A task force Gov. Phil Murphy put together to scrutinize New Jersey’s controversial corporate tax breaks took aim at problems with the Economic Development Authority’s oversight of the incentive program.
These problems were pervasive under former Gov. Chris Christie’s administration as well as under Murphy’s, according to documents and testimony produced, and the lawyers who presented them, at a daylong Oct. 17 hearing in Trenton.
In February 2019, the EDA approved a $39 million tax break for human services nonprofit Elwyn to move into Camden. The company left out several pending legal matters and prior ones from its application, including worker protection violations, such as wage theft and discrimination, and legal violations in Pennsylvania pertaining to how it performed services for children.
Senior staffer Christina Fuentes raised these issues with Elwyn and its legal counsel, attorney Kevin Sheehan of Parker McCay, where Phil Norcross – brother of South Jersey power broker George Norcross – is a partner.
Sheehan maintained that they did not meet the definition for the kinds of legal issues that should be put in the application, but nonetheless would amend Elwyn’s application to include them.
Ultimately, EDA Senior Legislative Officer Marcus Saldutti gave a green light in September 2018 for the application to move forward. Saldutti told the task force on Thursday that he reviewed at least 20 applications, none of which he recommended should be disqualified.
Elwyn’s approval came a month after a state comptroller’s audit that found major holes in the agency’s oversight of the program to ensure companies qualified for tax breaks they received – if any at all –, and that businesses were complying with tax credit agreements.
“The NJEDA takes seriously the concerns related to specific Grow New Jersey applications that were voiced during yesterday’s Task Force hearing,” EDA spokesperson Virginia Pellerin told NJBIZ. “We will conduct a thorough review of these projects as we are doing of others about which questions have been raised in recent months.”
Regina MacKenzie, Elwyn’s general counsel, said that the company indicated in its application that there were pending legal matters and others within the past 10 years “that have arisen in the ordinary course of business.” But, she added, “[a]ny adverse decisions in such actions or proceedings have not had and are not anticipated to have a material adverse effect on Elwyn’s current business, financial position or operations.”
“During the application review process, Elwyn worked in good faith with its tax credit application counsel and EDA staff to provide supplementary information regarding specific litigation matters identified by the EDA underwriter,” MacKenzie said. “Elwyn did not intentionally omit or withhold any information from the EDA and remains committed to being transparent with both the EDA and the Task Force.”
What happened is that the public paid for the EDA’s fees. That money is money that the public was deprived of.
– task force counsel Jim Walden
What’s more, over the past several years, the EDA has found itself dependent on tax break application fees to support its own budget, so that it does not need funding from the state.
Larger tax breaks mean larger application fees, so the agency would be incentivized to rake in as many applications as possible, according to lawyers on the task force. That creates a conflict of interest, they added.
A third of the agency’s revenue in 2017 – $13.2 million – came from Grow New Jersey applications. Fees averaged at 15 percent of the agency’s revenue in years prior.
That became a problem with the Philadelphia 76ers, which won an $82 million tax break in June 2014 for moving several of its facilities to Camden.
The professional basketball team took advantage of the “Camden alternatives,” which allows companies eyeing a move into the city to win tax breaks equaling the total “capital investment” they would make into the new location.
But the 76ers were able to count the fees they paid to the EDA as capital investment costs, meaning the money never went to the EDA.
“What happened is that the public paid for the EDA’s fees,” said task force counsel Jim Walden, a partner at Walden Macht & Haran LLP. “That money is money that the public was deprived of.”
Grow NJ expired in July after Murphy declined to sign legislation extending the program.
Federal and state authorities are investigating participants in Grow NJ, while Murphy and legislative leadership are butting heads over its replacement flagship incentive program.