Treasury’s Update on Tax Incentives — State on Hook for $2B Less than Previously Reported

John Reitmeyer | October 23, 2019 | Budget
As debate continues over New Jersey’s economic-development strategy, new numbers suggest total bill for tax breaks will be about $9 billion
Credit: NJTV News
A special task force convened by Gov. Phil Murphy has made at least one criminal referral.

More than $2 billion in state tax breaks that were awarded to companies through controversial programs are now not going to be paid out due to cancellations or other project changes, according to new figures from Gov. Phil Murphy’s administration.

The economic-development tax incentives have faced increased scrutiny during Murphy’s tenure. The new figures suggest the state is no longer on the hook for a grand total of $11 billion in tax breaks, a figure that was highlighted in an audit released at the beginning of the year by the Office of State Comptroller. Instead, the state is now projected to pay out a little more than $9 billion in incentives.

While that may be good news for the state budget’s bottom line, it’s unclear how the updated figures will influence an ongoing debate in the State House over the future of New Jersey’s broader economic-development strategy.

Murphy, a first-term Democrat, has sought to enact major reforms, but his own tax-incentive proposals have stalled in the Democratic-controlled Legislature. Lawmakers have also at times accused him of overstating the drain the tax breaks can have on the annual budget since they are supposed to provide the state with a “net benefit” by encouraging job creation and new business investment.

Recent media reports and public hearings have also exposed instances where companies have seemed to game the incentive system, and the tax breaks are now reportedly drawing scrutiny from federal prosecutors, adding a new element to the ongoing political stalemate over them.

Incentives were boosted in Christie years

The state has been offering some form of tax incentive for more than two decades, but the programs were significantly overhauled in 2013 in the wake of the Great Recession when then-Gov. Chris Christie was in office. Christie and lawmakers lifted caps on tax breaks that companies can receive; they also put in place requirements that certain hiring or investment standards must be met before the tax breaks are paid out. That means companies aren’t supposed to be able to redeem their tax breaks until they can prove they are meeting the hiring or investment standards, a process that usually takes several years.

But the audit released by the comptroller in January found that within a sample group of a few dozen companies there wasn’t enough documentation to prove some 3,000 jobs that were promised had been created, even though the companies had received their pledged tax breaks. The audit also determined up to $11 billion in tax breaks had been pledged going back over a decade, and it questioned the oversight abilities of the state Economic Development Authority.

Murphy seized on the audit, and the governor and his supporters have repeatedly highlighted the $11 billion figure in calls for reform.

“The ineffectiveness of how the State’s tax incentive programs were structured and managed has now been laid bare for the eyes of New Jersey taxpayers, and a full accounting of how as much as $11 billion was squandered is now required,” Murphy said in January following the audit’s release.

The governor also convened a special task force of investigators to probe the incentives, and it has already made at least one criminal referral.

Programs were allowed to expire in June

But lawmakers have been holding their own hearings to conduct what they’ve called a more balanced review of the incentive programs, which were allowed to expire at the end of June amid the political stalemate.

The new figures that Treasurer Elizabeth Maher Muoio provided the Legislature in a letter sent earlier this month added up all new incentive awards, project cancellations and other changes that have occurred after February 2018, which is when the comptroller’s auditors left off.

Among the changes detailed in Muoio’s letter were some $511 million in new incentives approved through September 2019; nearly $2 billion in project cancellations; and another $317 million in downward adjustments. (Earlier this month, Politico New Jersey reported that the EDA was preparing to pay out up to $500 million in previously approved incentives before the end of the year.)

Muoio sent the letter with the updated figures to the nonpartisan Office of Legislative Services in response to questions from lawmakers during budget committee hearings in May. Those lawmakers included Sen. Steve Oroho (R-Sussex), who asked yesterday why it took so long to get Treasury’s response, especially since the figures should reset Murphy’s $11 billion talking point.

 ‘Grandiose numbers’

“The issue is, they were going out with these grandiose numbers,” Oroho said. “Don’t use misinformation.”

He also said the project cancellations and other adjustments prove that the EDA does have the capability to ramp up oversight of the tax breaks to ensure they’re not going to companies unless they produce a net benefit for the state.

“If somebody is fundamentally abusing the system, you go after them, you have to,” Oroho said.

Asked for a response to Oroho, Treasury spokeswoman Jennifer Sciortino disputed the suggestion that the release of the new figures had been delayed or downplayed.

“It’s not unusual for follow-up responses to be sent later in the year and to our knowledge OLS did not reach out expressing any urgency on the responses,” she said.