The New Jersey Economic Development Authority had little oversight and accountability over the $11 billion of tax credits it awarded since 2005, making it difficult for the agency to determine if companies actually delivered on their promised jobs and economic activity, according to an audit the Office of the State Comptroller released Wednesday.
Gov. Phil Murphy, a critic of the programs vastly expanded upon by former-Gov. Chris Christie, ordered the audit soon after taking office in January 2018.
“The comptroller’s report confirms one of our worst suspicions, that billions of dollars’ worth of state tax incentives were awarded by the Christie administration with little oversight or transparency, and even less regard to make sure we got a return on the taxpayer’s investment,” Murphy said at a Trenton press conference Wednesday afternoon.
The report finds the EDA lacks adequate ability to monitor the effectiveness of the awards under these five programs, which hampered the agency’s ability to “ensure the transparency, integrity, and accountability of the incentive awards.”
These holes in enforcement resulted in “improperly awarded incentives of $179 million, overpaid incentives of $6.6 million, and over-certified incentive awards totaling $5.2 million,” as well as 2,993 promised jobs which never materialized.
Murphy said the 2,993 missing jobs were out of a sample of 48 of the 401 projects awarded tax breaks, and that the actual number could be much higher.
The EDA awarded $11 billion since 2005 with the expectation to create 161,804 new jobs, retain 80,027 jobs and make $34 billion in capital investment, according to the report.
The state certified 401 projects as actually meeting their goals, to which the state awarded $3.4 billion in tax credits, the audit says, with the expectation to create 50,633 new jobs, retain 33,727 jobs and generate $9.3 billion in capital investment.
The agency’s two largest programs, Grow New Jersey and the Economic Redevelopment and Growth Grant Program, are both scheduled to sunset on July 1. Murphy unveiled several ambitious goals last October for the state’s new economic incentives.
Murphy repeatedly maintained that the state lost the $11 billion awarded by the EDA. In a written response to the audit, dated Jan. 3, EDA CEO Tim Sullivan said the amount the state already gave out to companies is much lower.
According to Sullivan, out of the $8 billion the EDA awarded under Grow NJ, ERG and Urban Transit Hub Tax Credit programs in 2005, only $696 million was given to companies.
Sullivan said that of the 2,933 missing jobs, 1,300 were in fact already created.
“Appropriately, 70 percent of the findings and recommendations detailed in the [OSC] report are related to the legacy or ‘predecessor’ programs,” he continued.
Sullivan added, the EDA has hired a CPA to randomly audit job reports, has begun updating its data, and created a compliance system to improve its oversight.
“The NJEDA does not agree with the conclusory nature of the OSC audit deeming certain activities to be “deficient,” despite the NJEDA adhering to statutory requirements,” Sullivan added.
“If the company doesn’t meet the criteria, then they don’t get the tax break.”
Gov. Phil Murphy
Companies receive a certain amount of the credits annually, typically over a 10- to 20-year period, in exchange for meeting agreed-upon job creation and economic activity benchmarks.
Even still, Murphy said, many companies did not meet those guidelines and were able to receive tax credits they should not have received.
The state will go after those companies if it has the legal precedence to do so, Murphy said.
“If the company doesn’t meet the criteria, then they don’t get the tax break,” Murphy said.
Murphy said that he wants Grow NJ and ERG to expire once both programs end July 1.
One proposed replacement, NJ Aspire, would mirror aspects of ERG and provide gap financing to companies looking to redevelop underutilized urban and transit-oriented properties. Murphy wants the program capped at $100 million a year.
Another program, NJ Forward, would mirror aspects of Grow NJ by providing corporate businesses with corporate tax breaks; Murphy wants to cap the program at $200 million each year.
The expanded Brownfield program, aimed at financing clean-up and redevelopment of contaminated urban properties, would be capped at $20 million. The historic preservation tax credit would finance redevelopment of urban historic sites and Murphy wants it capped at $20 million,
The $500 million Innovation Evergreen Fund, which the state and venture capitalists would finance 50/50 to invest in startups, would cap its annual appropriations at $60 million.
Senate President Stephen Sweeney, D-3rd District, agreed many “oversight requirements were not followed.”
“When we passed the legislation for these tax incentive programs, we included standards for oversight and we expected them to be followed,” Sweeney said in a statement. “As this report clearly states, the oversight requirements were not followed.”
“The incentives must include significant oversight and accountability so that the programs maximize their effectiveness and do not squander resources,” he added.
In a statement, Assembly Speaker Craig Coughlin, D-19th District, reiterated the need for oversight of incentive programs.
“The recommendations included in the report today regarding the EDA’s lack of oversight and poor management of State tax incentive programs points out the need for action and demands that any future programs include the oversight necessary to ensure that taxpayer dollars are being used wisely for the intended purpose,” Coughlin said. “As we move through the process of considering tax incentive programs, the recommendations included in the report will merit serious consideration.”
Business advocates responded that Grow NJ and ERG, while in need of oversight, have and continue to play vital roles in fueling New Jersey’s economic progress.
“We believe that responsible tax incentives still play a key role in our economic development strategy and to attract and retain both our large and Main Street businesses, which need to contend with our extremely challenging business climate, high taxes and costly mandates in New Jersey,” Michele Siekerka, president and CEO of the New Jersey Business and Industry Association, said in a statement.
“The incentive program we had was put together when we needed to have an incentive program for both offense and defensive purposes for the state,” said Tom Bracken, president of the New Jersey Chamber of Commerce. “It wasn’t perfect, and changes were needed, and the governor’s going to make those changes.”
New Jersey Policy Perspective said in a release that it has advocated for reforms to New Jersey’s corporate subsidy programs for 20 years.
“The state’s failure to produce annual reporting, as required by law, is an insult to taxpayers who expect state dollars to be sufficiently monitored,” NJPP Senior Policy Analyst Sheila Reynerston said in a statement. “The lack of oversight and monitoring undermines the integrity of a tax subsidy program, and more importantly, trust in state government.”
“The need for robust reform of corporate subsidy programs has never been clearer, and the proposals outlined today by the Governor are a critical first step in the right direction,” she added.
A collection of union leaders from the state representing CWA NJ, ATU NJ, ATU International, AFSCME NJ Council 63, IFPTE Local 194, Hudson County Central Labor Council, IFPTE Local 195, Newark Teachers Union, Union of Rutgers Administrators FT Local 1766 and the Council of State College Presidents reacted to the comptroller’s audit saying the details were “jarring, but not surprising.”
“For years, we’ve heard elected leaders claim New Jersey’s public workers are to blame for our state’s fiscal problems,” their statement reads. “Recently, some legislators even claimed that middle-class workers earning modest retirement benefits will ‘ squeeze out’ spending on critical social programs and education.”