New Jersey Lawmakers Approve Corporate Tax-Break Program

By Kate King

New Jersey lawmakers have approved a new economic-development incentive program that authorizes $14 billion in corporate subsidies over seven years.

Gov. Phil Murphy, a Democrat who campaigned on reining in New Jersey's tax-credit programs and is up for reelection next year, said he would sign the bill into law. The governor said the new incentives will be better controlled and targeted toward specific economic-development goals, such as innovation startups and brownfield remediation.

"Everything we asked for is in this bill," Mr. Murphy said at a news conference Monday, after the Democratic-controlled legislature voted 106-12 to approve the new program. "We have gone from a corporate giveaway plan to an economic-development plan."

Critics said the tax credits give up too much potential tax revenue at a time when New Jersey's budget, like many states', has been walloped by the coronavirus pandemic.

"We're in a moment of economic weakness and we just said, 'We're going to reduce our revenues,'" said Brandon McKoy, president of the left-leaning New Jersey Policy Perspective think tank. "It just doesn't pass the smell test."

At his news conference, Mr. Murphy said the new program will help the state recover from the current economic crisis and is necessary given what he described as underwhelming assistance to states from the federal government.

The new program authorizes up to $1.5 billion in tax credits annually for six years, with the possibility to extend into a seventh year if any incentives remain unused. Most of those annual tax breaks, $1.1 billion, are for real-estate projects and companies that create or keep jobs in the state.

Mr. Murphy's office said job-creation tax breaks will be capped at $8,000 a job annually for a maximum of seven years. Under the state's previous tax-incentive program, companies could receive credits of up to $15,000 a job for more than a decade, his office said.

An additional $400 million in annual tax credits will be designated for initiatives like historic property and brownfield redevelopment, opening or keeping grocery stores in food deserts and investing in startups.

Mr. McKoy said research has shown that corporate subsidies aren't as effective as proponents claim they are in luring and retaining companies to the state. A more effective economic-development strategy would focus on investing in education and transportation improvements, he said.

"The governor campaigned on and governed for most of this term in a manner that acknowledged the massive downsides of corporate tax incentives and subsidies," Mr. McKoy said. "This represents a 180-turn."

Mr. Murphy has long said New Jersey's previous economic-development programs were too expensive, ineffective and vulnerable to abuse. The state awarded nearly $11 billion in corporate subsidies between 1996 and early 2018, according to the state comptroller's office.

In July, a task force charged by the governor with investigating the state's corporate subsidies recommended suspending or terminating $578 million in awards to a dozen companies. The task force referred some of the companies' incentive packages to law enforcement to investigate whether fraud was committed.

This new bill incorporates recommendations from the task force to improve oversight of the state's tax incentive program, including requiring company executives to certify upon penalty of perjury that the information included in their tax-incentive applications is accurate. The previous program required chief executives to sign applications, but Mr. Murphy's office said the added prospect of perjury charges would help safeguard against fraud.

The bill also authorizes up to $2.5 billion in tax credits over a maximum seven years for so-called transformative projects, which would most likely be major residential, commercial or mixed-use developments, said Tim Sullivan, head of the New Jersey Economic Development Authority. The bill allows for a maximum of 10 such projects, with each capped at $250 million in tax credits.

New Jersey will also offer more tax credits for film production, with the bill greenlighting up to $300 million a year through 2034. The bill additionally awards incentives, grants and other funding for things like small business recovery and personal-protective-equipment production.

New Jersey stopped accepting applications for tax credits in June 2019 after the previous program expired. The Democratic-controlled legislature passed legislation to renew the tax credits, but Mr. Murphy conditionally vetoed the bill, saying he wanted to implement caps, stronger oversight and other controls on tax-credit awards.

The New Jersey Business & Industry Association said it was glad a new program will soon be in place. The bill is set to take effect immediately once the governor signs it, although Mr. Sullivan said the EDA will need several months to set up the regulatory framework before the authority can start accepting applications.

Michele Siekerka, chief executive of NJBIA, said the new program's caps on tax credits are flexible enough that they won't limit successful projects.

"It attempts to seek balance at a critical time -- when New Jersey has been rendered much less competitive by virtue of not having an incentive program for 18 months, and during an economic downturn of historic proportion," she said.

Write to Kate King at [e-mail]

(END) Dow Jones Newswires

12-21-20 1629ET