NJ releases draft rules for $1.1B real estate tax breaks

Listen to this article

State officials at the New Jersey Economic Development Authority are introducing the rules outlining a state financing program for development and real estate projects known as NJ Aspire.

The mammoth incentive program is capped at $1.1 billion a year and offers gap financing to developers for projects, enabling them to put together any needed money if the funds aren’t yet available to pay for the whole project.

“The Aspire Program will facilitate equitable, community-supported residential and commercial development projects that make our communities vibrant live, work, play destinations that better serve residents and help attract successful companies and top-notch talent,” reads a Sept. 10 statement from Tim Sullivan, who heads the NJEDA.

NJ Aspire is the sister program to another key incentive called NJ Emerge, also capped at $1.1 billion a year, which provides corporate tax breaks to businesses that move into New Jersey, or opt to remain and expand their current footprint in the Garden State. State lawmakers rushed through a clean-up bill for NJ Emerge in June, before the program had even moved forward and begun accepting applications.

Both are part of the landmark $14.5 billion incentive package Gov. Phil Murphy signed in January, after the measure was sent to his desk from the state Legislature the prior month.

What’s in store

NJ Aspire tax credits cover up to 45% of the costs of a project – up to 60% in lower-income communities – capped at $42 million. Commercial projects need to be at least 100,000 square feet to qualify for state funding, according to the draft rules.

Residential projects need to cost a minimum of between $5 million and $17.5 million, depending on the city. And those projects need to include at least 20% of their residential units set aside for affordable housing.

The exact size of the award is determined by the net benefits test, a mathematical formula for determining how the dollar amount for the economic benefit of a project is greater than the cost of the tax break.

For Atlantic City, Paterson and Trenton – three of the poorest cities in the state – a developer has to meet a lower threshold than projects that would be in any other municipality. here would be no net benefits test for residential projects, and for food stores and health centers of at least 10,000 square feet.

Applicants need to have a letter of support from the local municipality’s top official, such as the mayor. And any projects costing at least $10 million need to produce a community benefits agreement with area officials that will outline how the local community, residents and economy would benefit from that specific project—such as local hiring and training commitments.

Open market

Like the NJ Emerge tax breaks, the state also allows businesses and developers to sell NJ Aspire incentives for cash.

The practice was heavily scrutinized by media outlets and open government groups under Grow NJ, which preceded NJ Emerge, and the Economic Redevelopment and Growth grants, which preceded NJ Aspire.

Under both programs, the tax credits cannot be sold for less than 85% of their value or as low as 65% for certain residential projects.

Data such as the name of who’s buying and selling the tax breaks and the people involved, and for how much, would be published on the NJEDA website.

Transforming the neighborhood

The NJ Aspire program calls for what’s known as “transformative projects,” projects that could by design, transform the neighborhood or community for the better and generate local revenue.

Sullivan said such projects would include large-scale mixed-use or affordable housing developments.

Under the previous Grow NJ and ERG programs, some of New Jersey’s largest incentives went toward the now-Ocean Resort Casino, nuclear energy company Holtec International, and the American Dream Mall in the Meadowlands.

The awards would be capped at 40% of project costs up to $350 million. Eligibility is limited to projects costing at least $100 million and clocking in at 500,000 square feet in some of the state’s poorest towns and cities, or a film studio of at least 250,000 square feet anywhere in the state.

For commercial projects, up to 50% of the space can be used for retail, and at least 20% has to go toward low and moderate-income housing. For residential “transformative projects,” there need to be at least 1,000 units or 100,000 square feet of commercial space, and between 250 and 600 housing units depending on the neighborhood’s income levels.