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Aiming to encourage lending in Urban Enterprise Zones

Bill could be shot in the arm with state funding of UEZs on hold

While New Jersey’s Urban Enterprise Zone program no longer receives state funding, a bill advancing in the state Legislature would give a boost to the programs.

While New Jersey’s Urban Enterprise Zone program no longer receives state funding, a bill advancing in the state Legislature would give a boost to the programs.

Under the bill, S-1885, lenders would be able to deduct the income they receive on loans to businesses located in the zones.

The bill is based on research by Ocean Township-based Bornstein and Song CPAs & Consultants, which found in a survey of small-business owners that steps were needed to encourage lending.

“We found that only four states had a provision for net interest deductions for lenders,” said Samuel D. Bornstein, a partner in the firm and an accounting and taxation professor at Kean University.

After reaching out to lawmakers across the country, Bornstein played a part in the introduction of the interest deductions for enterprise zones in California. Bornstein said any states with enterprise zones would benefit from the deductions, adding that targeting them in the zones allows them to target businesses in distressed areas.

Bornstein was pleased that a report to the state Economic Development Authority earlier this year from Delta Development Group and HR&A Advisors Inc. cited the bill as having the potential to improve the UEZ program. However, he said, the bill’s benefits should be considered separately from the issue of how UEZs are funded.

The state stopped new funding for UEZs this year, although zone businesses continue to benefit from lower sales taxes, but “this is a totally separate issue,” Bornstein said. “This is improving access to capital for small businesses.”

Bornstein said banks that have received funding from the federal Small Business Lending Fund program could further increase lending by combining the two incentives.

Sen. Sean T. Kean (R-Wall) met with Bornstein and came away impressed with the proposal, becoming one of the bill’s primary sponsors. He pointed out that Asbury Park and Long Branch, in his current district, and Lakewood, in the district he is running to represent, all have UEZs.

“We still have vast blocks of real estate in town that can benefit from getting more liquidity and by taking advantage of loans,” Kean said of Asbury Park, where his law office is located.

And Kean said he liked the idea of leaving it up to lenders to decide whether loans make sense with the tax incentive, since “even with this legislation, lenders may still say it’s still too tough an economic climate to do it.”

Kean added that he sees a future for the UEZ program, noting that the funding was cut due to the state’s budget constraints.

“I think the program is successful,” Kean said. “It’s ultimately a conservative, if you will, a Republican idea, because it allows local residents to decide how local tax dollars are spent.”

Tom Gilmore, Asbury Park’s director of commerce and economic development, said the goal of the bill is worthy.

“Any type of incentive program that is geared to business right now is important for the state,” Gilmore said.

The bill was advanced by two Senate committees in September.

The interest-deduction bill is not the only loan incentive bill drawing on Bornstein’s research that is being weighed by the Legislature. Another bill, S-1881, would allow mortgage lenders to deduct the interest income from mortgages as long as they used the savings to reduce the principal.

E-mail to: akitchenman@njbiz.com

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