Murphy Hopeful of Deal on Tax Breaks Even as Veto and Override Are in Mix

Governor wants major reform of controversial tax-incentive programs; lawmakers want to renew them, unchanged, pending an overhaul

Could Gov. Phil Murphy, right, and Senate President Steve Sweeney agree on measures to end misclassification?
Despite promising nearly two months ago to veto legislation that would keep in place controversial state tax-incentive programs without any major reforms, Gov. Phil Murphy has yet to take any action as he’s still holding out hope for a compromise with lawmakers.

Murphy enacted more than 20 bills last week after returning from an overseas vacation, but missing from that list was the tax-incentive legislation that lawmakers sent him in late June.

“I continue to be an optimist and I’m hoping we can find common ground and get to a place that looks like where I think we need to be,” Murphy told reporters last week in Murray Hill.

While the governor has held back his promised veto, it’s clear that he has yet to convince legislative leaders from his own party to make any of the reforms he’s seeking, such as capping how many tax breaks can be given to companies annually. The stalemate has already resulted in the expiration of the incentive programs due to a firm deadline set in a prior law. And the stalemate likely will continue given that legislative leaders have yet to schedule a quorum that could force the governor’s hand.

Tax-incentive programs, commonly known as Grow NJ and Economic Growth and Redevelopment (ERG), that reward companies for meeting certain hiring and investment goals were allowed to expire at the end of June after Murphy refused to enact the legislation seeking to extend the two programs until early next year.

Governor, an outspoken critic

Murphy, a first-term Democrat, has been an outspoken critic of both programs, which he inherited from former Republican Gov. Chris Christie. Among their flaws, Murphy said, is their costly impact on the annual state budget and lax oversight rules that made them prone to political favoritism.

Since taking office, Murphy has also initiated a major audit of prior incentive awards and an ongoing investigation by a special task force that has made at least one criminal referral in recent months.

But the governor’s own proposal to reshape the incentive programs, including by making them more targeted and by capping the value of the incentives that companies can receive, has also gone nowhere in the Legislature this year.

Instead, Senate President Steve Sweeney (D-Gloucester) and other lawmakers have maintained the two programs can be extended through the end of January 2020 as they work on legislation that would address some of the flaws the audit and ongoing task-force investigation have exposed. Lawmakers sent Murphy the extension bill on June 20 after it was easily approved by both the Assembly and Senate.

Typically, governors can only wait 45 days after a bill has been approved in both houses before taking action, or the measure automatically becomes law. But the state constitution extends the deadline for gubernatorial action during lengthy periods of legislative dormancy, such as during the traditional summer break that lawmakers take. Therefore, it will take a quorum call in the Senate — the house where the extension bill originated — to force Murphy’s hand on the extension bill.

Sweeney, in a recent interview with NJ Spotlight writers, repeated his call for simply renewing the Grow NJ and ERG programs to give more time for compromise talks.

Sweeney: How is extending the law a bad thing?

“I don’t see why the extension is a bad thing while we sit down and mutually negotiate a deal,” Sweeney said. “We can write an agreement that works for everybody.”

But the veteran Senate leader made it clear that a quorum call remains very much on the table now that 45 days have passed since the extension bill was sent to the governor.

“We’re going to look at doing it,” Sweeney said. “I have to talk to my leadership team to see when we’re going to call the quorum,” he went on to say.

For his part, Murphy appears equally dug in. And adding fuel to his call for reform was a much-read story published by Politico NJ that detailed ways a proposed supermarket project in Camden — which is a food desert — could not get off the ground because political insiders seemed to favor a competing project using the now-expired tax-incentive law. Murphy said he was “horrified” by what he had read.

“It’s clear that extending that regime is unacceptable and I won’t do it,” he said.

Assembly Speaker Coughlin is a key player

If the governor follows through on his threat to veto the legislation to extend the tax-incentive programs through next January, and Sweeney and other lawmakers remain adamant that Grow NJ and ERG should be extended, that raises the prospect of the Legislature’s first successful override of a gubernatorial veto in two decades. The extension bill passed 28-2 in the Senate and 63-10 in the Assembly — votes that easily met the two-thirds majority in each house that would be needed to overcome a gubernatorial veto.

From a political perspective, an override delivered by legislative leaders from his own party could be embarrassing for Murphy, who has already been faulted for not having the muscle to get other of his legislative priorities enacted, such as a millionaires tax and legalization of recreational marijuana use by adults. But an override could also bolster Murphy’s standing among his party’s liberal base, both in New Jersey and nationally, given that such tax incentives are generally viewed as unneeded corporate welfare.

Credit: NJTV News
Assembly Speaker Craig Coughlin
Another key player in the tax-incentive discussions is Assembly Speaker Craig Coughlin (D-Middlesex), who could not be reached for comment last week. But before lawmakers left Trenton for their summer recess in late June, Coughlin made it clear that he was open to compromise.

“If the governor chooses to veto it, then the governor will do that,” Coughlin said when asked about the extension bill. “(But) we’ll continue to work to find a package that everybody can get to a ‘yes’ on.”

“We’ll see what happens in the days ahead,” he said.