A $14 billion corporate tax break program New Jersey Gov. Phil Murphy signed into law Thursday could prove costly over the long term, critics say.
Murphy, who has advocated for changes to the tax incentive programs administered by the New Jersey Economic Development Authority, signed the bill after amendments were inserted that included annual spending caps.
“These programs are the product of nearly three years of hard work, during which we received input from hundreds of voices on how best to structure our state’s recovery and growth," he said at the bill-signing ceremony, held in the parking lot of a chocolate shop in Hamilton Township. “I am immensely proud of the result, which will not only provide much needed relief for our small businesses, but will also fundamentally change economic development in our state while creating thousands of high-paying job for our residents."
The legislation includes a $1.5 billion annual cap for a core component of the program over a six-year period.
Murphy pushed for spending caps in the bill to avoid repeating flaws in the $8.6 billion of tax breaks awarded under the Economic Opportunity Act of 2013 that expired on July 1, 2019. The Democratic governor
Marc Pfeiffer, assistant director of Rutgers University's Bloustein Local Government Research Center, said while renewal of corporate tax incentives is important for retaining and attracting companies during the COVID-19 pandemic, it will be vital for NJEDA to property manage the program to assure New Jersey receives maximum economic benefits. Pfeiffer noted that a lack of oversight under the 2013 bill cost the state billions of tax revenues because it overpaid for tax credits.
“Organizations that are looking to move or relocate are going to try and do whatever they can to maximize the incentives,” Pfeiffer said. “Unless you do a really good job of evaluating and making judgments on these projects you may end up spending more money than you needed to, to get those businesses to relocate here.”
The $1.5 billion programmatic cap sets aside $400 million for new programs aimed at addressing food deserts, brownfields and historic and community anchor developments. There is also a separate $2.5 billion cap that will authorize up to $250 million for 10 “transformative projects” as part of the ASPIRE program.
A 2019 report released from a task force created by Murphy criticized the Grow NJ legislation for its lack of programmatic cap, which enabled tax incentive approvals to “balloon” and cause billions of dollars to be outstanding.
The 75-page analysis also detailed allegations that South Jersey Democratic Party power broker George E. Norcross III had too much influence in shaping tax breaks under Grow NJ that awarded $1.6 billion in credits to companies that moved to Camden.
Pfeiffer noted that New Jersey’s financial struggles during the pandemic give companies in and out of state increased leverage to vie for sweetheart tax breaks.
“You basically have a seller’s market because the people that are looking to relocate their businesses are going to try and maximize whatever value they can get out of competing states,” Pfeiffer said. “The question is how much should it cost us to get businesses to come in that might otherwise come anyway?”
The pandemic has cost the state revenue; State Treasurer Elizabeth Maher Muoio said in November that 2021 fiscal year revenues are on pace to fall $5 billion below previous projections from before the pandemic.
Murphy signed a shortened nine-month $32.7 billion budget in late September that relies on $4.5 billion of proceeds from new borrowing to offset revenue losses. New Jersey issued $3.7 billion of tax-exempt COVID-19 emergency bonds on Nov. 17.
Brandon McKoy, president of the liberal-leaning New Jersey Policy Perspective, said that while the updated tax incentive legislation contains critical oversight provisions, the $14 billion price tag is too much for a fiscally stressed state facing many immediate needs. McKoy noted that the state used to spend roughly $100 million annually on tax credit programs with comparable states continuing to operate at that level.
“A program of this size goes beyond merely ‘competing’ and represents total fiscal irresponsibility,” McKoy said in a statement. “Over the next several years, New Jersey will be forgoing billions more in revenue while grappling with increased need for education and transit investments, paying back billions in borrowed funds, and maintaining vital services and support for workers, families, and small businesses.”
Lawmakers pieced together the tax incentive proposal after originally introducing an $11.5 billion bill on Dec. 16. Following hearings in the Assembly and Senate, the package was upped to $14 billion to include around $2 billion in tax credits for the film and television industry.
“Reauthorization of a large scale job incentive package has been a long time coming in this state,” Assembly Speaker Craig Coughlin, D-Fords, said in a statement. “I believe we have arrived at a plan that will lead New Jersey to a stronger economic future.”
S&P Global Ratings downgraded New Jersey general obligation bonds one notch in November to BBB-plus from A-minus, citing expected revenue losses for the next couple budget cycles due to the pandemic that could produce structural deficit challenges. It revised the state’s rating outlook to stable from negative at the new rating, which is the lowest of all U.S. states with the exception of Illinois.
Moody’s Investors Service and Fitch Ratings rate New Jersey GOs A3 and A-minus, respectively. Kroll Bond Rating Agency rates Garden State debt A with a stable outlook.
