With the release of a Senate committee’s recommendations for new corporate incentives, the Murphy administration and legislative leadership could be closer to an agreement on how to replace New Jersey’s tax break program than the two sides have been since the old regime expired last summer. Still, without an overall cap on awards – a provision Murphy insists upon but was not included in the panel’s proposals – a deal remains far from certain.

The state has gone nearly a year without a flagship incentive program ever since the July 1 expiration of the Grow New Jersey corporate tax breaks and the Economic Redevelopment and Growth gap financing programs, both of which are administered by the state’s Economic Development Authority. Both were criticized by the Murphy administration, a task force the governor convened to evaluate them, media outlets and watchdog groups.

“The administration got probably 95 percent of what they want. I don’t know why it’s not done,” Senate President Stephen Sweeney, D-3rd District, told reporters following a Feb. 10 Senate voting session. “We both have very similar recommendations in our reports.”

Sweeney’s remarks struck a more conciliatory note than his insistence in December that lawmakers and the administration were “not close” to a deal.

For one, the Senate president said on Feb. 10 that he backs Murphy’s bid for a state-run venture capital fund. Under that proposal, the state and private venture capital firms would jointly finance startups looking to move into New Jersey.

And Darryl Isherwood, a spokesperson for the governor’s office, said following the Feb. 7 release of the Senate panel’s report that “most of these recommendations are incorporated into the governor’s plan and others already are part of the EDA process.”

“We’re gratified that the committee has recognized issues first raised by the governor in the early days of his campaign,” Isherwood added. “Nearly 18 months ago, Gov. Murphy introduced a tax incentive plan to replace the program that expired in June. That plan incorporates accepted best practices including an annual cap on awards, and we continue to believe that cap is integral to the program.”

Sweeney has said he would support capping individual projects and the per-job dollar amount but not the entire program, arguing that businesses would be wary about moving to New Jersey if they were uncertain about whether tax break financing will be available.

Murphy has argued that without a cap, the amount the state spends on incentives could fluctuate significantly from year to year.

Observers outside the government also responded positively to the Senate proposals. “Many of the committee’s recommendations — like prioritizing distressed communities, requiring a community benefit agreement requirement, and incentivizing affordable housing development — mirror proposals by Gov. Murphy and the Legislature,” Sheila Reynertson, an analyst for the progressive think tank New Jersey Policy Perspective, said in a Feb. 7 analysis.

“There are also some new reforms worth pursuing like loans for small and mid-sized businesses and a stronger compliance division within the Economic Development Authority,” she added. “Combined with hard caps, these reforms have the potential to drastically rebalance New Jersey’s approach to economic development.”

In a Feb. 7 statement, Christopher Emigholz, vice president of government affairs at the New Jersey Business & Industry Association, played up the points of agreement between the two sides. “We know that the business community, the Legislature and Gov. Murphy are all in agreement that a responsible and competitive tax incentive program, with appropriate oversight of its effectiveness, plays a key role in the state’s economic development strategy,” he said.

Common ground

Both the Murphy administration and the Senate tax break committee call for reducing how much could be awarded to a company for each job created or retained, and cutting down the overall amount that each project can receive.

The Senate panel calls for letting company tax breaks exceed that cap amount if the business delivers a high return on investment, for example by creating far more jobs than laid out in the agreement.

“I don’t want to restrict the program flexibility,” Sweeney said.

Both the Senate panel and the Murphy administration call for requiring community benefits agreements between developers and local governments in order for an application to go forward.
“The benefits can include jobs for local residents, workforce development, dedication of open space, service contracts, affordable housing, childcare centers, public access to health and recreational facilities, and educational agreements,” the Senate report reads.

Both proposals also call for eliminating the controversial “but for” provision, which under Grow NJ required businesses to show that a decision to choose New Jersey, or move out of the state, came down to winning the tax breaks.

“Under the current requirements of the Economic Opportunity Act of 2013, it is virtually impossible to prove or disprove that a developer or company would not have located or remained in New Jersey ‘but for’ an incentive award,” reads the report. “Furthermore, this requirement not only invites abuse, but also requires companies to shop other locations outside of New Jersey.”

Both proposals call for increasing the “net benefit” to the state that companies must show the tax break would actually yield, to qualify for those incentives. The 110 percent net benefit is “exceedingly low,” according to the report.

The two proposals are aligned on offering “enhanced” benefits for certain lower income cities in need of “public and private investment.” And they call for promoting private investment in public infrastructure, such as through public-private partnerships.

Both proposals call for “annual recertification” that companies must submit to show that they remain in compliance with the tax break agreement, and a host of penalties for lying to the state, such as having to repay incentive awards and prosecution by the state attorney general. And both sides agree on the need to provide incentives for startups and small businesses looking to open up in New Jersey, and to make the application process easier for them.

“We appreciate that committee members are calling for the requirement of community benefit agreements, data sharing plans and an inspector general,” Sue Altman, head of the activist group New Jersey Working Families, said in a Feb. 7 statement. “We are glad this committee has joined the ranks of the sane and now agree that protections must be in place to prevent future abuse.”