A Mercer County superior court judge ruled against efforts by South Jersey Democratic powerbroker George Norcross to shut down the Murphy administration’s task force which has been investigating how he and his social circle may have benefited from the state’s lucrative corporate tax breaks.
Gov. Phil Murphy’s task force, in turn, unveiled its findings on Monday evening detailing mismanagement by the Economic Development Authority – responsible for administering the multi-billion dollar tax break program – and the ways in which the legislation for the program known as Grow New Jersey was improperly crafted to benefit Norcross and those around him.
“Frankly, the public interest is that this task force be allowed to report before there’s a vote in the Legislature,” Mercer County Judge Mary Jacobson said as she read her opinion following hours of arguments from attorneys for both Norcross and the Murphy administration.
“The public has a right to know what the task force has found so they can contact their legislators,” she said.
That was a point largely agreed upon by Ted Wells, the attorney for the Murphy administration.
“They don’t want the report to come out. They don’t want the report to be issued,” Wells said of Norcross, several of his business allies, and the attorneys representing those plaintiffs, arguing their legal filings marked a “brazen attempt” to keep the findings private.
Inconsistent, inadequate procedures
The 75-page report paints the EDA as an agency rife with a severe lack of oversight, which “did not have adequate procedures in place” to vet applicants, including “applicant misstatements, that would have led to the rejection of some applicants or a significant reduction in the number of certain awards.”
The report also highlights how “special interests” – especially those tied to Norcross – rigged the Grow NJ program to win hundreds of millions of dollars in tax breaks.
Over $500 million of tax credits might have been improperly awarded and could be subject to suspension or termination, the report notes.
For example, Kevin Sheehan, a lawyer at Parker McCay where George’s brother Philip is a partner, “privately lobbied the agency to adopt provisions favorable to the firm’s clients,” according to the report.
“The EDA did not have any protocol or written standards for conducting research in connection with companies’ applications with program benefits, as a result… some EDA employees conducted independent research to verify aspects of applicants’ factual assertions and others failed to do so, even when relevant information was readily available,” the report reads.
According to the report, EDA staffers could have performed a mere Google search to determine if companies that won the incentives would ultimately not have been eligible for them.
One example was Holtec, which won a $260 million tax break to move to Camden and falsely claimed that it was never barred from any federal contracts. In reality, Holtec was disbarred for contracts with the Tennessee Valley Authority, a federal agency.
“This fundamental lack of controls led to important misunderstandings over threshold requirements for applications and inconsistency within the EDA in its evaluation and application of program requirements—including confusion over even the basic level of scrutiny to be applied to applications, with some EDA employees viewing the vetting process as checking exercise, during which a company’s factual assertions deserved deference,” the report reads.
Legal back and forth
During oral arguments, Norcross attorneys Kevin Marino, William Tambussi and Mike Critchley said Murphy was overstepping his constitutional authority by creating a task force with such a high level of investigatory power.
The attorneys also argued their clients – Norcross, NFI, The Michaels Organization and Cooper University Health – would suffer “irreparable harm” to their reputation as a result of the task force’s allegations.
The attorneys for Norcross and his business allies also alleged the task force violated their freedom of speech and due process because it did not give them a meaningful opportunity to make their case in public, present their own evidence and cross-examine witnesses.
Still, Wells argued Murphy did indeed have the authority to order the investigation into an agency such as the EDA.
Today’s decision by Judge Jacobson is disappointing but does not represent the end of this process. We will continue this litigation in an aggressive manner to protect our rights.
And Jacobson agreed, saying that an official such as Murphy, who has the authority to veto the minutes of any state authority, should have the legal right to have those agencies investigated.
Daniel Fee, a spokesperson for Norcross, said they would continue legal action against the task force and Murphy administration. And, that they plan to reach out to lawmakers on Tuesday to seek the chance to take part in the Legislature’s own committee hearings on the effectiveness of the tax breaks and what should replace them. The upcoming Senate committee – armed with subpoena power – is scheduled to meet on June 24.
“Today’s decision by Judge Jacobson is disappointing but does not represent the end of this process. We will continue this litigation in an aggressive manner to protect our rights. We will move quickly to schedule discovery and depositions,” Fee said in a statement.
“Our litigation has never been about blocking an investigation, but rather to ensure that the Governor’s Task Force gave each firm basic due process rights, including the opportunity to present fully the facts about their companies, their applications, and their decisions to move to Camden,” he added.
“There is a great story to tell about Camden, why these firms are moving or expanding there, and the process each followed to be approved for tax incentives. Beginning with the Legislative hearings, we will tell it,” Fee added.
The governor’s office declined to comment on Monday decision from Jacobson or the details of the task force’s findings.
“The EDA is a steward of taxpayer resources, and our highest obligation is to ensure that taxpayers get what they were promised,” Tim Sullivan, EDA chief executive under Murphy, said in a statement to NJBIZ. “Today’s report, along with the report issued earlier this year by the Office of the State Comptroller, is a roadmap to significantly improving the administration of EDA’s incentive programs.”
Monday’s report highlighted how “special interests,” especially those with ties to Norcross, rigged Grow NJ for their own benefit.
“The task force’s investigation to date has found that special interests have had a significant hand in molding the current programs’ legislation and implementing regulations in their favor,” reads the report. “As a result, in certain respects, the programs have not been ‘neutral’ [in] their design but have instead been structured to favor the business interests of certain parties, and in some cases to disfavor other parties.”
In one example the report highlights, Andrew Bush, an executive at Cooper Health where Norcross sits on the board, sought a quote in November 2014 about a potential location outside of New Jersey, at a site called Center Square, to use in its tax break application, even though the company had no intention of moving into the location.
“Can you get me a term sheet for 120k sf? Quietly?” Bush wrote, according to the report. “No probability of us moving to Center Sq, so I don’t want to make too much noise.”
Cooper initially said it had no plans to move the jobs out of the state, only for the EDA to later certify that Cooper planned to move 353 jobs out of state if it did not win the incentive.
“The Task Force has found evidence that the claimed alternative site in Philadelphia was not a genuine alternative site,” reads the report.
Those office quotes were “created solely for the purpose of submitting evidence of an alternative site to the EDA” to boost Cooper’s chances of winning the tax break, according to the report.
Another example highlights how Sheehan, in representing Conner Strong, NFI and The Michaels Organization, helped the organizations provide questionable data about where in Philadelphia they would move if they did not win the tax breaks.
The three went on to open a joint headquarters on the Camden waterfront after each winning multi-million dollar tax breaks.
“Although the EDA did not have access to the companies’ emails with the real estate broker, which the Task Force obtained, there were nonetheless clear red flags in CSB’s, TMO’s, and NFI’s EDA application and in the public record that should have caused EDA personnel to question the three companies’ statements that they were considering relocating out of the state,” the report reads.
Those “red flags” included a September 2015 press conference, where the three companies announced they would be moving to Camden—more than a year before they submitted their applications.
The tax breaks for the three companies could have been reduced by $70 million if the EDA properly calculated the applications, while the reward for Cooper would have been just $7 million, according to the report.
Murphy unveiled the task force in January following the release of an audit from the state comptroller.
The governor wants to let Grow NJ expire when it lapses on July 1 and replace it with a set of five new incentives, capped at $400 million a year.
Lawmakers including Senate President Stephen Sweeney, D-3rd District, – Murphy’s oftentimes political rival – have remained skeptical of the caps and want Grow NJ to continue, albeit tweaked.
Sweeney and the Legislature are moving ahead with their own plans to extend Grow NJ and its sister program, the Economic Redevelopment and Growth gap financing program, for another seven months to buy lawmakers more time to hash out a new set of tax incentives.
But Murphy has vowed to veto the measure if it does not include the caps he has been seeking in his new set of proposals. Both the full Assembly and Senate are slated to vote on the Grow NJ and ERG extension bill Thursday.
A cap on the number of tax breaks awarded each year was indeed one of the recommendations that the task force laid out in its Monday report.
The task force also recommended shortening the window that companies have for sending in their tax break applications, crafting incentives to target specific industries, and clamping down on how much businesses could get for moving into economically distressed cities such as Atlantic City and Camden.