New Jersey has some of the most generous state business tax incentives in the country. The state has awarded billions of dollars in tax breaks through the state’s Grow NJ and Economic Development and Growth (ERG) programs, which expired July 1.
Last month, Governor Phil Murphy vetoed legislation to renew the $11 billion programs and instead called on lawmakers to implement his proposal to reform corporate tax incentives in the Garden State. S3901 would have extended the Economic Opportunity Act (EOA) in its entirety to January 31, 2020.
The Governor’s proposal, first submitted to the Legislature in 2018, “presents sweeping reforms to the current tax incentive programs and shifts the focus to bringing new companies to New Jersey while helping to grow state-based startups,” according to Governor Murphy.
In general, proponents of corporate tax breaks argue that they compensate for tax structures that are not business-friendly, and are an investment that results in net economic gain for governments. Opponents say that this is not always the case, and may not be worth the price.
A special task force, appointed by Murphy earlier this year, has been critical of the state Economic Development Authority’s (EDA) administration of the programs, as well as companies that have been awarded tax breaks. To date, the task force has recommended $500 million worth of incentives be suspended or terminated.
A report from the New Jersey State Comptroller’s Office found that the EDA did not have processes in place to confirm that jobs were actually created as a result of corporate tax incentives and that the EDA may have “improperly awarded, miscalculated, overstated, and overpaid” tax credits.
According to Governor Murphy:
“For the past six years, New Jersey has operated under a severely flawed tax incentive program that wasted taxpayer money on handouts to connected companies instead of creating jobs and economic growth,” Governor Murphy said. “The program I’ve outlined in the conditional veto is one that creates good jobs and works for everyone, not just the connected few, and one that will help restore New Jersey’s prominence as the state of innovation.”
Included in the suite of incentive programs are provisions that assure job creation not just at the businesses that receive an award, but also for the working men and women of New Jersey who build and serve these offices.
The five programs included in the conditional veto are:
- NJ Forward – This jobs-based program will provide credits to companies engaged in high-growth industries, U.S. businesses creating a Northeast headquarters, foreign businesses creating a U.S. headquarters, and major job retention projects.
- NJ Aspire – This program will catalyze investments in commercial, residential, and mixed-use projects through a place-based gap financing program.
- Brownfields Redevelopment Program – This program will complement EDA’s Brownfields Loan Program and catalyze more remediation projects and increase job creation.
- Historic Preservation Tax Credit Program – This program, modeled after the National Historic Tax Credit program, will partially reimburse developers who revitalize income-producing historic buildings.
- Innovation Evergreen Fund – This fund is designed to supercharge venture capital investment into Garden State startups.
Each program is capped for a combined total annual value of $400 million. The legislation provides flexibility for the state to award additional tax credits for certain transformative projects, including for projects that deliver food sources to food deserts as designated in consultation with the Departments of Agriculture and Community Affairs.
S3901 would have extended the Economic Opportunity Act in its entirety to January 31, 2020, seven months beyond its sunset date of June 30, 2019.
It is unclear whether state lawmakers will attempt to override the gubernatorial veto. But regardless of what happens next, New Jersey is still responsible for contracts entered into under the EOA—worth billions—over the next ten years.