Lawmakers push for tax-break clean-up bill before summer recess (updated)

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State lawmakers are hoping to pass a clean-up bill for a key corporate tax incentive program before they break for summer recess on July 1.

The program, known as NJ Emerge, has a yearly budget of $1.1 billion, and is run by the New Jersey Economic Development Authority, which is in the rulemaking process and hopes to approve the first awards in May under an interim set of rules.

“I would welcome the opportunity to do something that would ‘clean up’ a couple of items, a couple of the loose ends,” Gov. Phil Murphy said during an April 21 COVID-19 press briefing.

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.”

The program is the replacement for its predecessor, the Grow New Jersey corporate tax breaks, which have fallen under intense scrutiny by government activists and the Murphy administration for how the program was created and how companies were able to get tax break awards.

Altogether, the economic package is meant to set the stage for the state’s economic recovery coming out of the COVID-19 recession, which many public officials and economists have described as the worst economic conditions since the Great Depression nearly a century ago.

“It’s having the effect we want it to have,” Murphy added. “There’s a lot of interest in projects and companies and whatnot.”

The bill was quickly moved through the state Legislature in December and January and onto Murphy’s desk in a matter of weeks, leaving issues that needed to be addressed.

“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 programs, and was heavily involved over the past year in reaching a new compromise.

And there were broader issues, Lesniak pointed out, as did lawmakers like Assemblywoman Eliana Pintor-Marin, D-29th District. She was a prime sponsor of the Assembly version of this $14.5 billion tax incentive program, called the New Jersey Economic Recovery Act of 2020.

“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 some time until October, November. It’s important for us to really get this done,” Pintor-Marin said in a phone interview, pointing toward a goal of “early June.”

For one, the bill and the rules do not adequately address employees of New Jersey companies who are doing their work remotely, be it at home or in another state, according to Pintor-Marin.

One issue centers around the 80% rules. The legislation requires employees to spend 80% of their time in New Jersey, or at the office for incentive bonuses tied to certain locations.

McNichol said this is 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 want to loosen that requirement.

The legislation also requires that at least 80% of employees at a company have to pay income tax to New Jersey. Like with the other provision, lawmakers want to loosen that requirement given the increasing prevalence of people working remotely, and likely out of the state.

“The 80% piece, everyone is still working on that,” Pintor-Marin said. She added that the compliance requirements after COVID-19 for participants in older tax break need to be worked out.

Several of those requirements for Grow NJ tax break recipients have been loosened amid the pandemic.

A third matter is the problem of job retention, lawmakers said. 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.

Elsewhere in the state, they’d need to retain 1,000 jobs. In either case, business groups and lawmakers said the requirements can prove to be too cumbersome for employers that have nowhere near that number of workers, nor did their business model or financial capabilities call for that size of a workforce.

“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 continued.

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.

A task force Murphy put together in 2019 focused on companies which they alleged threatened to leave the state without any plans to do so. Most of those companies ultimately moved to Camden, or simply expanded their footprint there.

Under the terms of the legislation, NJ Emerge has a six-year lifespan, and lawmakers can extend it for a seventh year to tape into any unused tax incentives.

The program has a higher “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.

There are lower job creation requirements for “targeted industries” – those like advanced manufacturing, finance, film and digital media, “food innovation,” clean energy and life sciences.

Applicants 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, but state officials contend the higher requirements would serve as a buffer for massive tax breaks, like those in the hundreds of millions of dollars awarded under Grow NJ.

Editor’s note: This story was update at 7:55 a.m. EST on April 22, 2021, to include comments from NJEDA spokesperson Jake McNicol.