The worst of the COVID-19 second wave will hit New Jersey through early February, and the vaccines are likely to be available to the general public by April or May. The summer of 2021 could very much represent a return to some semblance of normalcy. But how robust will the recovery be?
“[P]eople have a time when they can look forward to changing the environment they’re in, getting back to something closer to [before], even though the intervening period can be painful, knowing if they can just survive that interim period, then hopefully” they can make it, said Tom Bracken, chief executive officer of the New Jersey Chamber of Commerce. A number of potential grants or loans are being floated by the Chamber, Bracken said, to help businesses survive that interim period.
Bracken and other business executives lamented what they said was a lack of certainty from the Murphy administration, including key metrics that would trigger increases or rollbacks of COVID-19 restrictions. Those limits have helped curtail the spread of COVID-19, but have choked the economy, leading to some of the worst conditions since the Great Depression.
Now those businesses have some certainty. “If we can at least keep [employers] holding on through these few months, hopefully they can” survive, said Michele Siekerka, president and chief executive officer of the New Jersey Business and Industry Association.
“I’m really optimistic about 2021, 2022, 2023. I think the rebound from the pandemic is going to put wind in our sails,” said Tim Sullivan, chief executive officer of the New Jersey Economic Development Authority.
Such a rebound would be in part fueled by pent-up demand for activities taken for granted before the pandemic. And it should be helped along by a new tax incentive package established under the New Jersey Economic Recovery Act of 2020.
The landmark incentive programs sailed through Trenton in a matter of days. They were first announced on Dec. 16 and cleared both chambers of the state Legislature in less than a week. During that time, the proposal grew by over 100 pages, and the value grew from a combined $11.5 billion over six years to $14 billion awarded over seven years.
That increase drew criticism from progressives and government transparency groups worried that the bill’s complexity and the speed of its passage would allow language to be inserted that would unfairly benefit well-connected individuals, businesses or groups.
“The fact of the matter is the principles that underpin this incentive package have been out there for two years,” Gov. Phil Murphy said at a news conference on Dec. 21. “The more people look at this, this gets better on close inspection, as opposed to otherwise.” He cited the caps to awards, the creation of an inspector general and provisions to benefit underserved communities.
Murphy’s administration has been critical of the predecessor program, known as Grow New Jersey. Under that program, the state awarded more than $4 billion in corporate tax breaks to hundreds of businesses that moved to New Jersey, expanded their existing footprint and decided against leaving.
A task force he put together in 2019 investigated allegations of unethical and improper political influence over how the program was crafted and how tax breaks were awarded, with the focus on businesses with close ties to George Norcross, a South Jersey political powerbroker.
“We have to do this the right way. We have no choice,” Sullivan said in an interview.
Many of the larger incentive programs will go through a lengthy rulemaking and public comment process, according to Sullivan. Some could take the better part of a year before the state would begin to actually award incentives.
“I think we’re going to have a busy year in 2021,” Sullivan added. “I would expect and look forward to a robust public comment process. We’ll hear from advocates and transparency-oriented stakeholders as well as business-oriented stakeholders.”
Assembly Speaker Craig Coughlin, D-19th District, defended the need for speed in a recent interview. “[T]here’s a regulatory process, four to six months. So if we wait until February or March for something to pass out, we could lose an entire year,” Coughlin said. “People weren’t thinking of New Jersey” because it had no flagship incentive programs, he added.
The independent inspector general will work within the NJEDA to prevent abuse and potential corruption. Chief executive officers have to swear under penalty of perjury that their applications are truthful.
NJ Emerge supplants Grow NJ, capped at $1.1 billion a year. Awards for individual companies are capped at $8,000 per job over seven years, compared to Grow NJ’s $15,000 per job over 10 years. And they’re aimed at the same companies as those served by Grow NJ: office space and industrial projects, for example, with specific industries such as pharmaceuticals, clean energy and technology.
NJ Aspire is meant to replace the Economic Redevelopment and Growth gap financing program for residential projects. It will focus on urban redevelopment, affordable housing and transit-oriented development. Aspire is also capped at $1.1 billion a year.
Under Aspire, projects are capped at $50 million in the state’s poorest and most vulnerable cities, including Camden, Bridgeton, Newark, Atlantic City, Trenton and Paterson. Projects elsewhere are capped at $32 million.
The extended rollout of Emerge and Aspire, given the rulemaking process and public comment periods, mean that New Jersey could be well into the second half of 2021 before businesses could submit applications for state tax breaks.
The bill also creates a $60 million per year “Innovation Evergreen Fund,” under which the state and venture capital firms would jointly finance startups. “Evergreen is probably the one that will have the longest rollout timeline. It’s a unique and innovative and groundbreaking program. It’s a bit different than traditional economic [incentives],” Sullivan said. “It will be a couple years before we see the benefit of that.”
The bill sets aside $2.5 billion for 10 major “transformative projects” which are capped at $250 million per project, or 30% of their expenses. “I think the name that gets tossed around the most is Amazon. I don’t think we’re likely to see a process like that again in our lifetimes,” Sullivan said, referring to the Amazon HQ2 search process that spanned 2017 and 2018.
Sites like The Hub, a proposed $175 million, 210,000 square foot project in New Brunswick, would be a potential contender. The site is currently a vacant lot downtown.
Several programs are being expanded or extended, or written into formal law, and applications would be submitted for those programs like always, according to Sullivan. The ERG program is extended until Dec. 1 2021, and being given $210 million through that date.
Programs like the film and television tax credit program, and several incentives meant to support startups and entrepreneurs, are simply getting larger pools of money, according to Sullivan.
A POST-COVID ECONOMY
Businesses have gotten by on reduced capacity, or work-from-home arrangements, for nearly a year. And the expectation is that they’ll need to continue for some time. “The whole issue of remote working has proven to be successful, so [there will] probably be much more of that than in the past – maybe a hybrid system being implemented,” Bracken said. But he maintained that jobs being done at home “can be better done in an office environment, especially the jobs that are benefited by the creativity of people interacting with each other.”
Broadly speaking, the pandemic has upended a business model built into programs like Emerge: the notion of businesses renting out office space in a new location or expanding an existing footprint and investing in the local economy.
Projects that entail urban redevelopment or historic preservation for revitalizing historic and underused properties or a community anchor tenant program to some extent all depend on the physical presence of customers and businesses for success.
“There’s no good answer to that right now,” Murphy said on Dec. 21. “We spend a significant amount of time talking about whether or not the rebalancing of where people are working and how they’re working, where they’re living, is temporary, permanent or somewhere in between.”
Sullivan argued that the state’s economy would not in fact be so thoroughly altered by COVID-19 as to render the new incentive programs obsolete, or anything close to that. The incentive program is meant to be but a single factor and “not the entire tool kit.” It’s meant “to be a kind of tie breaker or cost mitigator.”
Coughlin sounded a similar theme. “I think it’s possible that we’ll have to revisit some of these things” or “refine” them, he said of the incentives.
Sullivan said the program is built with enough flexibility that it could adapt to more permanent changes in the economy that are brought about by the pandemic.
“The notion that the world is going to be completely different on the other end of the vaccine is probably a bit exaggerated,” he said. “Will office use be different? Will people work from home more? Sure. I don’t think it’s going to be an ‘everyone’s at home on their laptops.’ Put your dress clothes back on and go back to the office. There’s too much benefit that comes from human interaction.”