Thumbs Up For Tax Breaks

//October 28, 2005

Thumbs Up For Tax Breaks

//October 28, 2005

A Rutgers study backs the state’s main program for attracting and retaining companiesWhile the practice of granting tax breaks to businesses that locate or expand in New Jersey has come under fire from some quarters, state Treasurer John McCormac has stoutly defended it. Last week a study released by Rutgers University supports his arguments.

The tax rebates issued to large companies though New Jersey’s Business Employment Incentive Program (BEIP) have been a success, returning 88 times their cost in economic benefits, according to the new analysis. The study, “The Characteristics and Economic Benefits of the Business Employment Incentive Program,” was funded by the New Jersey Economic Development Authority, the agency that administers the program.

“It’s easy to pick on business [incentive] programs because people don’t always see the benefits, but there are thousands of New Jerseyans employed right now because of the efforts we put into economic development,” McCormac says. “Those jobs could have gone to other states.”

The Rutgers analysis of BEIP says the cash-for-jobs program generated 51,665 permanent jobs between 1997 and 2005, at a cost of about $1,841 a year per job. The BEIP program rebates companies a portion of the state income taxes paid by the new employees they hire under the incentive.

Overall, the grants cost taxpayers about $95 million a year, while the companies receiving the grants increased their state tax payments by $350 million a year, better than triple the cost of the grants, the study says. The companies collecting the grants added $8.4 billion to New Jersey’s gross state product, a boost of $88 for every grant dollar paid out.

Jon Shure, president of New Jersey Policy Perspective, a Trenton think tank that has analyzed and criticized the BEIP program, says the Rutgers study doesn’t consider whether the 183 recipients of BEIP grants would have relocated to or expanded in New Jersey without the incentives.

“I have to believe an awful lot of companies would come here anyway, especially those that came here from New York, which is much more expensive anyway,” Shure says. “The argument is a lot of companies don’t want to come to New Jersey without incentives; if they don’t want to come here, the company is not going to come here.”

Proponents say the program has helped encourage expansions by major firms like Pfizer and Verizon, which is in the process of bringing 1,700 jobs to Basking Ridge from New York City.

BEIP grants have also gone to New York City-based financial firms like Citigroup, Lehman Brothers and Goldman Sachs for backup sites to ensure business continuity in case of a disaster. When Manhattan financial companies faced the need for alternative sites, they could have set up in Pennsylvania, Connecticut or upstate New York,” McCormac says. “We wanted it to be North Jersey, and BEIP is what got them here.”

BEIP deals with a reality that New Jersey is competing with other states and countries to attract business, says Joseph Seneca, professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers, and an author of the BEIP Analysis. “To say these jobs may have come here anyway misses the point of intense global and national competition for economic development.”

According to the study, the BEIP program has been most successful in luring companies to New Jersey from New York and Pennsylvania. Of the 183 firms awarded BEIP grants between 1997 and 2005, 100 were relocating and 69 of those came from New York. The largest share of the awards has gone to companies in Hudson (25.1%), Middlesex (12%) and Morris (9.8%) counties.

It’s absolutely necessary for states to have and use effective economic development programs,” says Seneca, “and this program, in my opinion, is one of the most responsible, because state dollars are only spent after jobs have been created and after state income taxes on these jobs have been paid. It is not the typical upfront giveaway that characterizes many other states’ programs.” u

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