New Jersey Gov. Phil Murphy is trying to spur a full overhaul of the state's tax incentive programs.
Murphy, a Democrat who took over from Republican Chris Christie last year, spent a large chunk of his Jan. 15 State of the State address attacking tax credits handed out during his predecessor’s administration, saying in some cases they amounted to "crony capitalism.”
The governor’s sharp focus on tax breaks follows a scathing
"The Comptroller could not prove that New Jersey got back benefits anywhere near what it handed out," Murphy told state lawmakers. "Based on a sample, it could not even prove that 20 percent of the jobs promised to be created or retained actually ever were — meaning money flowed from taxpayers’ pockets into a black hole."
The comptroller’s audit,
“With many of these programs reaching maturity and with a significant amount of incentives yet to be distributed through these programs, it is time to examine the manner in which these programs are administered and make improvements to our monitoring efforts,” said Degnan in a statement. “To their credit, the leadership group at [NJEDA] has shown itself willing to make the necessary changes to fulfill its mission to properly administer these programs.”
Murphy followed up the audit's release and his state of the state speech by signing
Structurally imbalanced budgets combined with a heavy pension burden have contributed to New Jersey being the second lowest-rated U.S. state. Its general obligation bonds are rated A3 by Moody’s Investors Service, A-minus by S&P Global Ratings and A by Fitch Ratings and Kroll Bond Rating Agency.
The budgetary cost from past tax breaks in the upcoming fiscal year was tagged by Murphy as more than $1 billion. He stressed that the program has become a burden at a time when the state faces multiple funding challenges for pension obligations, New Jersey Transit, infrastructure and public schools.
“I am calling for a new program that is capped in the amount of money it gives out, has clear eligibility criteria and oversight, has flexibility, and works to achieve our broader goals by investing in the high-wage, high-growth sectors upon which we must rebuild our economy,” said Murphy in his speech. “It is about fostering the new economy rather than simply helping a few big corporations.”
A July 2018
“Every state has tax incentive programs and they all tend to go off the assumption that if it were not for these benefits economic development would not take place,” said Will Irving, a research associate at the Bloustein School who helped author the report. “You have to weigh whether the public benefits versus the costs to the state in tax dollars that are not collected.”
The Rutgers research showed the largest number of tax incentive awards from 2013 to 2017 went to businesses in urban transit hubs, distressed municipalities and locations the state designated as “priority areas.” Many of the awards went to Jersey City in northern New Jersey and Camden in the southern part of the state.
Senate President Steve Sweeney, D-Gloucester, said the original legislation for the tax incentive programs included standards for oversight that were not followed, based on the comptroller’s report. Sweeney said he supports working with the Murphy administration to craft an enhanced tax break policies with better controls.
“We will work with the administration to create replacement programs that address the same priorities of generating economic growth, creating and retaining jobs and expanding long-term opportunities,” said Sweeney in a statement. “The new incentives must include significant oversight and accountability so that the programs maximize their effectiveness and do not squander resources.”
State Sen. Joe Pennacchio, R-Pine Brook, introduced legislation in October to require audits of business tax incentives managed by the NJEDA at least once every two years. State Sen. Shirley K. Turner, D-Lawrenceville, expressed frustration after the comptroller’s audit that the Christie administration did not carry out required oversight of companies reporting jobs created, as included in a bill she crafted that was signed by former Gov. Jon Corzine in 2007.
“I am disappointed that my legislation, which should have addressed the findings of the audit over ten years ago, has not been enforced,” said Turner in a statement. “More than that, I am frustrated state revenue has been squandered on companies that failed to live up to their promise.”
A letter from NJEDA CEO Tim Sullivan included in Degnan’s audit agreed with some of the recommendations, but also referred to the comptroller as an “outside” party that may not grasp the full complexity of administering the incentive programs. Sullivan also said it was incorrect that the NJEDA had paid out $11 billion in actual tax credits since there is long lead time associated with approved projects and the agency is not positioned yet to report on full economic impact until it certifies completion.
“It is imperative that the NJEDA clarify that there is an important distinction between the NJEDA board’s approval of an application and the actual realization of an award of tax credits,” said Sullivan. “While these complex and nuanced programs each have a different set of statutory requirements and public policy goals, a consistent thread has been the NJEDA’s commitment to the highest level of transparency and due diligence in recommending projects to its board and ensuring every project approved is done so in strict compliance with statutes and regulations.”
