Tax Incentives: Defenders Have Their Say in Front of Receptive Lawmakers

John Reitmeyer | July 30, 2019 | Budget
New Jersey legislators question whether state’s new oversight measures are too stringent. Controversial tax breaks remain source of dispute between governor and many in Legislature

Credit: NJTV News
A select committee of lawmakers heard testimony on the state's tax-incentive programs in Trenton yesterday.
State lawmakers called for tighter oversight of New Jersey’s corporate tax-incentive programs earlier this year after a major audit questioned whether companies were living up to all the terms of their tax breaks. But some are questioning whether the state has now gone too far in the other direction.

Concerns that many companies this year are not receiving the tax breaks they have rightfully earned after meeting the state’s hiring or investment requirements were aired yesterday during a lengthy hearing in Trenton.

The hearing came as Gov. Phil Murphy and lawmakers remain locked in a major policy disagreement over the future of the state’s economic-development strategies.

Featuring testimony from current and former economic-development officials and the leaders of business-lobbying groups, the hearing allowed lawmakers to push back against a narrative fueled by Murphy’s relentless criticism of the incentive programs; it did so partly by focusing on ways they’ve driven economic growth in places like Camden and Atlantic City.

Yesterday’s hearing also painted a much different picture of the tax-incentive programs than that emanating from a special task force impaneled by the governor to probe the administration of the programs in the wake of the audit which was issued in January by the Office of the State Comptroller. So far, the task force has made at least one criminal referral.

Tarred with the same brush

Several witnesses yesterday suggested the intense focus on the incentive programs is casting all tax-break recipients in a negative light, including those doing honest business in New Jersey. They also raised concerns that the state’s ramped-up oversight of the incentives is hurting companies by holding up the redemption of tax breaks they have already earned. State officials yesterday countered that any delay is occurring in good faith.

Credit: NJTV News
Tim Sullivan, CEO of the Economic Development Authority
While the state tax-incentive programs have long been a subject of debate in New Jersey, the discussions intensified after publication of the comptroller’s audit, which raised questions about documentation provided by companies even after they had already redeemed their tax breaks.

State law requires certain hiring or investment goals to be met by companies in exchange for tax breaks, and they generally must also provide the state with a net economic benefit. But several whistleblowers who testified before the gubernatorial task force suggested some companies may have gamed the system during the tenure of former Gov. Chris Christie; the programs have also been the subject of a lengthy reevaluation process launched under Murphy’s watch.

The state Economic Development Authority’s oversight processes have also been overhauled, said Tim Sullivan, the agency’s chief executive officer, during yesterday’s hearing.

“It shouldn’t surprise anyone that we’re taking our time and getting it right,” he said.

Lawmakers want faster delivery

But Sen. Bob Smith (D-Middlesex), who chaired yesterday’s hearing before a select committee of lawmakers chosen by Senate leaders to closely review the tax-incentive issue, urged Sullivan to pay more attention to the idea that companies are not getting their tax breaks redeemed by the state in a timely manner this year.

Credit: NJTV News
Sen. Bob Smith (D-Middlesex) chaired yesterday's select committee hearing.
“It may result in the opposite of what we were hoping to do, which was to provide an incentive for new jobs and new industry in this state,” Smith said.

Sen. Declan O’Scanlon (R-Monmouth), who said he’s also heard complaints from businesses, followed a similar line of questioning.

But Sullivan denied that the Murphy administration has placed a “moratorium” on tax-incentive approvals and said the EDA is instead simply asking companies to provide more information and in a new format.

“Our obligation is to make sure that companies and applicants did what they said they were going to do,” Sullivan said.

Currently, the state is no longer accepting applications for tax breaks provided under the EDA’s two biggest programs, Grow NJ and Economic Growth and Economic Redevelopment and Growth (ERG). State law required those programs to expire on June 30, and Murphy refused to sign legislation that sought an extension through the end of January 2020; there was widespread support from lawmakers for that legislation.

Governor wants reforms

Instead, Murphy, a Democrat, has proposed a series of reforms, including capping the tax-incentive programs and targeting them more to promote specific policy goals such as historic-site preservation and brownfields redevelopment. He’s also seeking to establish a public-private venture-capital fund to encourage more startups to take root in New Jersey. And Murphy has roundly criticized the cost of the state’s tax breaks compared to what some other states provide companies as an incentive to relocate within their borders.

Amid the dispute between Murphy and lawmakers — which could lead to a veto override by the Democratic-controlled Legislature if a compromise on the incentive programs cannot be reached later this summer — some lawmakers have begun to suggest that the governor should reinstate the Grow and ERG programs and cap them unilaterally. But Sullivan pushed back on that notion yesterday, saying the current law does not allow for caps or other limits to be enacted by Murphy unilaterally.

“There needs to be a specific reason to decline an application,” Sullivan said.

Later during the hearing, when the issue of increased oversight came up again, the leaders of business-lobbying groups also rejected Murphy’s call for caps on the incentive programs. Some lawmakers also accused critics of the tax breaks of overstating how much they cost the state in lost revenue, and of overlooking the requirement that companies must provide the state with a net economic benefit in exchange for their tax incentives.

Complaints about regulatory hurdles

“I think it is very safe to say that the ‘open for business’ sign in New Jersey is hanging by a thread, if it hasn’t already fallen,” said Tom Bracken, president and chief executive officer of the New Jersey Chamber of Commerce.

“It is basically a situation of ‘guilty until proven innocent’ for all recipients of tax-incentive programs,” he said.

Others at the hearing raised concerns about putting too many regulatory hurdles in front of companies seeking incentives and they said the state’s tax and regulatory environment already poses significant challenges.

“It’s absolutely necessary to continue to have a rigorous evaluation of all of these programs,” said Christina Renna, senior vice president of the Chamber of Commerce of Southern New Jersey.

“I would just caution that the more mandates and the more regulations we put around these programs, the even less they are going to be utilized,” she said.