement said.
The Christie increase
While the state has long administered economic-development programs through the Trenton-based EDA, the size of the tax incentives surged during Christie’s tenure, which just came to an end last week.
In fact, just before Christie left office, he signed legislation that would provide as much as $5 billion in tax incentives to online retail giant Amazon if the company agrees to build its “HQ2” in Newark.
But even as Christie worked with Democratic legislative leaders to overhaul the incentive programs in 2013, helping to award an estimated $8 billion in overall tax incentives over his two terms, the Republican thwarted attempts by Democrats to increase scrutiny over the handling of the incentive programs by Christie’s administration.
Christie maintained that the tax incentives – which are not outright grants but provide breaks on future tax bills if certain requirements are met over time – allowed the state to remain competitive with neighbors like New York and Pennsylvania, which have aggressively sought to lure companies out of New Jersey with their own lucrative incentives. But he also faced criticism as some of the incentives were awarded to companies that ended up moving from one part of the state to another, and sometimes just a few miles from their previous headquarters.
EDA financial audit
A financial audit of the EDA’s administration of the incentive programs that was released early last year by State Auditor Stephen Eells found that the agency generally had “adequate controls” in place, but it also raised questions about how well the state’s largest program, Grow New Jersey, is serving economic development, and it took issue with how well New Jersey officials hold companies accountable when they obtain tax credits.
A report released last year by international management consultant McKinsey & Co. also suggested the state could get more bang for its buck by redirecting the tax-incentive programs to fostering more growth of startup companies and emerging small businesses.
Murphy regularly seized on those findings last year during his successful campaign against Republican Kim Guadagno, Christie’s longtime lieutenant governor, as he made reigniting the state economy a core element of his progressive platform. While New Jersey’s unemployment rate improved during Christie’s tenure as the state recovered from the Great Recession, it remains higher than the national average, and the rate of economic growth here has trailed many other states, according to the latest federal jobs data.
The executive order issued by Murphy on Friday says the full-scale performance audit will “both inform the public about the EDA’s operations and assist lawmakers in their deliberations as to whether these programs should be reauthorized when they expire on July 1, 2019.”
The audit will also seek information “on the types of jobs that have been created, including salaries, wages, and benefit levels, as well as the locations within the state where these jobs have been created.” It will also involve a “review of the decision-making process regarding the acceptance of applications, focusing on how the EDA has exercised its discretion under the statutes,” and an “examination of the application process for such awards, including documentation and disclosure of expenses incurred by the applicants, including lobbyists, consultants, and legal representation, as well as information about the administrative costs incurred by the EDA in processing these applications.”
The audit will be due from the comptroller’s office by December 31, 2018.
Murphy signed two other executive orders last week, one prohibiting state agencies and departments from asking questions about salary history in an effort to promote gender pay equity, and the other tightening ethics rules [link:https://www.njspotlight.com/stories/18/01/17/murphy-carefully-defines-personal-friends-to-ensure-transparency/| for the governor and his immediate staff.
The order on the ACA, signed on Sunday, puts state resources to work to fill in a gap created by the Trump administration, which cut back funding to promote ACA enrollment during the most recent signup period, which ended in December. Murphy noted that 275,00 Garden State residents signed up last year for 2018 coverage in the ACA’s exchange, or commercial market, some 20,000 fewer than the previous year.
The new governor stressed the importance of the ACA, or Obamacare, during his campaign and has selected several cabinet leaders with federal experience, in part because he said he wants to fend off harmful changes or funding cuts under consideration in Washington, D.C.
The EO orders state entities that regularly interact with the public to undertake “reasonable measures” within “budgetary constraints” to post signs about enrollment, distribute pamphlets and, when appropriate, train staff to help people sign up. Agencies are also required to report to the governor by May 18 on how they plan to address this order.
“The most effective tool we have in the fight for the Affordable Care Act is education, and we are striving to get information to as many consumers in New Jersey as possible,” Murphy said, noting that the EO will improve chances for a robust enrollment next year.
– Lilo H. Stainton contributed to this story.