Lawmakers rush through sprawling tax break clean-up bill

New Jersey lawmakers are fast-tracking a bill expanding the tax break awards available for companies and loosening requirements for the state’s multibillion-dollar corporate tax break program for how often workers have to physically be in the office. The proposal is meant to take into account the widespread shift to telecommuting born out of the COVID-19 pandemic, as business executives gauge how prevalent that will be in the post-pandemic economy.

State lawmakers approved the bill in a party vote during the June 22 Assembly Budget Committee hearing, even though a copy of the 197-page bill was not available to the public. It was later approved by the Senate Budget and Appropriations Committee.

“There’s no language on the website for the bill … how do we vote on something that the public doesn’t have an opportunity to comment on,” said Assemblywoman Serena DiMaso, R-13th District. “I just don’t understand how we’re running this government.”

The 197-page bill is one of the first “clean-up” bills for the sprawling $14.5 billion economic incentive package, meant to chart the state’s COVID-19 economic recovery over the next decade.

For most of the tax breaks, the proposed Assembly Bill 5939 loosens the requirements for how often workers need to remain physically in the office for which the state incentives are being awarded – from 80% “of their time” in the current law enacted in January down to 60%.

Egenton

“There’s going to be a hybrid model going forward” of combined in-office and work-from-home arrangements, said Mike Egenton, who heads government affairs at the New Jersey Chamber of Commerce.

Under the version of the program Gov. Phil Murphy signed in January, employees have to spend 80% of their time in New Jersey, or at the office, for incentive bonuses tied to certain locations.

Jake McNichol, a spokesperson for the New Jersey Economic Development Authority, which oversees the state’s incentive programs, said that mandate was in place to “stimulate economic activity in New Jersey.”

With a widespread exodus to telecommuting amid COVID-19, and uncertainty around just how many people will return to the office once the pandemic subsides, lawmakers and business executives want that requirement loosened.

Emigholz

“The 60% is certainly better than the 80%,” said New Jersey Business & Industry Association Vice President of Government Affairs Chris Emigholz. “We have heard from some companies that it’s a challenge, but it’s an improvement from there.”

There are two main incentive programs under the ERA. The first is called NJ Emerge, which is capped at $1.1 billion a year for six years, with a seventh potential year for any unused tax credits. It’s meant to incentivize employers to remain in the state. Applications opened nearly a month ago.

An accompanying program is being finalized by the NJEDA called NJ Aspire, also capped at $1.1 billion a year and geared toward real estate and community development.

Ch- ch- changes

The clean-up bill loosens requirements that applicants have to follow for either program and calls for even more generous awards. For example, it increases awards that could go to a “transformative project,” or large-scale project, so that the project could get as much as $350 million in tax breaks.

Former state Sen. Raymond Lesniak, a Democrat who helped broker the tax break agreement late last year, said the amendments allow for employers to “stay and expand in the state,” especially smaller companies that might have been left out of the existing program.

The current requirements called for businesses eyeing a move out of the state to retain 1,000 full-time jobs, or 500 in some of the state’s poorest communities. That would be lowered to as few as 150 full-time jobs at a minimum, or up to 500 jobs depending on the community’s poverty level.

Under the clean-up bill, the state is taking a combined $350 million from NJ Aspire and NJ Emerge to put toward tax credits for offshore wind projects.

Tax break awards under the historic preservation and redevelopment incentive program are doubled, from a maximum of $4 million to $8 million, to rehabilitate historic properties across the state.

State subsidies would also be at least doubled from a maximum of $4 million to $8 million for the Brownfields tax credits, which are meant to cover the costs for developers to flip polluted and environmentally contaminated properties.

Under the state’s Food Desert Relief Program, the state would expand the definition of “small-food retailer” to include mobile vendors, farmer’s markets and food co-ops.

The definition of “microbusiness” is expanded under the Main Street Recovery grant and loan program, expanding it to a business making up to $1.5 million a year, rather than $1 million.

And the bill leverages more independence for the state’s tax break watchdog, the Economic Development Inspector General, so that they would be “in but not of” the New Jersey Treasury Department – a parent body for the NJEDA.

Lawmakers and the governor approved of the office’s creation in order to root out abuse of the tax break program by unscrupulous actors. The clean-up bill would allow the NJEDA to “recapture any economic development incentive in the case of substantial noncompliance, fraud, or abuse by the recipient.”

The bill expands how much a film or television production could be compensated by the state – from 30% of production expenses to 35%. It adds on $350 million of annual tax breaks for film studios starting in 2024, on top of the $100 million already available.