A massive, $11.5 billion plan to update and expand corporate tax breaks that Gov. Phil Murphy and legislative leaders say is needed to boost the state economy during the coronavirus pandemic is set to go before lawmakers for the first time Friday.
The legislation was just introduced earlier this week, but boosting economic development through tax breaks has been labeled a top priority by the governor and lawmakers, and it is expected to reach Murphy’s desk by early next week.
If enacted unchanged, the measure would allow for the awarding of up to $1.5 billion in tax breaks annually over a six-year period to incentivize things like small-business support, brownfield remediation, historic preservation and other economic development activities, according to the bill.
Another $2.5 billion in tax breaks could be awarded over the same six-year period for “transformative projects” such as large-scale housing or mixed-use developments, officials said.
The bill’s formal introduction represents a major step forward on the tax-break issue after Murphy and fellow Democrats who control the Legislature had been deadlocked for well over a year. Their disagreements on economic development policies led to the 2019 expiration of a prior tax-incentive initiative that had been widely criticized as overly generous and prone to abuse.
New oversight requirements
The new measure includes many elements of a reform proposal that Murphy first floated in 2018. The governor touted new oversight requirements and labor protections as he discussed the breakthrough following a media briefing Wednesday on winter storm preparations.
“This is going to transform our state, particularly as we recover from this pandemic,” Murphy said.
The measure is scheduled to go before budget committees in the Assembly and Senate on Friday. And it’s on course to win final approval from both full houses on Monday.
While the economic effects of the pandemic, including surging unemployment, have created urgency in the State House, the fast-tracking of the bill has left little time to assess how the proposed tax breaks could impact the state’s roughly $40 billion annual budget, which is being propped up this year with billions in borrowed money that will have to be paid back at the same time the state would also be funding the proposed tax breaks.
For and against
Liberal groups have widely panned the deal, suggesting the tax breaks remain too generous and the bill is being advanced too quickly in the middle of a pandemic.
But the agreement won immediate praise from business-lobbying groups who’ve been urging the governor and lawmakers to establish new incentive programs to help offset the state’s reputation for high corporate taxes.
Like many states, New Jersey has been offering companies some form of tax breaks for over two decades. Administered through the Trenton-based Economic Development Authority, the state’s tax-breaks were last overhauled in 2013, during the tenure of then-Gov. Chris Christie.
At the time, New Jersey was still struggling to rebound from the Great Recession even as many other states were recovering jobs lost to the 2007-2009 downturn at a quicker pace. Among other changes, the tax-break programs were made more generous and annual spending caps on them were stripped away.
Murphy, a former Goldman Sachs executive who took office in 2018, loudly criticized the Christie administration’s handling of the tax-break programs, including after a 2019 audit released by the Office of the State Comptroller raised serious questions about the EDA’s oversight abilities and whether taxpayers were getting good value for their investments.
What an audit uncovered
The governor also hired a group of lawyers to launch a separate investigation that raised more questions and flagged nearly $600 million in previously awarded tax breaks for additional review.
Murphy has urged lawmakers to enact a long list of reforms to beef up oversight and make the tax breaks more targeted to specific purposes. He’s called for more emphasis on small businesses and main streets, historic-site preservation and brownfield remediation.
In another priority for Murphy, he also asked lawmakers to create a public-private venture-capital fund to encourage the establishment of more startups in New Jersey, arguing those types of investments would provide a strong return for taxpayers.
Much of what Murphy originally called on lawmakers to enact made it into the final agreement announced earlier this week, including the proposed public-private venture-capital fund. The legislation also calls for incentives to be provided for projects that would bring grocery stores to communities with so-called food deserts, and it would seek to reward community “anchor institutions” like hospitals and colleges and universities.
The legislation also upgrades the total “net benefit” that a project is supposed to provide the state whenever a tax break is awarded, officials said. There are also community benefit provisions, labor protections and annual caps on the value of the tax breaks that can be awarded in a given year covering seven different incentive programs, officials said. The bill would also allow for the annual caps to be exceeded if the EDA board determined “it is in the state’s interest to approve an amount of tax credits in excess of the annual limitations.” But the $11.5 billion cap on the total value of tax breaks that could be awarded over the six years covered under the bill would remain a hard cap even if one of the annual caps is exceeded in a given year, officials said.
Liberal groups that have been outspoken advocates for tax-incentive reform bristled at the total amount of spending on tax breaks permitted under the legislation introduced a few months after Murphy and lawmakers agreed to raise taxes and borrow roughly $4 billion to help offset significant revenue losses triggered by the pandemic.
“While this bill includes important oversight and independent review provisions to help prevent fraud and abuse, those safeguards are completely undermined by the bloated, $11.5 billion price tag,” said Brandon McKoy, president of New Jersey Policy Perspective, a left-leaning think tank based in Trenton.
Liberal activists have also taken aim at the fast-tracking of the legislation in the middle of the pandemic.
‘Violates fundamental principles of good government’
“This deal violates fundamental principles of good government and transparency while devoting money the state does not have to pad the pockets of corporations and prop up a cottage industry of politically connected consultants and attorneys,” said Sue Altman, director of New Jersey Working Families.
But business-lobbying groups rejected suggestions that the legislation is being rushed through the Legislature, noting it is being advanced more than a year after the previous tax-incentive programs were allowed to expire. They also pointed to the pandemic’s impact on the state economy, including on small businesses that have been struggling to survive amid tight restrictions put in place to help slow the rate of new COVID-19 infections.
“This proposed incentive program has many strong aspects to it, including provisions to help small businesses, incentives to drive innovation, and a sound structure for monitoring and evaluating the effectiveness of the program,” said Tom Bracken, president and chief executive of the New Jersey Chamber of Commerce.
“The absence of a program for 18 months has impacted New Jersey’s overall competitiveness,” said Michele Siekerka, president and chief executive of the New Jersey Business & Industry Association.
“We are hopeful this new program will be an important component to making New Jersey a more attractive destination for business and industry,” she said.