In October 2018, Gov. Phil Murphy unveiled a set of five incentives to replace the controversial Grow New Jersey corporate tax breaks, under the slogan “Stronger and Fairer” and making New Jersey the “State of Innovation.”
Now, the Economic Development Authority wants to gauge how much of that proposal is still feasible in light of the COVID-19 recession and record unemployment, both on course to rival economic conditions not seen since the Great Depression.
To that end, the EDA approved a $2.4 million contract expansion with the influential global consulting firm McKinsey & Co to see how the Murphy administration can retool its economic master plan for the state.
“Those principals endure, the specifics need a refresh,” EDA Chief Executive Officer Tim Sullivan said at the agencies’ Tuesday morning board meeting.
That means “doing that in context of a global recession,” Sullivan said of the state’s long-term economic master plan.
The amount approved Tuesday is on top of the $1.9 million contract the EDA approved with McKinsey in July 2018 to gauge the replacement of those incentives: the Grow NJ and the Economic Development and Growth gap financing programs.
Those Christie-era programs were signed into law in 2013 and expired in July 2019 without any replacement, during which at least a combined $7 billion of incentives were awarded to hundreds of businesses.
According to the May 12 board agenda, that amount has ballooned to $2.7 million – though the EDA did not immediately return inquiries on the origin of those increases. That brings the total to $5.3 million that the EDA will have spent on its contract with the consulting firm.
McKinsey will “analyze the emerging and continuing economic impacts of the COVID-19 pandemic in New Jersey, to provide support for the State’s response, recovery and mitigation plan, and to update the Governor’s 2018 economic development plan,” reads the Tuesday agenda.
The report will take roughly six months, but EDA board members will be provided with periodic updates.
In 2017, McKinsey issued a report that found the state was spending far more in tax breaks for each job created and retained, than did many other states.
“Other states have gotten higher returns by continuously monitoring the economic gains from their investment, enforcing clawback provisions for incentives that do not produce returns, and focusing investment in industry clusters where young companies can blossom,” according to the report.
An analysis of 70 businesses found that $174,000 in tax breaks were awarded for each job created or retained by older companies, and $110,000 with companies younger than a decade.
In the months leading up to the global pandemic, the focus was on whether the incentive programs should have an overall cap in how much the state awards each year, something pushed by Murphy but staunchly opposed by legislative leadership.
Murphy’s proposals called for heavily scaled back versions of Grow NJ and ERG, and a state-run venture capital fund.
Sullivan has argued that for at least the duration of this recession, corporate tax breaks as a means to attract business to New Jersey might not necessarily be an option on the table – and they might be the last thing on many companies’ minds.
“Companies that are here are probably going to be focused on what they’re doing day-to-day,” he said in an April editorial interview with NJBIZ. “Companies that aren’t here are probably going to be a little less exploratory at least in the next six to 13 months.”
Still, Murphy on Tuesday reiterated that the incentives could play some role in the state’s economic recovery coming the pandemic, a stance Sullivan also maintains.
“I think it’s a package of really smart incentives, in some cases, that set a bar unlike any other American state,” Murphy said at his daily COVID-19 press briefing in Trenton.
“The Evergreen Venture Fund is a unique animal in America that I think would have huge implications for our innovation economy, right when we need them, so I’m sticking to them.”
Also on Tuesday, the EDA said it awarded $300,000 to five separate companies under a loan program meant to help businesses hit by the COVID-19 outbreak.
And Sullivan said that the agency awarded over $5 million in its grant program – which is being shored up by a $2 million aid program run in coordination between the Casino Reinvestment and Development Authority to go toward Atlantic County and Atlantic City businesses.
Both the grant and loan programs were heavily oversubscribed, and more than 3,500 applicants sought a combined $250 million of loans from a $10 million pot of state aid.
Editor’s Note: This story was updated ar 6:43 a.m. on May 13, 2020, to add comments from Gov. Phil Murphy.