Let’s make a deal? With Murphy and Legislature deadlocked over tax breaks, Senate offers new plan.

Posted Feb 07, 2020

A legislative committee looking into the state’s troubled economic incentive program called for major changes in the way the state hands out millions in tax breaks to promote job growth in New Jersey, but stopped short of all the reforms called for by Gov. Phil Murphy.

The tax breaks expired last year and an ongoing debate between Murphy and Legislative leaders has deadlocked efforts to restart the program.

Among the key recommendations of the committee:

  • Caps on individual tax breaks, but not on the overall program itself — as has been demanded by the governor.
  • Targeting high-growth, high tech and environmentally beneficial industries with incentive programs.
  • Agreements that would serve as contracts guaranteeing benefits that a developer or company would be required to provide to residents of the area receiving state incentives
  • Providing additional incentive benefits to cities needing private and public investment.

The committee in its 18-page report issued on Friday also recommended the establishment of an Office of the Economic Development Inspector General, in the wake of allegations of abuse and fraud in the awarding of tens of millions of incentives.

State Sen. Bob Smith, D-Middlesex, who chaired the special Senate Committee on Economic Growth Strategies, said the report offered a blueprint for reform and improvement to maximize New Jersey’s ability to compete for jobs and economic growth.

“We took a hard look at the programs in place to determine the reforms needed to make them work with more transparency and accountability,” Smith said in a statement. “We reviewed past practices with a critical eye so that we can develop constructive strategies for economic growth.”

The recommendations, he said, offered an emphasis on expanding opportunities in distressed communities.

The governor’s office in response noted many of the recommendation are contained in Murphy’s own proposals for change, but indicated that it remains firm on the need for annual caps on incentive awards, which it called “integral to the program.”

Opponents have said such limits would put the state at a disadvantage, but Murphy has not budged from his position.

"We’re gratified that the committee has recognized issues first raised by the governor in the early days of his campaign. However, we believe these recommendations do not go far enough, said Murphy spokesman Darryl Isherwood. “While most of these recommendations are incorporated into the governor’s plan and others already are part of the EDA process, we look forward to discussing them with the legislature as part of our continued talks.”

Sheila Reynertson, a senior policy analyst with New Jersey Policy Perspective, a progressive group that has long argued for changes in the state’s tax incentive programs, said a hard cap on annual spending is the state’s best defense against the future waste and abuse.

“The committee’s refusal to include this commonsense reform runs counter to testimony by national economic development policy experts and the overwhelming evidence showing these subsidies are too costly and provide little benefit to New Jersey families or the state economy,” she said. “The fact remains that New Jersey is not in the financial position to give out limitless corporate tax breaks, and hard caps should be a nonnegotiable component as lawmakers consider tax subsidy reform.”

The incentive program under the New Jersey Economic Development Authority has been mired in controversy since a task force appointed by Murphy found that the agency responsible for economic development in New Jersey did not have adequate procedures in place to vet applications for literally billions in lucrative awards.

It also found that the agency had a culture with a less-than-rigorous approach of evaluating applications by companies vying for the state’s tax incentives, often working to “get to yes,” said the task force.

The state’s main economic programs, which include the Grow NJ Assistance Program and the state and local Economic Redevelopment and Growth programs, expired at the end of last June.

Murphy has been an outspoken critic of the programs, which he has said “wasted far too much taxpayer money and created far too few jobs.” And after months of its own hearings, the governor’s task force last year issued a report charging that millions in incentive money went to politically connected companies and insiders in Camden — including several businesses closely tied to George Norcross III, the South Jersey political power broker and healthcare executive.

Norcross has defended his role, and argued in testimony before the Senate committee that “nothing would have occurred in Camden without these tax incentive programs.” His appearance led to angry protests by Camden advocates that saw dozens of demonstrators literally dragged out of the room, including activist Sue Altman, the head of New Jersey Working Families.

The Senate panel, appointed by state Senate President Stephen Sweeney, a proponent of the tax incentives, began its own hearings after the task force was launched. Among those who have appeared before the committee have been dozens of elected officials and labor leaders who have strongly argued in favor of the program.

But economists and other experts who have also addressed the committee concluded that New Jersey could get “more bang for the buck” by targeting economic development programs in different ways, and by capping the amount of money offered as incentives for job growth.

In its report on Friday, the committee recommended what characterized as a “strict cap” on individual awards, but with no annual limit on the total program.

“If projects result in a net benefit to the state and have other desired effects, such as stimulating job growth and contributing to urban revitalization, the Legislature should not limit the aggregate amount of awards that can be granted in a given year,” the committee said. “Alternatively, the EDA should be given the flexibility to provide incentive awards to applicants that exceed the investment and job creation proposed in the application.”

While it said the state should target cities in need of investment, saying “select urban areas should receive the most generous incentives,” it also called for legislation “to entice private investment in distressed suburbs,” such as abandoned and underutilized office parks or corporate campuses.

It also called for an increase in the standards showing a “net benefit” offered by the incentives, and recommended job training, support for affordable housing, and residential tax credits.

Responding to findings of fraud, the committee said the state should also make int explicit that the Attorney General can prosecute companies for falsifying information — a curious finding, since the Attorney General’s office has said it is already investigating the program.

Sweeney said the proposed reforms will bring greater transparency, accountability and oversight.

“These recommendations come at an opportune time, providing positive ideas that can be considered for legislation to reestablish a tax incentive program with more safeguards and improvements." said the Senate president in a statement.

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