Comptroller’s Words on Tax Incentives Go Down Better than Governor’s

John Reitmeyer | February 12, 2019 | Budget
At a hearing yesterday, the State Comptroller painted a nuanced picture of New Jersey’s big tax-incentive programs that lawmakers — who support the programs — seemed to like

Credit: NJTV News
Building site
Just a few weeks after Gov. Phil Murphy slammed New Jersey’s controversial tax-incentive programs following an audit that raised serious questions about the state’s oversight capabilities, lawmakers delving into the same issue came up with more nuanced conclusions.

Tax-incentive experts, auditors, developers and a former governor were among those who gave five hours of testimony yesterday to a joint meeting of the Assembly and Senate economic-growth committees.

But the key witness was State Comptroller Philip Degnan. His agency recently scrutinized state tax-incentive programs dating to 2005 and found thousands of jobs where there was incomplete documentation to prove they’d ever been created. The audit prompted Murphy — a Democrat who wants to reform the existing incentive programs — to claim during his State of the State address in January that “money flowed from taxpayers’ pockets into a black hole.”

However, Degnan painted a more balanced picture before lawmakers yesterday and even left open the possibility that the jobs flagged by the audit “may exist.” There simply wasn’t adequate documentation from the state Economic Development Authority to prove their existence, he said.

“We don’t make any allegation that a job was or was not created,” Degnan said.

Credit: NJTV News
Philip Degnan, NJ State Comptroller
To be sure, inadequate paperwork for incentive programs that have the potential to put the state on the hook for $11 billion in total tax breaks has raised troubling questions about the state’s ability to oversee the programs. During yesterday’s hearing, EDA chief executive Tim Sullivan outlined ways that oversight procedures are already being improved, including through better data sharing with the Department of Labor and Workforce Development. Other witnesses praised the incentive programs for generating much-needed development in high-priority locations like Camden and Newark.

What now for governor’s planned changes?

Lawmakers seem more open than the governor to extending the existing programs. What remains to be seen is whether Murphy will be able to convince them to instead approve major changes that he’s seeking to enact by the end of June, including capping how much can be awarded to companies on an annual basis.

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

During Christie’s tenure, an estimated $8 billion worth of tax breaks were pledged as caps on various incentive programs were lifted. But protections were also put in place to ensure companies at least would have to generate a “net benefit” for the state while also meeting some baseline standard before they could redeem their tax breaks.

The audit released by Degnan’s agency last month found that within a sample group of a few dozen companies there wasn’t enough documentation to prove all the jobs that were promised had been created. That brought into question roughly 3,000 jobs, and it gave Murphy a prime opportunity to go on the offensive during his State of the State.

“This is about wasted money, phantom jobs, squandered opportunities, and misplaced priorities,” Murphy said. “This is about a failed status quo and a broken system.”

During yesterday’s hearing, Degnan said the audit went beyond the generous Christie-era incentives. He said five different programs were evaluated, including some that are no longer accepting applications. He also made clear that his agency reviewed only the operations of the Trenton-based EDA, which oversees the tax-incentive programs, and did not press individual companies to provide more documentation that could clear up any discrepancies.

Comptroller declines to name names

“That was beyond the scope of what we did in this audit because of the focus being directly on EDA,” said Degnan, who also declined to name any of the companies in the sample group.

Lawmakers seized on his testimony to suggest the audit’s results had been too broadly interpreted by critics of the incentive programs. After the hearing ended, Sen. Nilsa Cruz-Perez (D-Camden) said it had “helped to refute the inaccurate interpretations of the Comptroller’s report.”

Credit: NJTV News
Protesting the tax-incentive programs in Trenton yesterday
Left unsettled is what to do about the incentive programs now that the Christie-era changes are due to expire at the end of June. Murphy has proposed a new generation of programs that would be more targeted and operate with hard annual caps that would force companies to compete against each other for the state’s limited resources. In a letter submitted to the committee members yesterday, Treasurer Elizabeth Maher Muoio underscored the impact that uncapped tax incentives have on the annual budget.

“The state could stand to lose roughly $1 billion in revenue annually over each of the next four fiscal years due to the potential utilization of tax credits,” Muoio wrote, citing EDA figures.

But some lawmakers pushed back and said caps could hold back growth, particularly in communities that are still trying to recover from the Great Recession. Assemblywoman Eliana Pintor Marin (D-Essex) also defended the effectiveness of the incentives in their current form, saying they have helped to generate new development in places like Newark.

To cap or not to cap

“It’s brought supermarkets to food deserts. It’s really created new opportunities that didn’t exist there before,” Pintor Marin said.

Former Gov. Jim Florio touted tax incentives that have gone to companies based in Camden and highlighted a recent study that suggested incentives played some role in the community’s overall improving graduation rates and medical outcomes, and drop in crime.

But officials from New Jersey Policy Perspective, a liberal think tank and long-time critic of the incentive programs, said the state’s uncapped programs lead New Jersey to spend more per job than most other places without necessarily revitalizing downtowns or neighborhoods.

“While it’s nice to have certain headquarters in the city to provide jobs, that’s not creating foot traffic, that’s not attracting me downtown to go spend my money,” said Brandon McKoy, NJPP’s director of government and public affairs.

The incentives faced additional criticism outside the State House before the hearing even started as activists, primarily from South Jersey, staged a rally. They suggested the most lucrative incentives have gone only to politically connected companies and the numerous funding commitments make it harder for the state to make other investments that benefit a broader pool of residents.

“Business thrives in safe, well-educated accessible communities,” said Susan Crawford of the Mount Holly-based Plankton Art Co., who was protesting.