The first awards under the state’s new corporate incentive program have yet to be handed out, but lawmakers are already considering how to clean up the $14.5 billion package. And Gov. Phil Murphy is apparently on board. “I would welcome the opportunity to do something that would clean up a couple of items, a couple of the loose ends,” Murphy said during an April 21 news briefing.
Several top legislators involved with the tax break bill acknowledged that a clean-up measure of some kind is in order. Assemblywoman Eliana Pintor-Marin, D-29th District, a lead sponsor for the Assembly version, said the measure should be passed before lawmakers break for summer recess on July 1. “I don’t think we can prolong it and wait for the summer. It’s an election year, we don’t meet back again until sometime in October, November. It’s important for us to really get this done,” Pintor-Marin said in an interview, setting a goal of “early June.”
Among other deficiencies, the new scheme does not adequately address employees of New Jersey companies who are doing their work remotely, either at home or in another state, according to Pintor-Marin. And the job retention requirements for companies already in the state need to be addressed, she added.
“There has to be a clean-up bill,” said former state Sen. Raymond Lesniak, a Democrat who was involved with crafting the 2013 tax break package and was heavily involved over the past year in reaching a new compromise.
One of the programs being developed is NJ Emerge, which provides tax credits for companies considering a move to the state. It’s part of the New Jersey Economic Recovery Act of 2020, a roughly 240-page bill which lawmakers rushed onto Murphy’s desk in December 2020 and which he signed in early January.
State officials are counting on the $14.5 billion package to bolster the state’s economic recovery coming out of the COVID-19 recession. The program is geared primarily toward new employers and job growth, not necessarily on job retention.
The goal is to promulgate an interim set of rules in May. “It’s having the effect we want it to have,” Murphy said of the tax break program. “There’s a lot of interest in projects and companies and whatnot.”
The rules under discussion largely mirror what is set out in state law, and significant changes would require legislation. But the rulemaking process allows the New Jersey Economic Development Authority to fine-tune some aspects of the program.
Jake McNicol, an NJEDA spokesperson, called the rulemaking process an “opportunity to make sure we achieve these important goals” of an economic recovery “while most effectively meeting the needs of communities throughout New Jersey.”
“The proposed rules for this program are similar in length and complexity to other programs of similar scope,” he continued. “Clear definitions and precise rules are important to ensure this policy best serves New Jersey communities and not special interests.”
But Tom Bracken, president and chief executive officer of the New Jersey Chamber of Commerce, said that while he generally supports the incentive program, he is nonetheless worried about what he says is an opaque set of rules with these new incentives. “The Emerge program is better than we had before,” he said in an interview. “It’s more all-encompassing, which is good.”
But, he added, “with 62 pages of regulations and the myriad different boxes you have to check to see if you’re eligible, it makes it very difficult to apply.”
Bracken continued: “Because we’re so out of the game right now, we have to be almost ultra-aggressive in making sure people are attracted to this and can access this easily, because if they can’t, then I think it’s going to turn away many potential companies that would apply here.”
Sheila Reynertson, an analyst with the left-leaning think tank New Jersey Policy Perspective, had similar concerns: that a thorough understanding of what’s being proposed by the NJEDA is difficult for “non-lawyers.”
“It’s a very laborious process to go through the regulations,” she said. “It takes more than one person to go through the legislation and compare it to the regulations … Maybe now is the time to complain, ‘can you just make it a little bit more obvious about what the new language is, so we’re not complaining about statutes that we can’t change?’”
Under the law, NJ Emerge has a six-year lifespan but lawmakers can extend it for a seventh year to tap into any unused tax incentives. The program has a more stringent “net benefits test” which is a complex formula the NJEDA employed with the Grow NJ program to ensure the amount the taxpayers ultimately spend on the tax break awarded is less than the economic benefit for the state.
Whatever the value of the tax break, companies need to generate at least 400% more economic benefit for the state. That threshold is lowered to 300% for “transit hub municipalities” as well as for certain low-income cities. And it goes down to just 200%, or twice the value of the tax credit, for some of the state’s poorest cities such as Atlantic City, Paterson and Trenton.
The 200% requirement also extends to so-called “mega-projects,” which call for the addition of 500 new full-time jobs and the investment of at least $50 million, in a “targeted industry” such as “advanced manufacturing, finance, film and digital media, “food innovation,” clean energy and life sciences.” Targeted industries also have overall lower job creation goals – 25 new jobs, versus 35 new jobs for all other companies.
Businesses have to shell out more money on new construction or the rehabilitation of existing buildings. Individual awards are still not capped at a given amount, save for the $8,000 per job cap depending on where in the state the company will set up shop. Other bonuses are offered depending on factors such as where the business is being located, the types of industries, and the level of salary and benefits. Smaller businesses – those in a targeted industry and with less than 100 employees – only need to create enough new jobs to equal 25% of their existing workforce.
Lawmakers have said that they are concerned about job retention. Businesses considering a move out of New Jersey need to retain 500 jobs in some of the state’s poorest cities, like Camden or Newark, to qualify for an award. Elsewhere in the state, they’d need to retain 1,000 jobs. In either case, business groups and lawmakers said the requirements might be too onerous for employers that have nowhere near that number of workers or are unlikely to ever employ that many people.
“This program does absolutely nothing if there’s a 90-person manufacturer that’s right in the Trenton area, and they want to go over the river to Pennsylvania. There’s not a lot that’ll help them,” said Chris Emigholz, vice president of government affairs at the New Jersey Business & Industry Association. “If you’re an existing medium-small company, like 150-200 employees, and somebody entices you to leave the state, there’s not a lot” available, he added.
Lesniak said that “there were some technical errors made, some issues” on the creation of new jobs “and [to] attract investments, and [to] retain investment and retain jobs.”
McNichol pointed out that the emphasis of NJ Emerge is “incentivizing the creation of new, good paying jobs for New Jersey residents,” though he acknowledged that “smaller, retention-only projects will not qualify” for Emerge tax breaks.
“Given the complexity of providing tax credits to support jobs that are already in the state, the Legislature has set the thresholds for retention-based projects in the Emerge Program higher than the thresholds in the predecessor Grow Program,” he said.
Another issue lawmakers flagged is the requirement that employees spend 80% of their time in New Jersey, or at the office for incentive bonuses tied to certain locations. McNichol said this provision is designed to “stimulate economic activity in New Jersey.”
With a widespread moves to telecommuting because of COVID-19 and uncertainty around just how many people will return to the office once the pandemic subsides, lawmakers want to loosen that requirement.
The legislation also requires that at least 80% of employees at a company pay income tax to New Jersey. Lawmakers also want to loosen that requirement given the increasing prevalence of people working out of the state. “The 80% piece, everyone is still working on that,” Pintor-Marin said.
NJ Emerge also includes something lacking in the previous program: community benefits agreements. Projects valued at least $10 million must have such an agreement with the municipality or county where they’re moving. The arrangement may include job training, employment, youth development and other free services for the local area.
The business must hold at least one “community engagement session,” and work out a community benefits agreement with local officials. “Communities are rarely at the table of a statewide economic development strategy. A community benefit agreement can address this,” Reynertson wrote in comments to the NJEDA.
“But too often the corporation receiving the tax break dictates the terms, downplaying community participation and crucial benefits that would meet their needs,” she continued. “Given the level of fraud that was allowed to prosper under the previous economic development legislation, the EDA must play a stronger role to ensure community voices are heard and that compliance with this type of agreement is enforced.”