Grapevine Analysis Why Gov. Christie’s decision to not extend UEZ program won’t hurt him #8212 and why it doesn’t necessarily mean end of incentive programs in N.J.

NJBIZ STAFF//February 13, 2017

Grapevine Analysis Why Gov. Christie’s decision to not extend UEZ program won’t hurt him #8212 and why it doesn’t necessarily mean end of incentive programs in N.J.

NJBIZ STAFF//February 13, 2017

Gov. Chris Christie essentially gave shoppers in five urban areas a tax increase Friday when he opted not to act on a bill to continue the decades-long Urban Enterprise Zones program that cut sales tax in Bridgeton, Camden, Newark, Plainfield and Trenton.

Because of it, shoppers in those cities will now pay the full 6.875 percent sales tax rate (an increase of more than 3 percent). The cities are the first of approximately three dozen areas that were benefiting from UEZ status. The program was originally implemented in 1986 to give tax incentives to business in urban areas with struggling economies.

Of the many benefits, businesses in those areas were allowed to collect 3.5 percent sales tax, a move meant to boost sales and thus boost hiring.

NJBIZ talked to a number of economic development experts to get their take. The following is a compilation of their comments.

Why did Christie do this?

The governor has called UEZs a failed 30-year experiment — and many experts agree. For starters, extending the bill would have cost the state $40 million in tax revenue (according to Christie). 

And, it should be noted, that number is on the low end of the potential number, as so few eligible businesses (the governor said it was fewer than 20 percent) completed the paperwork to earn the status.

The bigger issue, our experts said, is that it was not helping to create more businesses. “No one was opening a business in one of these areas because of the benefit of the program,” one said. “It may have reduced the cost to build in one of those areas, and that was nice, but that wasn’t the reason a company was going there.

“If it was really driving business, you would have seen more people participating.”

Will Christie be hurt by this?

The universal answer was “No.” For a variety of reasons. 1) Those aren’t the areas where he was getting any votes or hurting any Republican officials. And, don’t forget, he doesn’t need to get any more votes. 2) He’s at an 18 percent approval rating; it’s hard to imagine anything “hurting” him.

One expert did raise an interesting issue, though: “If he wants to eventually join a Trump administration that is making a big deal about cutting taxes, he’ll have to explain this. By not continuing the tax cut, he’s essentially raising taxes.”

Another insider made a different point: Christie may not be popular, but this is an example of how powerful he still is and will be for the rest of his term.

Is this a move that signals a shift from the state’s emphasis on tax incentives?

Yes and no. There’s no reason to believe any other UEZ program will continue when its renewal period comes up. And many already have said the days of large EDA awards are going by the wayside. “In many cases, they clearly have outlived their purpose,” one insider said.

Or have they? The next governor will face an interesting situation. Especially if it is Phil Murphy, considered the heavy favorite.

“Murphy has the support of the unions, almost unanimously,” one source said. “But here’s the deal: When companies get an EDA award to move to a big city, the rules of the award dictate they use ‘prevailing wage’ union contractors. Those are the jobs unions need — and they go away if there are no economic incentives.”

Who is hurt short-term by the move?

You can point to Democratic officials in those areas, but it’s hard to believe this will be pinned on them. The biggest losers are companies in the middle of projects in those areas.

“The saddest part of the UEZ veto is that it leaves businesses in the zone who are in the midst of major expansion, new construction or renovation projects with a sudden added cost,” one insider said. “And for one of the affected cities, Newark, which also has the state’s only local payroll tax, the elimination of the UEZ program is doubly devastating for economic development.” 

What is hurt long-term by the move?

The Jersey economy. Though not necessarily because the program is going away. Rather, it’s the state’s lack of a plan. You can make the argument that the UEZ program was not effective, but you can’t just get rid of it without a replacement, insiders said.

“There’s a reason New Jersey is lagging behind its neighbors despite its location and workforce — it’s tough to do business here. UEZs may not have been the answer, but we need to find something.”