While New Jersey’s corporate tax break program has not been the center of attention for the past six months, the state remains on the hook for billions of state aid meant to lure companies here or keep them from leaving. Two flagship programs lapsed on July 1, 2019 with no replacements, and the efforts to fashion a new set of incentives were eclipsed by the global pandemic and the worst economic conditions since the Great Depression.
“There’s no recession clause,” Tim Sullivan, head of the New Jersey Economic Development Authority, said during an interview in April. “These legacy approvals are still valid.” The NJEDA oversees corporate incentives and tax breaks.
Two programs began in 2013 under the administration of then-Gov. Chris Christie, a Republican. They were enacted with the Great Recession and sluggish economic recovery still on the minds of elected officials and the public at large.
Sullivan
The first was the Grow New Jersey corporate tax break program, under which $4.6 billion was awarded during the six years. The second was the Economic Redevelopment and Growth gap financing program, under which the state awarded $58.5 million for commercial real estate and another $761.7 million for residential projects.
Under another corporate incentive program, the Urban Transit Hub Tax credits, the state awarded more than $1.7 billion between 2011 and 2013 to entice companies to develop large-scale projects in some of the state’s largest urban centers. The last of those projects were completed in 2017.
Amid the pandemic, standards have been loosened for what constitutes compliance with the tax break agreements, as many of those businesses are shutting down or limiting operations with layoffs or furloughs. The statewide shutdowns have forced nearly 1.6 million New Jerseyans out of work, creating the highest-ever jobless rate since the federal government began tracking individual state unemployment numbers in the 1970s.
Many projects under construction have been delayed or halted indefinitely because of global supply chain disruptions. Some contractors have struggled to keep the staff on hand as promised when signing their tax break agreements years ago.
“To ensure that companies are not unfairly penalized for circumstances outside their control, several actions were taken to help mitigate the impact of the COVID-19 outbreak on approved incentives,” Virginia Pellerin, a spokesperson for the NJEDA, said in a statement. “We will continue monitoring the effects of the pandemic and any requirements under executive orders or public health guidance and determine whether additional steps are warranted.”
One change made on March 30 – during the state of emergency declared by Gov. Phil Murphy – allows companies to request two extensions of up to six months to make required certifications and reach other project milestones. The business must show that it’s suffered “economic disruption caused by the emergency” that are beyond the “business’s control” and despite the “best efforts … to proceed with the completion of the project.”
Another rule changed in mid-March relaxes the standard on how much time employees have to spend in the office. This adjustment was put in place ahead of a stay-at-home order and work-from-home mandate for non-essential workers. Many of the state’s incentive programs require workers to spend at least 80 percent of their time at the office for which the award is being used to finance in order to qualify as a regular, full-time employee.
Instead of the 80 percent rule, companies will have to show that an employee does at least 35 hours of work a week – or 30 hours in Atlantic City, Camden, Trenton, Passaic and Paterson – and has state income tax withheld.
In addition, Grow NJ, ERG and HUB tax break recipients have more time to file the paperwork for 2019, known as their certification package, showing how many jobs they created or retained, or both, to receive the year’s tax credit. They previously had 120 days from the end of their fiscal year to file it, but under a March resolution they’ll have three months after the date that Murphy lifts the pandemic restrictions.
The tax break agreement requires a recipient to certify each year that it has created or retained a set number of jobs. If a company does not show in its annual reports to the NJEDA that all those jobs were created, the award could be reduced or revoked entirely.
Following the corporate tax break controversies that dominated the headlines for much of 2019, the NJEDA instituted sweeping reforms to determine whether companies actually complied with the tax break agreements. That move drew opposition from both lawmakers and business groups. But the Murphy administration argued better oversight was necessary to ensure businesses were not attempting to cheat the system.
Companies had to go through a longer, more stringent process make sure they created the jobs and spent the money they promised to under the tax break agreement. And tax break payments for 2018 gradually trickled out of the NJEDA during the latter half of 2019 as the agency parsed through those documents.
Delays and disruptions
“It is too soon to anticipate how many businesses will take advantage of the provisions for excluded months, COVID-related extensions, or waiver of 80 percent onsite presence requirement, as the pandemic is ongoing,” Pellerin said. “Reporting related to 2020 certifications will not begin until [the first quarter] of 2021.”
ResinTech, which makes water purification products and was awarded a $139 million tax break in 2016 for moving a factory to Camden three years later, recently requested a six-month extension past its Oct. 20 certification deadline, arguing that the global pandemic and ensuing recession upended the timeline for when they planned to finish the project.
“COVID-19 and States of Emergency in Pennsylvania and India are causing unforeseen delays,” reads the board agenda for the Sept. 9 meeting where their request was approved.
“Tanks that are critical to ResinTech’s production process were supplied by a couple of manufacturers in India. India had been shut down for 5-6 weeks which delayed ResinTech’s purchase of the tanks. Subsequently, there was a backlog at the ports, which will further delay the tanks getting to the new facility until September 2020.”
Meanwhile, state officials are looking at whether they should cut an ERG tax break for Triple Five Group over delays on the opening dates of the American Dream mall, a huge entertainment and retail shopping center in the Meadowlands. They were approved in 2015 for a $390 million ERG grant, one of the largest tax breaks from New Jersey in state history.
Exterior of the American Dream in the Meadowlands. – DANIEL J. MUNOZ
“Triple Five has not received any ERG payments yet, and we expect that this year’s benefit for the company will be less than what was anticipated,” Sullivan said in a statement to NJBIZ.
American Dream opened its ice skating rink and indoor theme park in October 2019, with the remaining stages originally set to be completed this March. That was the month that the governor ordered sweeping closures of malls, indoor dining and nonessential retail.
Triple Five fell behind on several mortgage payments at its Mall of America site in Minnesota, where it had put up a 49 percent stake as collateral for financing of American Dream. But the firm managed to strike a deal in the summer to avoid any foreclosure.
The retail openings have been pushed back to Oct. 1 for such tenants as H&M, Primark and Zara; the indoor water and amusement park and ice rink will also reopen that day. The indoor ski slope opened on Sept. 1.
“Despite these setbacks, the NJEDA still considers American Dream a major economic and community asset and expects the project will play an important role in New Jersey’s long-term economic recovery from the impacts of COVID-19,” Sullivan added.
A representative for the American Dream project said they would not comment.
