The price tag on a controversial tax incentive package designed to bolster the state’s post-pandemic economic recovery rose from $11.5 billion to more than $14.3 billion with 142 pages of amendments sent to members of the relevant Senate and Assembly panels as they were discussing the bill and hearing testimony.
Lawmakers expressed concern that they were not able to fully digest the changes before voting. But the package ultimately cleared the committees. But both chambers are expected to approve the measure, known as the New Jersey Economic Recovery Act of 2020, on Dec. 21. And Gov. Phil Murphy is likely to sign it.
The Dec. 18 amendments add $2.6 billion in film tax credits over a 13-year period and $220 million in additional funds for the Economic Redevelopment and Growth grant program for any applications submitted before Dec. 1, 2021, according the Office of Legislative Services. The bill now also includes $30 million over three years for hiring workers for the production of personal protective equipment, and an increased cap from $25 million to $35 million a year for the Angel Investor Tax Credit Program, which is meant to encourage investments in start-ups by offering guaranteed returns of investment. And bill allows the program to run a seventh year, allowing the state to award any unused tax credits from the original six year lifespan of the program.
Business groups, prominent executives, university leaders and developers touted the measure as a shot in the arm of a state economy still reeling from the effects of the pandemic. “This bill is far from perfect and more issues will undoubtedly arise over time from legislation this complicated, but it includes positives for business alongside the negative,” Christopher Emigholz, a vice president at the New Jersey Business and Industry Association, told lawmakers on Dec. 18.
The bill is being fast-tracked through the state Legislature, having been introduced and passed through both chambers in a matter of days. The process angered progressives and good government groups. “We need details before we can have a vote on this and we should push the floor vote back,” Sue Altman, director of the progressive advocacy group New Jersey Working Families told Senators. “It should not happen in 2020. I haven’t gotten any good answers as to why it needs to happen this calendar year.”
And Sheila Reynertson, an analyst with the progressive advocacy group New Jersey Policy Perspective, questioned whether the state would have the money over the next decade to pay down both the $4.3 billion in state borrowing, and “dole out tax subsidies by the billions,” calling it “the height of irresponsibility.”
The bill also prompted skepticism or least confusion from lawmakers in both chambers, who questioned Sullivan on different aspects of the bill.
Members of the Assembly Appropriations Committee took a recess to familiarize themselves with the changes from the amendment and several Senators lamented that they did not even have time to do so before casting their votes. “This is just not the way you make good legislation and I don’t think it’s the way our system was intended to behave,” said Sen. Declan O’Scanlon, R-13th District. “I don’t believe there’s any legal reason why we have to move it before the first of the year.”
Sen. Troy Singleton, D-7th District, abstained, complaining that lawmakers were coming up with questions “formulated on what we are reading in real time,” and with little time to digest the changes.
The hearings took place simultaneously, and many participants said they had to frequently switch back and forth between the two Zoom hearings.
Tim Sullivan, head of the New Jersey Economic Development Authority, the agency that administers the incentives, told lawmakers that the bill “represents a strong recovery and reform package that will position New Jersey well to rebound.”
The state has been without a major tax incentive program for more than 18 months after the previous ones expired with no replacement. Known as Grow New Jersey, the previous incentives became the source of political controversy and subject to multiple audits and investigations, as were recipients in tens or hundreds of millions of dollars in corporate incentives.
At the start of last year, an audit from the state comptroller flagged gaps in NJEDA oversight of the program, allowing businesses to receive tax breaks despite not meeting their obligations under the agreements.
The proposed New Jersey Economic Recovery Act of 2020, Assembly Bill 4 and Senate Bill 3295, would go into effect immediately. It sets aside $2.5 billion for major “transformative projects,” such as mixed-use developments, that could generate revenue. Projects are capped at $250 million, and they could include housing, as well as film and recording studios, professional stages, television studios, and other film production facilities. Sullivan maintained that the annual caps help ensure the incentives do not blow a hole in the state budget.
The package creates two programs – NJ Emerge and NJ Aspire – each capped at $1.1 billion a year. Grow NJ’s successor, Emerge, would cap awards at $8,000 per job over seven years, compared to Grow NJ’s $15,000 per job over 10 years. Emerge would have a higher “net benefit test” or a threshold the project must meet in order for the economic benefit to be greater than the amount the state spends on tax breaks.
NJ Aspire would be a replacement for the ERG, used for residential projects and with a focus on urban redevelopment, affordable housing and transit-oriented development. Projects are capped at $50 million. As with Grow NJ, companies would be able to buy and sell tax credits, a widely criticized aspect of the 2013 incentive program. But the state will be required to publish the names of any such sale or transfer, including the name of the business or person selling or offering their incentive, and the person or business receiving it, as well as the value of the grants being bought and sold.
The Murphy administration has been seeking those reforms since 2019.
The film and television tax credit program would be geared toward attracting film studios into New Jersey to provide long-term economic benefits rather than the short-term effects of specific projects. Tax breaks under the film program range from $15 million to $60 million depending on the size and cost of the project.
NJ Ignite, which provides rent assistance to startups, would be written into law, as would a program meant to help companies offset financial losses from research and development expenses.
Other significant provisions include:
- $200 million a year toward supporting anchor institutions, such as hospitals, universities, nonprofits and arts centers
- $40 million for “food desert” alleviation, to support bringing grocery stores in communities without access to healthy food
- $50 million for a Brownfields Redevelopment Program to help finance clean-up and redevelopment of polluted properties
- $50 million a year toward a historic preservation tax credit to cover costs of redevelopment or maintenance of historic properties
- $60 million a year for an Evergreen Fund, under which state and private venture capital firms would jointly finance startups
- $50 million one time for Main Street Assistance program, which provides grants, loans and technical help for small businesses, with 40% for women and minority-owned businesses
- An NJEDA inspector general to act as a watchdog over how the program is administered, and how tax breaks are awarded
- A requirement that chief executive officers certify the truthfulness of the applications, under penalty of perjury.