Tax break task force decries frequent consultant involvement, spotty oversight (updated)

In a report released July 9, a task force Gov. Phil Murphy convened last year to scrutinize the state’s now-expired and controversial corporate tax break programs tore into consultants businesses frequently used to win state aid, and honed in on a 21-story office tower just north of Bergen County, often-used as a dummy alternative location by state aid applicants with no real plans to leave New Jersey.

The final report from the task force, according to chair Ron Chen, came days after an appeals court knocked down a case by South Jersey political powerbroker George Norcross, who has been at the center of the group’s scrutiny. And amid the global COVID-19 pandemic, which pushed aside discussion regarding replacements for the Grow New Jersey and Economic Redevelopment & Growth programs, both of which expired more than a year ago.

The report suggests capping Grow NJ’s replacement – something pushed for by Murphy, and opposed by the state Legislature and business groups – to set a limit on the number of tax breaks the New Jersey Economic Development Authority, which oversees both programs, could award annually.

Without such a cap, there is an “inherent temptation to treat tax incentives as an apparently unlimited source of funding, since it is not subject to the type of legal constraints that prevent other types of public funding from being abused,” Chen said at a Thursday afternoon press briefing.

The report also recommends that state officials need to levy stricter oversight, such as a record-keeping requirement, with how tax credits are sold by the companies to which they were initially awarded.

The report decried “insufficient guidance” for how NJEDA staff rolled out, implemented and conducted oversight of the ERG financing program, saying officials could not agree on what constituted a “project financing gap,” or the funding hole that kept a developer from being able to fully finance a project. And so, according to the report, ERG grants were awarded to companies that might not have actually needed the state aid.

Several companies are identified for being used as “go-to” consultants to secure corporate tax breaks under Grow NJ, resulting in many applicants winning lucrative tax breaks for staying in New Jersey when they had no actual plans to leave the state, according to the report.

These consultants include several big names in New Jersey business: law firm Sills Cummis and Gross PC, Princeton-based Biggins Lacy Shapiro & Co., real estate consultant WRE Consulting, and accounting giants Ernst & Young and KPMG.

“We strongly disagree with the conclusion that KPMG advised its clients to provide misleading information,” said a company spokesperson. “In all cases, including those specific to this report, we provide clients advice in accordance with all laws and regulations.”

Real estate brokers CBRE, JLL, Cushman & Wakefield, and Savills were also frequently sought by companies hoping for state corporate aid.

“WRE Consulting was sought out by businesses seeking tax credits because we have a great deal of experience in site selection, commercial real estate, construction and economic development—the four areas of knowledge that are needed to represent clients seeking economic incentives,” said Lee Winter, a spokesperson for WRE.

Like previous reports, Thursday’s release highlighted law firm Parker McKay as another such frequently-sought consultant.

According to a task force report released in January, nuclear energy company Holtec International, which received one of the state’s largest tax breaks at $260 million, had a “phantom tax provision” put into the 2013 tax break legislation by Parker McCay.

The firm’s chief executive officer Philip Norcross is brother to George Norcross, who is a member of the board at Holtec, and is involved with many businesses that were scrutinized by the task force for incentives they received in return for moving to, or staying in, Camden.

The firm was used by several other Norcross-tied companies looking for office space in Philadelphia, where they allegedly had no intention of actually relocating.

I’m with you in Rockland

“After the companies learned from the consultants that they must show the EDA that their jobs are ‘at risk’ in order to qualify for incentives, they proceeded to look at and ‘consider’ out-of-state locations while, in reality, never sincerely considering leaving New Jersey,” Thursday’s 104-page report reads.

The Blue Hill Plaza complex in Rockland County New York, just beyond the border with North Jersey, was frequently used as a dummy location where businesses threatened to move if they did not win the tax breaks.

“Given that the Blue Hill Plaza was so close to the New Jersey state border, offered space at rates less expensive than comparable buildings in northern New Jersey, and often had vacant space to offer, the office complex was a convenient resource for Grow NJ applicants …  that exploited it for lease proposals that were not genuinely under consideration but merely intended for us as evidence to show the EDA the purportedly ‘at risk’ nature of the company,” reads the report.

NJEDA officials were aware that the site was frequently used, dubbing the location “the famous Blue Hill Plaza.”

According to the report, “[d]uring internal EDA staff meetings, when someone noted that the Blue Hill Plaza was an applicant’s alternative site, people in the room often groaned and made comments such as ‘not another one’ or ‘again’?”

The New York Times first reported on Blue Hill Plaza last September, noting that a dozen companies with questionable plans to actually leave the state threatened to move to the Pearl River complex in order to win a combined $100 million in Grow NJ tax credits.

Many of these firms, according to task force special counsel Jim Walden, never took any of the additional steps for a business that was seriously considering a move out of New Jersey.

They did not look at tax breaks available in New York, nor did they do any of the architecture and information technology work associated with gauging the feasibility of a potential new office, Walden said.

“They were able to use the Blue Hill Plaza site as essentially a stalking horse … and this was something that the consultants knew and the EDA knew,” Walden said on Thursday, in what he called a “misuse of the Blue Hill Plaza site for the Grow NJ applications.”

According to Thursday’s report, Grow NJ applicants frequently submitted incomplete or questionable cost-benefit analyses showing that moving out of New Jersey would be cheaper, but they were nonetheless rubber-stamped by the agency.

Telecommunications company IDT Corp., which won a $24.3 million tax break in 2013, used Cushman & Wakefield as a consultant and listed the Blue Hill location. Jaguar Land Rover, which won a $26.6 million tax break in 2015, listed the site and used JLL.

Konica Minolta Business Solutions, which was awarded $29.4 million in 2017, listed the same site, and used Cushman & Wakefield and KPMG. Unique Designs, which won $10.1 million in 2018, listed the complex too and used Cushman & Wakefield and Sills Cummis & Gross.

“We do not suggest that all 15 companies chose the Blue Hill Plaza in order to aid their applications for New Jersey tax incentives, or that all 15 were encouraged to do so by their consultants,” the report notes.

“Some of these companies voluntarily provided evidence to the task force that tended to show that they, with at least some level of sincerity, considered the site as a potential relocation option,” the report continues. “The reader should not infer any conclusions about any company that are not explicitly set out in this Third Report.”

The blues

CBRE and the management at Blue Hill Plaza suspected that several companies were using the site as a bogus location, but “they did not definitively know when this occurred.”

“According to the CBRE brokers who represented the Blue Hill Plaza, potential tenants were consistently ‘poker faced’ and appeared to be genuinely interested in the Blue Hill Plaza irrespective of whether they were truly interested,” reads the report. “The brokers, therefore, attempted to discern for themselves whether potential tenants were sincerely interested.”

CBRE member Erin Wenzler, according to the report, noted in a series of email exchanges that Jaguar took part in a half-hearted tour of the office in 2015, where only a single representative along with someone from JLL showed up 15 minutes late.

The tour was “dressed down,” Wenzler wrote in follow-up emails, and called it “a naked incentive move.”

Days after the tour, and a week before CBRE even offered Jaguar a lease proposal, the company submitted a Grow NJ application to the NJEDA saying it intended to move to the Pearl River office complex.

NJEDA officials, aware of how frequently the site was used, toured the site in 2013, but nonetheless gave it a thumbs up as a legitimate location with sufficient office space for New Jersey companies considering a move.

Staff from the NJEDA gave the task force conflicting reports over how much scrutiny was actually levied against applicants saying they would move to Blue Hill.

“It does not appear that the EDA ever rejected an incentives application for reasons related to the Blue Hill Plaza alternative site,” the report states. “Every company that cited the Blue Hill Plaza as the alternative site on its Grow NJ application between 2013 and 2019 was either approved for tax incentives by the EDA, or was rejected or withdrew its application for reasons unrelated to the Blue Hill plaza.”

CBRE and management at Blue Hill did not return requests for comment.”

“[S]ince I became [chief executive officer] in 2018, the NJEDA has taken a number of steps to strengthen our processes and policies to improve our capabilities,” read a statement from Tim Sullivan, who currently heads the agency. “We will review the recommendations presented in today’s final report, and we thank the task force for its work.”

In September 2017, three companies submitted relocation plans at the same time that included overlapping office space, the report states, and they “could not possibly all relocate to their claimed alternative site.”

But the NJEDA approved the combined $35 million in tax breaks for the companies: Bauer Media Group USA, Konica Minolta and Lonza.

Editor’s note: This story was updated at 7:42 a.m. EST on July 10, 2020 to include additional comments from task force chair Ron Chen and task force special counsel Jim Walden, and statements from KPMG, WRE Consulting and NJEDA Chief Executive Officer Tim Sullivan.