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Murphy blasts tax breaks and claims policy wins

Following the governor’s first state of the state address, critics cite lack of progress on significant transit, environmental and economic issues

Gov. Phil Murphy delivers his State of the State address in Trenton, Jan. 15, 2019.

Gov. Phil Murphy devoted much of his first state of the state address to denunciation of $11 billion in tax breaks the state awarded between 2005 and 2017, saying many of them were “designed to reward the well-connected” — criticism several lawmakers and public officials said was disproportionate.

Murphy, flanked by the state’s two top Democrats in the Assembly chamber, vowed to phase in a new series of tax incentives when some of the current programs expire in July.

“My concern was that those programs were designed to do exactly what they were shown to do — reward the well-connected while taxpayers and workers paid the price — rather than actually create jobs and nurture innovative new businesses,” Murphy said.

His remarks followed an audit by the state comptroller released on Jan. 9, which found that the Economic Development Authority exercised little oversight on its $11 billion in tax breaks, making it difficult for the agency to determine if companies actually delivered on their promised jobs and economic activity.

“I had planned to give a very different speech today but, after reading the audit of New Jersey’s corporate tax incentives released last week, this is not a time for business as usual,” Murphy said to start off his one-hour address.

‘Failed status quo’

“This is about wasted money, phantom jobs, squandered opportunities, and misplaced priorities,” Murphy added. “This is about a failed status quo and a broken system.”

After the speech, Senate President Stephen Sweeney, D-3rd District, a sometime political opponent of Murphy, disputed the charge of ineffectiveness in the tax credit programs — the biggest being the Grow New Jersey and Economic Development and Growth Programs.

Grow NJ provides tax breaks to companies, generally over a 10-to 20-year period – provided recipients meet certain job creation and economic activity milestones. ERG provides gap financing for redevelopment projects.

Many of the largest tax breaks under the Grow NJ program went to companies now located in Camden or Jersey City.

From left, Assembly Speaker Craig Coughlin and Senate President Stephen Sweeney listen as Murphy speaks.

“There’s nothing in that report that said the legislation was bad. It was enforcement within the agency,” Sweeney told reporters following the address. “So we have to look within where things went wrong. But to say the programs that we did were bad? I just don’t agree. I believe there’s room for improvement, there’s room for improvement with everything.

“I can point to Subaru and lots of companies that would’ve left this state if it wasn’t done,” Sweeney added.

And the $11 billion figure Murphy cited, Sweeney said, is not entirely accurate.

“They keep using the number $11 billion [that] has been given out, it hasn’t been. It’s been a billion since the inception of the programs,” Sweeney said.

EDA Chief Executive Tim Sullivan said in a Jan. 3 written response to the audit that the amount the state already gave out to companies is much lower.

According to Sullivan, companies have received just $696 million of the $8 billion the EDA awarded under the Grow NJ, ERG and Urban Transit Hub Tax Credit programs between 2005 and 2017. The remaining tax credits could take decades to actually award, as laid out in the existing legislation, and provided the companies meet the criteria.

Too critical of tax breaks?

Sweeney’s wasn’t the only voice defending the tax credit programs. Other supporters said they were left uneasy, or at least surprised, by how intently Murphy focused on the issue.

“In Camden County, we have had a renaissance take place in the city and county that has been nationally recognized,” Camden County Freeholder Director Louis J. Cappelli Jr. said in a statement. “Measured by every objective metric, Camden is a success story in the making based on the use of the current EDA incentive program.”

The governor’s criticisms of the EDA credits were disproportionate, Cappelli said.

In 2014, the state awarded a tax break of $82 million to the Philadelphia 76ers for a practice facility in Camden and $260 million to energy company Holtec International for a new headquarters in the city.

Aerospace and defense company Lockheed Martin Corp. received $107 million in tax breaks to relocate some operations to Camden. Automaker Subaru of America, Inc., was awarded a $118 million tax break in 2014 for its new headquarters in the city.

Two of the state’s largest business advocacy groups, the New Jersey Chamber of Commerce and the New Jersey Business and Industry Association of New Jersey, said they are wary of Murphy’s heavy focus in his address on the state’s tax incentive programs, and his pledges to ramp up scrutiny on those programs.

“The EDA’s been around for 35 years, they’ve done some good things for this state, and he threw the entire organization under the bus,” Tom Bracken, the NJ chamber’s president, told NJBIZ. “You have to have an EDA that’s healthy, and you have to have companies that want to come here and if they see a drill that companies are going to go through from an investigative standpoint, they’re going to be reluctant to do that.”

Murphy argued that tax breaks “must be just one tool” in economic development.

And Michele Siekerka, president and CEO of the NJBIA, said the focus on tax incentives diverted attention from more pressing economic issues such as ever-increasing tax rates.

“When the governor says that he wants us to be the premier job-creation in the region … we’re not competitive at all and we’re not affordable until we fix what’s structurally broken in the state,” Siekerka told NJBIZ.

“We’re not going to have the type of job growth and sustainability of jobs that we need in order to fulfill his goals, and we didn’t hear today about structural reform,” she added.

Murphy acknowledged that some of the tax credits the state awarded under his watch have been helpful, such as $40 million the state awarded to Teva Pharmaceuticals in June 2018 to move its U.S. headquarters to Parsippany.

The governor also praised small businesses in the state such as Rising Tide Capital and homebrewing company Love2Brew.

Overall, the state generated 50,000 new private sector jobs between January and November 2018 under Murphy’s watch, he said.

“A fair and efficiently run tax incentive program is important to attracting new business to New Jersey and strengthening our economy for the good of all,” Commerce and Industry Association of New Jersey President Anthony Russo said in a statement. “We want to work with Murphy and the state Legislature to make certain a well-managed tax incentive program remains in New Jersey.”

The governor tried to rally support for a series of economic incentives that he envisions would take the place of the Grow NJ and ERG programs.

“This is taxpayer money. For the same price as these tax breaks, New Jersey could have funded our public schools, funded [New Jersey] Transit, met our pension obligations, provided more property tax relief, or all of the above,” Murphy said.

Murphy touted his efforts toward building a so-called innovation economy, which entails incentives more focused on certain industries, and capped at much lower levels.

“Tax incentives must be just one tool in our toolbox,” Murphy said. “Education, infrastructure, workforce development — those are the primary tools for building a stronger and fairer economy and a stronger and fairer New Jersey. Tax incentives should be used strategically and sparingly to get us to our goal.”

Murphy vowed tougher reviews of how much economic activity companies say they generated for the state. On Jan. 14, Attorney General Gurbir Grewal said his office will scrutinize the $11 billion of corporate tax breaks the state awarded to see if any were improperly granted to businesses. Grewal said his office would see if any civil or criminal laws were violated by companies receiving tax breaks and if so, “seek the recovery of those funds.”

Steel wheels, weed and windmills

The governor used the second half of his address to recap progress that he made toward key legislative priorities.

His office signed a law boosting oversight of New Jersey Transit and supplying more train engineers and locomotives to the statewide transit agency.

“NJ Transit’s got to dig itself out of a hole, but you don’t get a lot of credit for digging out of a hole, you only get credit for digging on top of the hole,” responded Peter Kasabach, executive director of the policy development nonprofit New Jersey Future.

Murphy rolled out several state-level health care laws mirroring the Affordable Care Act, such as the health insurance mandate and a high-risk pool, funded by fines for not having health insurance.

Lt. Gov. Sheila Oliver before Gov. Murphy’s first State of the State address at the Statehouse in Trenton.

Under Murphy, the state raised $3.2 billion for its pension obligations, implemented paid sick leave for 1.2 million residents, enacted a gender equal-pay law and expanded the state’s medical marijuana program, which was initiated under former Gov. Chris Christie.

In his speech, Murphy pointed to efforts the state undertook to produce 3,500 megawatts of offshore wind energy — including a first bid of 1,100 megawatts — part of a goal for the state to be completely reliant on clean and renewable energy by 2050.

And the administration unveiled plans in December for the state to rejoin the multi-state Regional Greenhouse Gas Initiative.

But the New Jersey Sierra Club, an environmental advocacy group, gave Murphy a D for his actions, saying the governor raided $287 million from the Department of Environmental Protection’s budget, $160 million from the Clean Energy Fund, $200 million from the 2015 Exxon refineries cleanup settlement and $69 million from the Volkswagen emissions settlement, much of it for the general fund.

Murphy did ban offshore drilling, vetoed a controversial bill allowing towns to enact plastic bag fees and unveiled several natural resource damage lawsuits, the NJ Sierra Club said.

“[Murphy] has shown a lack of leadership on many key issues, so we really feel Murphy’s grade is incomplete,” Sierra Club Director Jeff Tittel said in a statement. “Christie was basically below an F and hopefully this grade can spur Murphy to move forward. Murphy’s D is still 10 times better than Christie’s grade, but not where we need to be.”

 ‘Finishing what we began’

The governor also talked about two of his biggest unrealized goals: legalization of adult-use marijuana and an increase of the minimum wage to $15 an hour.

“So, let’s start 2019 by finishing what we began in 2018 — putting the minimum wage on a clear and responsible path to $15 an hour, and legalizing adult-use marijuana,” Murphy said. “We must remember that when we talk about policy we are talking about people, not politics.”

“It’s very nuanced in other states and I’m not quite sure why they aren’t able to make progress on it [in New Jersey],” said Regina Egea, president of the fiscal policy advocacy group Garden State Initiative, of the minimum wage increase, which Murphy had hoped to enact in 2018.

She pointed to Seattle, where the minimum wage is $15 an hour as opposed to the statewide $12 hourly rate. New York City has a $15 an hour minimum rate for businesses with over 10 employees and $13.50 an hour for businesses with 10 or fewer employees. “I’m bewildered frankly. It seems like it’s working in other places, it could work here,” Egea added.

On Jan. 17, Murphy and legislative leaders said they had reached an agreement on legislation to raise the minimum wage for most workers.

The day before the address on Jan. 14, several activist groups held a People’s State of the State rally in front of the statehouse, where they pushed for a progressive agenda in 2019 and lambasted the governor and Democratic-controlled state Legislature for not already reaching agreements on marijuana legalization and a minimum wage increase.

“While political infighting and chess-playing seem amusing to those in power, actual people and families are suffering every day from inaction,” Rev. Charles Boyer, pastor of the Bethel AME Church Woodbury, said at the rally.

The governor renewed his call for a $15 minimum wage and legalized marijuana for adults.

But Brandon McKoy, director of governmental and public affairs at the progressive think tank New Jersey Policy Perspective, said the protest did not necessarily indicate that the governor is doing a bad job.

“There was a lot of important stuff that was done over the past year,” McKoy said. “[People] remain frustrated, but that was only to highlight that there’s still much to be done and for people to not get complacent and we expect our elected leaders to stay aggressive.”

Overall, the governor’s first year would score a letter grade of B, McKoy said. He agreed with Murphy that scrutiny into the state’s tax breaks is warranted.

Murphy made no reference to the Economic and Fiscal Policy Workgroup’s 30-page August report on ways to reduce the state’s pension and health care costs, cut red tape and lower property taxes.

“Today was really for him to take a victory lap and really he’s entitled to it,” Sweeney said in response. “We got a lot of things done and we should be proud.”

But priorities such as fixing the school funding formula and expanding access to Pre-K could not be done without addressing the revenue side, Sweeney added. That could only be done through adopting recommendations from the Workgroup report, he said.

Assembly Speaker Craig Coughlin, D-19th District, commended Murphy’s speech.

“We have accomplished an awful lot of things in just the year,” Coughlin, standing next to Sweeney after the address, told reporters. “I think that the highlight of this is the fact that we passed more bills than many legislatures and governors have in their first year.”

Another member of Murphy’s own party, Assembly Majority Leader Louis Greenwald, D-6th District, also praised Murphy’s address and performance of the past year.

“I think we can all agree that making New Jersey a more affordable state for all residents is a goal to which we must all aspire,” Greenwald said in a written statement.

Daniel J. Munoz
Daniel Munoz covers politics and state government for NJBIZ. You can contact him at dmunoz@njbiz.com.