‘Winning the war’

Jessica Perry//April 13, 2020

‘Winning the war’

Jessica Perry//April 13, 2020

While the COVID-19 outbreak has created a great deal of uncertainty, Tim Sullivan, the head of the New Jersey Economic Development Authority, is certain about two facts. First, an economic recovery is still a long way off. And second, when the state does recover, the economy will not quite be what it was before the global pandemic washed over the country.

“I don’t think anyone should be under any illusions that this snaps back in the same shape,” Sullivan said in during an April 8 interview with NJBIZ editorial staff members. “This is not going to be a V-shape.”

Over the past month, Gov. Phil Murphy ordered the closure of myriad “non-essential” retail and business activities, grinding commerce to a halt and leading to soaring joblessness, all part of an effort to reduce in-person contact that could give the virus the opportunity to spread to new hosts.

Tim Sullivan, CEO, New Jersey Economic Development Authority.
Tim Sullivan, CEO, New Jersey Economic Development Authority. – NEWARK REGIONAL BUSINESS PARTNERSHIP

“Industries that rely on density – entertainment, restaurants, hospitality – those are hard-hit,” Sullivan noted. “That being said, some of New Jersey’s strongest industries are going to be critical to winning the war, not just in New Jersey but around the country and around the world. Top of that list, pharmaceuticals, life sciences and biotech.”

Remote-learning technology – think Zoom – has boomed in recent months. Cybersecurity and financial technology providers also have opportunities to grow over the coming year, as millions of people self-isolate for the indefinite future.

But Sullivan cautioned expecting a quick overall improvement. “My guess is that in the short term the minuses will outweigh the plusses, but that will turn over time,” he said. “The economy in New Jersey is pretty nimble … it’s going to take some time to adjust here. The next couple of months aren’t going to be great from a job creation and a GDP perspective.”

Murphy warned on April 7 that shrinking the projected peak of COVID-19 cases is “going to require many more weeks – at least – of our being smart and staying at least at all times 6 feet apart.”

The agency’s business

For its part, the EDA oversees billions of dollars in tax incentives, and more recently made available $41 million of state assistance for businesses hit financially by the outbreak. The controversies and political scandals surrounding New Jersey’s multibillion-dollar tax incentive programs seem like an eternity ago, but nonetheless still play out in the halls of the EDA in some form.

Ultimately, the state is on the hook for those awards, as long as the companies can certify they met the agreed-upon standards of job-creation and economic growth. “There’s no recession clause,” Sullivan said. “These legacy approvals are still valid.”

And the work of the agency continues, despite the unprecedented circumstances. “While we’re running these crisis programs, we’re still processing, reviewing and administering tax credits from the legacy, and still managing through that backlog.”

Nonetheless, compliance rules were loosened in March for businesses taking part in several incentive programs: Grow New Jersey, under which the state awarded at least $4.5 billion; the Business Employment Incentive Program, under which the state awarded $1.52 billion; the Business Retention and Relocation Assistance Program, under which the state awarded $125 million; and the Urban Transit Hub Tax Credit Program, under which the state awarded more than $1 billion.

I don’t think anyone should be under any illusions that this snaps back in the same shape.
– Tim Sullivan

These temporary rules involve how much time workers spend in the office, an impossible feat with the stay-at-home order that resulted in the vast majority of employees telecommuting. Previously, an employee had to spend at least 80 percent of their time in the office the award is being used to finance in order to qualify as a regular, full-time employee.

That rule was scaled back so that businesses instead must show that the employee does at least 35 hours of work a week – or 30 hours for projects located in Atlantic City, Camden, Trenton, Passaic or Paterson – and that they had state income tax deducted from their paycheck.

Many companies are bound to hit roadblocks in the near future after the governor ordered the cessation of all “non-essential” construction work as of 8 p.m. on April 10. That order includes more than a dozen exceptions for work on such projects as hospitals, schools, transportation, utilities and emergency repairs.

“Short-term pause on construction, not what anybody would’ve wanted to do, but 100 percent the right thing to do,” Sullivan said.

The latest count of incentive payments totals $318 million for taxes that 158 companies paid in 2018, the EDA said in early February.

Combined with a host of other incentive programs, under which the state awarded tax credits in the past two decades, New Jersey will be on the hook for roughly $1 billion annually starting next year, according to the Murphy administration.

Last month, the state treasury – facing a budget shortfall upward of $20 billion – announced it would freeze $920 million in spending through June 30.

That includes $28.5 million from the EDA’s Economic Redevelopment and Growth program, an incentive that provides gap-financing for businesses seeking to build residential – and in some cases commercial – projects in New Jersey.

“ERG regulations stipulate that incentive grant agreements provide that grant payments are subject to appropriation and the availability of funds,” said Jennifer Sciortino, a spokesperson for the Treasury.

NJEDA CEO Tim Sullivan speaks on March 20, 2019 at the Commercialization Center for Innovative Technology in North Brunswick.
NJEDA CEO Tim Sullivan speaks on March 20, 2019 at the Commercialization Center for Innovative Technology in North Brunswick. – EDWIN J. TORRES/GOVERNOR’S OFFICE

But tax credits and moving into New Jersey might be the last thing on any corporate executive’s mind at the moment.

“Companies that are here are probably going to be focused on what they’re doing day-to-day,” Sullivan said. “Companies that aren’t here are probably going to be a little less exploratory at least in the next six to 13 months.”

Sullivan said Murphy’s “State of Innovation” proposals — five new incentives to attract and expand such industries as life sciences, information technology, clean energy, and film and digital media — could play a much larger role in the state’s economic revival.

“There’s this new paradigm that you’d love to be growing and fostering,” Sullivan said of new technologies.

“One of the things you can count on is innovative entrepreneurs in New Jersey and elsewhere are going to find opportunities and solutions to the challenges this crisis creates,” he added. “How we foster that growth and how we welcome it as much as we can is really going to be critical.”