State of the State: Murphy Doubles Down on Push to Fix Economic Incentive Program

John Reitmeyer | January 16, 2019 | Budget
During a rebuttal news conference, GOP lawmakers push back on the governor’s anti-Christie theme

Credit: Tim Larsen for NJ Governor's Office
Gov. Phil Murphy delivering his first State of the State in Trenton yesterday
Gov. Phil Murphy used the annual State of the State address yesterday to both showcase the new direction New Jersey is headed after eight years under Republican Chris Christie and highlight an urgent need to remake one of the state’s signature economic-development policies.

In fact, it was well into the nearly hour-long speech that Murphy, a Democrat, used the familiar “state of the state” catchphrase to detail his administration’s first-year policy accomplishments — things like increasing funding for property-tax relief and preschool education.

At the outset, though, Murphy jumped right into the weeds to discuss the need to revamp economic-development tax-incentive programs that were inherited from the prior administration.

The governor portrayed the existing programs as too lavish for a state that can barely afford to keep up with its school-aid law or pay for long overdue infrastructure repairs. He also seized on the results of an audit released last week by the Office of the State Comptroller. It raised troubling concerns about the state’s long-term oversight of the tax incentives, which have the potential to cost taxpayers up to $11 billion. Attorney General Gurbir Grewal has since announced that his office has launched an inquiry into whether any wrongdoing occurred.

“To those who bemoan our inability to pay for even the most basic items in our budget, let me say that this, simply put, is nuts,” Murphy said in the speech before the joint session of the Legislature.

Incentive programs soon up for renewal

The tax-incentive programs are up for renewal later this year, and Murphy pressed the case for capping the programs and making them more targeted. That sets up a key debate with lawmakers over the next several months, one that could be complicated by a Democratic-controlled Legislature that helped write the latest versions of the tax incentives and also seems more open to the role they can play as an economic-development tool going forward.

Credit: NJ Governor's Office
State of State 2019
As he eventually pivoted away from the full-throated critique of the tax-incentive programs, Murphy went on to deliver a fair share of applause lines as he highlighted different ways he worked with Democratic lawmakers last year to move the state in an entirely new direction after taking over for the term-limited Christie.

The victory-lap portion of the address went over a series of new laws enacted last year, including those toughening gender pay-equity rules and earned sick-leave requirements. In fact, Murphy said he signed a total of 169 new laws in 2018, the most to be enacted in the first year of any administration in the last two decades, according to the governor’s office.

Some of Murphy’s biggest applause lines further demonstrated the turn New Jersey has taken from the Christie era. He lauded the restoration of state funding for Planned Parenthood, something Christie repeatedly blocked.

Murphy also highlighted the success of a woman from Ethiopia who now runs a nonprofit that helps fund new businesses in underserved communities, suggesting her life story repudiates the hardline immigration policies of President Donald Trump, whom Christie endorsed in 2016.

“I hope you are watching, President Trump, because her life is the American Dream,” Murphy said.

Later, he highlighted the story of a young woman from Orange who is studying to become a special-education teacher and who has benefitted from state-funded tuition-assistance programs even though she was brought here illegally at a young age from another country.

The governor went on to suggest that policies enacted by his administration — including increased funding for K-12 education and the promotion of more shared services — helped to slow the rate of growth in annual property-tax bills to less than 1 percent last year.

“These advancements are taking some of the weight off the shoulders of our property taxpayers,” Murphy said.

GOP pushes back on anti-Christie theme

Credit: Gage Skidmore via Creative Commons
Former Gov. Chris Christie
Top Republican lawmakers in the Senate and Assembly said during a subsequent rebuttal news conference that it was actually Christie-era tax reforms that led to the slowed rate of growth in property taxes. The GOP leaders also suggested Murphy’s preference for increased taxes to support things like public education and mass transit would ultimately make the state a more expensive to live.

“The bottom line here is that New Jersey residents have seen 169 new laws, (but) not one law related to making the state more affordable,” said Assembly Minority Leader Jon Bramnick (R-Union).

They pivoted back to the issue of taxes and affordability when asked whether they share Murphy’s views on the tax-incentive issue.

“Tax incentives exist because maybe the current tax structure is out of whack and right now the tax burden in New Jersey is simply too high and too unaffordable for too many people,” said Senate Minority Leader Tom Kean Jr. (R-Union).

Tepid praise for governor from fellow Democrats

For their part, Democrats offered largely tepid praise as they prepared to work out differences with Murphy in coming weeks on other policies that are top priorities for the governor, such as increasing the minimum wage to $15 and legalizing recreational marijuana.

“I’m optimistic that the Legislature, as a co-equal branch of government, can work with the administration on our shared principals,” said Assembly Majority Leader Lou Greenwald (D-Camden).

It’s not entirely unprecedented for a governor to use the annual State of the State to showcase one compelling concern. In 2017 Christie largely devoted his speech to New Jersey’s ongoing opioid-addiction epidemic.

Still, Murphy’s focus on the tax-incentive issue came just a few months after he laid out a broad vision for the state’s economic future that included a call for using tax incentives in a more limited way to encourage specific types of behavior like historic preservation and brownfield redevelopment.

Highlighting the tax-incentive issue also fit in with a broader, policy-oriented focus on things like federally designated opportunity zones and the need to improve water-system infrastructure that don’t always get top billing in a major address before lawmakers.

The view from beyond the State House

Despite Murphy’s tough words, there some yesterday beyond the State House who defended the tax-incentive programs, which have been administered by the Trenton-based Economic Development Authority.

“The audit uncovered some instances where policies and procedures were not followed, and that needs to be corrected,” said Tom Bracken, president of the New Jersey Chamber of Commerce. “However, we cannot diminish the EDA in its entirety because of these occurrences.”

“We maintain that state tax incentive programs for business of all sizes should be transparent and appropriately monitored, but also an important strategy to make New Jersey competitive and affordable,” said Michele Seikerka, president and chief executive of the New Jersey Business & Industry Association.

But long-term critics of the incentives were happy to see Murphy take aim at programs that were once held up by Christie as a key driver of economic growth in New Jersey following the Great Recession.

“The Governor was right to highlight the importance of reining in runaway corporate subsidies at the EDA — this is critical to improving the state’s fiscal health and budget prospects,” said Brandon McKoy, director of government and public affairs for New Jersey Policy Perspective, a liberal, Trenton-based think tank.

“The $11 billion in subsidies are corporate cronyism at its worst and harken back to trickle-down economic policies that failed the state,” McKoy said.