New year, old story

NJEDA officials, including CEO Tim Sullivan, above, said the agency has made strides on the process.

“It’s easy for a business looking for tax credits to promise results but harder to deliver. New Jerseyans are entitled to a return on their investment with these incentive programs.”

– Acting State Comptroller Kevin Walsh

After three years of scrutiny and political sniping over New Jersey’s economic development programs, a new report suggests that the state has done little to recoup overpayments and improperly awarded incentives. And despite “substantial progress” the process of awarding tax breaks still needs better oversight.

The Jan. 5 report, from the State Comptroller’s Office, faulted the New Jersey Economic Development Authority for not clawing back $200 million in overpayments and “improper awards” an earlier audit had identified.

In addition, the office found that NJEDA officials relied heavily on the projected economic benefits for state incentives, rather than “actual economic benefit data,” and that the agency needs to do more to ensure the state is getting adequate returns on its investments.

“It’s easy for a business looking for tax credits to promise results but harder to deliver,” acting State Comptroller Kevin Walsh said in a statement. “New Jerseyans are entitled to a return on their investment with these incentive programs.”

A 2019 audit by the comptroller’s office concluded that New Jersey businesses were poised to get a combined $11 billion of state incentives despite not having created the agreed-upon jobs or produced other economic benefits.

Officials from the office said the latest report examined Grow NJ and its sister program, the Economic Redevelopment and Growth gap financing program, both enacted in 2013. The office was not able to review the new $14.5 billion incentive package enacted under the New Jersey Economic Recovery Act of 2020.

Gov. Phil Murphy, who appointed Walsh early in 2020, frequently clashed with legislative leaders on what a new incentive package would look like after Grow NJ and ERG expired in July 2019.

The earlier audit included 21 recommendations and all but three have been acted upon, according to the Jan. 5 report. One was that the state needs to enact its own process to determine whether incentives provide economic benefits; another is a requirement for performance-based activity reports on the incentives; and the third calls for the NJEDA to shift administrative costs from the state to participating businesses through application fees.

Walsh said that the NJEDA’s “unwillingness to implement the recommendations in the 2019 report regarding using actual data means that it has maintained a policy that fails to distinguish between businesses that keep their end of the bargain and those that do not.”

Improved transparency and oversight, the report said, are even more important as the COVID-19 recession threatens to derail or at least slow down the state’s economic recovery.  “To protect the state’s interests, it is especially important that EDA evaluate whether the state received the benefit of the bargain prior to releasing tax credit certificates to businesses that may not have provided the promised economic benefits since March 2020,” the report reads.

At the same time, the report noted that the NJEDA has shown progress in ensuring businesses that receive subsidies are delivering on promised jobs and other benefits.

NJEDA officials, including Chief Executive Officer Tim Sullivan, maintained that the agency has made strides on oversight, including a “rigorous review” of incentive awards combined with the creation of 400,000 jobs across the state.

The agency also said the state clawed back $350 million in Grow NJ awards from 82 companies “after they did not create or retain the number of jobs they committed to.”

The largest amount of funds clawed back was from Eastern Metal Recycling, which saw its 2015 $252.7 million tax break for moving to Camden trimmed by nearly $122 million to $131.6 million.

Elsewhere, Atlantic City Contact Center, which in 2015 chose its namesake city over Las Vegas in exchange for a $31.2 million tax break, saw that shaved to $1.4 million. A $24.6 million tax break to LTC Consulting Services, which in 2014 chose Lakewood, was cut by nearly $12.9 million. Princeton Tectonics, which was awarded an $18.5 million tax credit in 2014, saw its subsidy whittled down to $7.6 million.

“Since the OSC’s initial report, the NJEDA has worked hard to resolve the issues raised in the report and has reinforced its commitment to being a best-in-class steward in taxpayer resources to ensure the programs we administer benefit New Jerseyans and our communities,” Sullivan added.

Other awards clawed back were from several companies in Camden with ties to South Jersey political powerbroker George Norcross. The state said it retrieved $4,199 from Norcross’ insurance company Conner Strong & Buckelew, $715,700 from logistics company NFI, and nearly $2.5 million from the Philadelphia 76ers, which moved several practice facilities to Camden.

Of the $200 million identified by the comptroller, the office said that $179 million was improperly awarded through the now-expired Urban Transit Hub Tax Credit program, while $20 million was from “inaccurate and overstated” economic benefits and $4.4 million was from “errors in counting jobs and awarding tax credits.”

It’s not clear whether any of the $200 million cited in the 2019 comptroller’s audit is included in the $350 million the state says it has recovered. Sullivan maintained that the agency had indeed recaptured state funds but noted that it was not addressed in the report.

NJEDA officials promised annual reports on the incentive programs and they say they are more closely studying whether any of the promised jobs were created or retained. The NJEDA is also re-evaluating its existing test meant to gauge whether the net economic benefit to the state is greater than the dollar amount of the tax credits awarded to a business.

But the two agencies disagreed over whether the NJEDA should rely on its own projected economic benefits rather than actual data when approving tax breaks, “even if data showed those benefits had not been realized,” the report said.

The NJEDA’s reliance on its own economic benefit simulation and “actual, infrequent reassessments using its own model” could in fact “be causing the state to award many millions of dollars’ worth of unearned tax credits.”

One business had to remit $56,000 in overpayments, while another has been notified that it was overpaid by $606,000 and another was overcertified and had its annual tax credit payments slashed by nearly $670,000, Sullivan noted.

The NJEDA suffered a setback when a Mercer County judge sided with Holtec International, which sued the state for holding back $26 million in annual tax credit payments.

The nuclear energy company may be owed the entire $26 million, plus about another $52 million, the court ruled.

Sheila Reynertson, a senior policy analyst for the progressive think tank New Jersey Policy Perspective, said the new report showed that “the honor system is not an appropriate monitoring system.”

“Handing out corporate tax credits based on the promise of ‘job creation’ works only if the state routinely verifies that the jobs are actually created,” she said in a statement.  “Unfortunately, no such verification system is in place. Instead, corporations are asked to report their own jobs data without effective oversight or independent auditing. Accountability to the people of New Jersey shouldn’t be treated as an afterthought.”[/vc_column_text][/vc_column][/vc_row]