Governor Goes Out to Drum Up Support for Changing — and Capping — Tax Incentives

Against a backdrop of tepid support from Democratic legislative leaders, Murphy makes case for overhauling New Jersey’s big tax breaks

Credit: Edwin J. Torres/Governor's Office
Gov. Phil Murphy explains some of the proposed changes to New Jersey's tax-incentive programs in Jersey City Wednesday.
A day after using the State of the State address to urge lawmakers to work with him on a major overhaul of New Jersey’s tax-incentive programs, Gov. Phil Murphy put on his salesman hat and went on the road to pitch the specifics of his vision for how the state should use tax breaks to grow the economy.

Speaking at an event in Jersey City, Murphy stressed the need for a new generation of incentive programs to help encourage things like more brownfield redevelopment and the reuse of the state’s many historic sites.

The use of more targeted tax breaks could also generate higher-paying jobs, including in the state’s many federally designated “opportunity zones” and encourage more startup businesses in New Jersey, he said.

Murphy also highlighted the importance of putting a hard cap on the incentives that businesses have been able to get from the state as a reward for creating jobs. While that approach would make them less costly, it could ultimately put him at odds with key lawmakers and the broader business community.

Credit: Edwin J. Torres/Governor's Office
The governor makes the case for revising the state's business tax-incentive programs in Jersey City Wednesday.
In many ways, yesterday’s event was the epilogue to the governor’s State of the State address, in which he brought attention to the state’s existing tax-incentives programs, which are due to expire this summer. But it also showed Murphy willing to use the power of his office to go out and attempt to drum up public support for his economic-development vision in advance of a broader debate with lawmakers.

“This has been out there to a certain extent, but I wanted to make sure that we were very specific about these programs today given that we’re really excited about what they will do to help us achieve that economy that we really want to achieve,” he said in Jersey City.

Incentives became more generous under Christie

The state has been offering tax incentives for over two decades, but the programs were significantly overhauled in 2013 after the Great Recession by then-Gov. Chris Christie, a Republican. He negotiated the agreements with Democrats who control the Legislature, in an effort to jumpstart job growth. Changes under Christie included allowing companies and developers to get more generous tax incentives, while also reducing their requirements for investment and job creation. This was especially true in places like Camden, where South Jersey Democrats like Senate President Steve Sweeney (D-Gloucester) determined the most significant economic boosts were needed.

However, an audit released last week by the Office of the State Comptroller raised some troubling questions about the state’s long-term oversight of the tax-incentive programs, including whether proper controls are in place under existing law to ensure that companies are doing all that’s required of them in exchange for the incentives. Earlier this week, state Attorney General Gurbir Grewal announced his office has launched an inquiry into whether any wrongdoing occurred.

Murphy seized on the results of the audit during Tuesday’s State of the State, urging lawmakers to use this year’s window for renewal to establish more targeted programs that would focus the state’s investments in “high-wage, high-growth sectors upon which we must rebuild our economy.”

The governor fleshed out his vision a bit more yesterday, adding to a policy framework that he first put forward during a major speech in Nutley last October.

Some of the details

Murphy said that he still wants the state to maintain a program to help developers with what’s known as “gap financing” to ensure desirable projects don’t languish due to a lack of resources. He also envisions a new program that would emphasize things like the building of business incubators and transit-oriented development. It would also operate with an annual $100 million cap, he said.

The state would continue to give incentives to businesses for job creation, Murphy said, but with a specific emphasis on things like high-paying jobs and locating in opportunity zones, which are generally low-income census tracts where federal law now allows for the rolling over of capital gains at a discount to reward new investment in the tracts. The jobs program would have an annual cap of $200 million.

Other new incentives would be offered to encourage brownfield redevelopment and historic-site preservation, with each of those programs capped at $20 million annually, Murphy said. The state would also offer another $250 million in corporate tax breaks to raise money for a public-private venture-capital initiative that the governor wants to create to boost the state’s startup sector.

“This is how we create a new economy that can create jobs and strengthen not just our middle class, but also entire communities,” Murphy said. “It is how we create an economy that reaches deep into our communities to create opportunities in long-overlooked neighborhoods.”

Business interests resist

While taking questions from reporters, Murphy conceded his effort will only make it to the finish line with cooperation from lawmakers, who so far have offered only tepid support. But he also dug in on the notion that the next generation of the programs should be capped, which will make businesses and developers compete harder to meet the state’s overall economic-development goals. As it stands, the state could have to redeem as much as $11 billion in tax breaks under the incentives that were pledged by prior administrations.

Murphy’s stance has already been generating some pushback from business-lobbying groups. They’ve suggested hard caps could depress the success of the proposed new programs.

“You don’t want to cap something that’s working well,” said Tom Bracken, president of the New Jersey Chamber of Commerce, after the State of the State. “Have a guideline that’s a cap, but don’t mandate a cap.”

But the idea of placing hard caps on the incentives has the full support of New Jersey Policy Perspective, a liberal, Trenton-based think tank that for years has been raising concerns about the existing incentive programs.

“Hard caps on annual spending and per-job awards are the state’s best defense against future abuses,” said NJPP senior policy analyst Sheila Reynertson.

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