The state is reviving one of its oldest economic incentives, the Urban Enterprise Zone program, after adding a number of reforms outlined by a study that the state commissioned.
First established in 1983, the state enacted the UEZ program as a means to reverse the urban “decay, unemployment, and a dwindling industries and tax bases” that had plagued New Jersey’s cities and rural communities for decades by that point, according to a 2019 study commissioned by the state Department of Community Affairs.
State officials commissioned John S. Watson Institute for Public Policy, PEL Analytics, and Anderson Economic Group for the study.
Under an expansion and revival of the program, the state will set aside $42.5 million through the end of June next year for grants, tax breaks, revolving loans and other state support to go toward businesses that open up in some of the state’s most impoverished communities.
The program is expected to last at least a decade, and the annual allocation would double to $82.5 million over the next three years.
“Starting today, the UEZ program will be an essential part of our state’s economic recovery strategy,” Acting Gov. Sheila Oliver said during an Aug. 17 bill-signing ceremony IN Elizabeth, where she approved Assembly Bill 5580.
Since its founding, there have been 32 UEZ’s spanning 37 municipalities, according to the study, and they’ve allowed for major projects such as the $320 million Elizabeth mall the Mills at Jersey Gardens, and the $30 million Roebling redevelopment at the abandoned factory sites in Trenton.
The UEZ program and state subsidies cost New Jersey an average $300 million a year, according to a state analysis.
“If we can create more opportunities like this in communities where Blacks and Latinos reside, we will all get to a better place,” said John Harmon, who heads the African American Chamber of Commerce of New Jersey.
The program’s source of state-funding lapsed in 2011, while UEZ status was extended several times – most recently under Gov. Phil Murphy – pushing the expiration date back to between 2023 and 2025, depending on the municipality.
Under a measure that Murphy approved in 2018, UEZ status was restored to five New Jersey cities: Bridgeton, Camden, Newark, Plainfield and Trenton. Other cities like New Brunswick, Elizabeth, the four Wildwoods in South Jersey, Asbury Park, Kearny, Jersey City and Paterson are also part of the program.
Still, the loss of state funding – called the Zone Assistance fund – for the program rendered it neutered, and according to the DCA study “left host municipalities to cover any future administration costs locally as well as the incentive for the State to track these expenditures explicitly.”
Under the initial iteration of the program, businesses would have their sales tax cut in half from 6.625% to 3.3125%, while other purchases like capital equipment, facility expansion and property upgrade would be tax-free. Under the new legislation, that would be kept in place.
Under the previous version, employers were able to get tax credits of up to $1,500 for new, full-time employees and up to 8% of their corporate business tax bill on “qualified investments.” And businesses were able to get unemployment insurance subsidized for certain workers.
“It was created to foster an economic climate that revitalized designated urban communities and stimulates their growth by encouraging businesses to develop and create private sector jobs through public and private investments,” Oliver added.
The revival caps the tax-exemption for business purchases at $100,000, which Oliver said “will leave room for small businesses to benefit from the program while phasing out larger businesses, to whom the impact was muted.”
And the state will set aside $2.5 million a year for grants, investments, loans and other state aid for businesses in UEZ’s. Businesses not physically located in a UEZ area could no longer qualify for the aid as would have been the case under the prior version of the program.
UEZ status would last 10 years under this bill, while host municipalities would be barred from spending more than 25% on public safety out of the money they get from the state, and no more than 10% on administrative expenses.
Any of the 37 municipalities with a development plan more than five years old would have to submit a new one to the state, under the bill, and come up with a new plan in another five years.
“Your business plan, if it was developed in 1980, it doesn’t matter today,” said Sen. Joseph Cryan, D-20th District, who has a legislative office in Elizabeth. “It’s an old, dated plan that doesn’t work.”
The UEZ Authority Board – an arm of the DCA – would have to prepare an annual review of the UEZ program and how state money is used, and look at the “participating businesses, unemployment rate, median household income, and number of jobs in each UEZ,” according to a statement from Murphy’s office.