N.J. gave out $11B in tax incentives. Was it just a waste of money?

Posted Sep 5, 2019

Sen. Bob Smith, D-Middlesex, who chairs the select committee, questioned whether New Jersey has put itself at a disadvantage by “unilaterally disarming” itself, as other states compete for companies and jobs.

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New Jersey is doing it all wrong.

That was the conclusion of economists and other experts who testified before lawmakers in Trenton on Thursday, as a Senate committee continued its hearings into how to reform a controversial business tax incentive program that has become mired in scandal.

Noting that the state's incentive awards were twice the national average, they said New Jersey can 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.

“Although incentives can make a difference, a lot of times they don’t,” said T.J. Bartik, a senior economist with the W.E. Upjohn Institute for Employment Research, a non-profit and non-partisan research group.

Bartik said incentives rarely if ever pay for themselves.

“Probably at least 90 percent of any increase in tax revenue due to inducing job creation are offset by increased public service costs, as new jobs will attract population who will require more spending on infrastructure, education, police and fire services, and other public services,” he testified before the Democrat-led committee.

The state Economic Development Authority has awarded more than $11 billion in tax breaks to corporations since 2005 in the name of job , much of that under former Gov. Chris Christie, a Republican. Some $8.6 billion was awarded within the Grow New Jersey Assistance and Economic Redevelopment and Growth Grant programs.

Both those programs expired at the end of June, leaving New Jersey essentially without any weapons in a nationwide arms race to attract new business to the state with the lure of lucrative tax incentives similar to those that were offered by cities in an effort to persuade Amazon to move into their neighborhoods.

Gov. Phil Murphy two weeks ago vetoed an extension of those tax breaks last month, saying the state’s economic incentive programs were among the most expensive and least productive in the nation, and called for major change.

“The return on investment the state achieves through these programs is unacceptable and the ability for well-connected interests to exploit the many loopholes of the programs is shameful,” the governor said.

Among his proposals included the capping how much the state awards in incentives.

A governor’s task force, after a series of hearings earlier this year, issued a report in June that found the EDA did not have adequate procedures in place to vet applications for those incentives. It also concluded that the legislation that created the multi-billion-dollar program was largely shaped by special interests — including many close to South Jersey political powerbroker George E. Norcross III.

The special Senate Committee on Economic Growth Strategies, formed in the wake of the controversy over the incentive program, has been holding its own hearings into the incentive program. Advocates at an earlier hearing in July pushed back against critics and the administration, arguing that the incentives have helped revive struggling cities and created jobs.

Among those testifying before lawmakers on Thursday was Jackson Brainerd, a policy specialist with the National Conference of State Legislatures, who has noted that despite enthusiasm nationwide for corporate tax incentives, many economists doubt they are an efficient use of public money.

Brainerd said incentives often fail to meet their stated goals and often have a negative impact on state’s fiscal health. At the same time, he said few states perform regular evaluations of the programs, which should be part of the state’s regular budgeting process.

Michael Lahr, director of Rutgers Economic Advisory Service, said tax breaks are not the only way to offer incentives to attract business.

“Taxes are not as critical as other cost items to businesses,” he explained. “The costs of labor, logistics, and space are much more important. Items like energy costs and taxes are lower on the list,” he said.

Nevertheless, he said New Jersey still needs to remain competitive with our neighboring states.

“We need to keep up with the Jones’. This is because, as Amazon’s Chinese auction showed, firms select a general region in which they wish to locate based on gross criteria like supply chains and markets and then, after, select among jurisdictions within that region that present lowest costs,” Lahr said.

Sen. Bob Smith, D-Middlesex, who chairs the select committee, said New Jersey’s awards amounted to about $66,000 per job. But he repeatedly questioned whether the state has put itself at a disadvantage by “unilaterally disarming” itself as other states compete for companies and jobs.

“There is a lot of concern out there that we really need to get the program back up, said Smith in an interview. “And that if we’re going to do it, we should do it sooner rather than later.”

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