Lawmakers are defiantly moving ahead with their plan to temporarily extend the state’s main economic-development tax-incentive programs without making any changes, despite Gov. Phil Murphy’s call for significant reform.
Two separate Assembly committees approved legislation yesterday that would keep the controversial programs in place through the end of January, as lawmakers rush to take action before current state law prohibits new incentive applications from being accepted after June 30.
A Senate panel scheduled to follow suit on Monday would move the proposed extension closer to final approval. But a spokesman for the governor said later yesterday that the current bill is likely to be met with a veto if all it does is keep in place programs that have drawn close scrutiny in recent months, including from the Office of the State Comptroller and a special investigative panel set up by Murphy.
The policy disagreement sets up a major political showdown between Murphy, a Democrat, and legislative leaders from his own party who prefer to see the programs remain in place temporarily while a deal on specific reforms is worked out over the summer.
Among the key sticking points is whether the value of the tax incentives should be capped annually, which Murphy has called for, but business-lobbying groups oppose. Murphy also wants to target the state’s offerings toward specific purposes, such as historic preservation and brownfields redevelopment.
Prospect of an override
If the governor does carry through with a veto and lawmakers in both houses decide to override him, it would be the first successful gubernatorial-veto override in New Jersey in two decades. But it could also bolster Murphy’s standing among liberals nationally, as they generally view such incentives to be corporate welfare. There’s also a chance a deal is struck in the runup to the June 30 deadline as lawmakers and the governor also work on the next state budget.
The state has been offering some form of economic-development incentives for over two decades, but the latest versions of the tax breaks, which were signed into law in 2013 when former Gov. Chris Christie was in office, have generated the most controversy.
In recent weeks, whistleblowers have testified before a special task force convened by Murphy earlier this year. They’ve suggested the incentives — which are designed to be awarded to companies for moving to, or not leaving, New Jersey — have been gamed. Politico New Jersey recently reported that the Trenton-based Economic Development Authority, which administers the incentives, was issued a subpoena demanding information about tax breaks awarded to companies with ties to South Jersey powerbroker George Norcross. The influential Democrat is closely aligned with Senate President Steve Sweeney (D-Gloucester), who has been advocating for an extension of the programs.
Meanwhile, the Office of the State Comptroller released an audit at the beginning of the year that faulted the EDA for not having adequate documentation to prove companies that had already been given tax breaks had actually created the promised jobs.
But groups like New Jersey Policy Perspective, a liberal, Trenton-based think tank, have for years questioned whether the incentives have been generating sufficient job growth to offset their impact on the state’s annual budget. Under the existing programs, companies can redeem their tax breaks once they meet certain standards, and Murphy administration officials estimate the annual cost to the state budget will soon rise to over $1 billion.
Calling for annual caps on programs
NJPP president Brandon McKoy was among those who testified on the extension bill yesterday, and he urged lawmakers to heed Murphy’s call for annual caps to be placed on the programs.
“Before considering extensions, we must recognize that these programs have not produced results as intended, and the cost to the state remains too great and the means to verify impact remains too insufficient,” McKoy told members of the Assembly Commerce and Economic Development Committee.
McKoy was one of only a few critics of the program who were allowed to testify yesterday as lawmakers, citing a tight hearing schedule, only heard from invited witnesses. They included Anthony Pizzutillo, government-affairs consultant for the state chapter of the NAIOP commercial real-estate organization. He pointed to caps that are already in place for individual projects and suggested a net-benefits test written into the current law protects taxpayers by ensuring there is positive return on the state’s investment.
“Since we have a net-benefits test, we don’t need annual caps,” Pizzutillo said.
Christina Renna, vice president of the Chamber of Commerce of Southern New Jersey, also testified in favor of an extension. She suggested New Jersey already has a reputation for being hostile to the business community, and that letting the programs expire without any substitute in place would only make matters worse.
“We believe greatly that we need, of course, smart, thorough accountability (and) oversight,” Renna said. “We need these programs to be looked at fairly and accurately, and the only way to do that is to not rush this through in the next few weeks.”
Saying that time has run out
Several lawmakers who ended up voting in favor of the extension bill also said it was the best course of action given the upcoming deadline.
“Unfortunately, I think what we have done is really paint ourselves into a corner,” said Assemblyman Nicholas Chiaravalloti (D-Hudson). “We need the extension because the work we probably should have been doing over the last six months hasn’t been done yet.”
But Murphy spokesman Darryl Isherwood pushed back later yesterday on the notion that reforms are being hurried in the final weeks before the expiration date. He noted the governor last year proposed his own views on what the tax-incentive programs should look like going forward, and last week Murphy put forward model legislation as he delivered a speech on economic-development strategy in Cherry Hill.
“A straight extension of this legislation will be putting politics above good government, plain and simple,” Isherwood said.
“If an extension of the current program is passed without the necessary reforms, the Governor will have no choice but to veto it,” he went on to say.