NJ Corporate Tax Break Controversy: Here's What Has Changed – And What Hasn’t

NEW JERSEY — Is the “honor system” working when it comes to keeping track of corporate tax breaks in New Jersey? It’s an urgent question, some advocates say – and billions of taxpayer dollars are on the line.

Earlier this week, the state Comptroller’s Office released an update on the investigation into massive tax subsidies that were given out by the New Jersey Economic Development Authority (NJEDA).

Much of the controversy centers around more than $11 billion that the NJEDA approved for large companies over a 14 year-span. The tax breaks were supposed to help bring jobs to New Jersey – and keep corporations from moving to other states. But officials and advocates have since alleged that the agency merely acted as a rubber stamp for wealthy corporations, and that it may be nearly impossible to tell if the tax breaks actually produced the types of jobs that politicians promised.

Most of the subsidies were given before Gov. Phil Murphy took office, during the era of former governor Chris Christie.

• See related article: Task Force Probes New Jersey's $11B 'Corporate Gravy Train'
• See related article: New Jersey Activists Blast Christie-Era Corporate Tax Breaks

Wednesday’s update from the Comptroller’s Office took a look at what the agency has done – and what it hasn’t – since the controversy erupted in 2019. Read the full report here.

According to the Comptroller’s Office, the NJEDA has “made substantial progress” over the past three years, including taking steps to verify businesses are actually retaining or hiring the employees they said they would.

But there is much more that can be done, officials added.

“When billions of dollars of public funds are at stake, it’s essential that the NJEDA transparently and regularly report on what has occurred,” Acting State Comptroller Kevin Walsh said.

The comptroller report states:

“What we found was full compliance with 11 recommendations, partial compliance with seven recommendations, and noncompliance with three recommendations. We also found that the NJEDA has not sought to recover substantial amounts of public funds that it acknowledges should be pursued.”

Here are the three recommendations the NJEDA hasn’t adopted, the comptroller said:

• “Develop a process for incentive programs to report on their successes and determine if economic benefits were actually realized.”
• “Require annual reports for incentive program activities that are based on actual performance.”
• “Track administrative costs associated with the tax incentive programs to set fees for businesses to pay so that costs of operating the program are covered.”

“It is easy for a business looking for tax credits to promise results, but harder to deliver,” Walsh said.

“The NJEDA’s movement on this issue is a major positive change that makes it much more likely that the economic incentive programs will succeed,” Walsh said. “So far, there is a pledge and a proposed policy, but the proof will be in the implementation.”

ADVOCATES: THE ‘HONOR SYSTEM’ ISN’T WORKING

Nonprofit advocacy group New Jersey Policy Perspective (NJPP), which has been a vocal critic of the NJEDA tax breaks, offered their own take on the comptroller report.

In particular, the group said there’s a big loophole that needs to be closed: the agency still allows corporations to self-report data on job creation “without independent oversight or auditing.”

“This report shows that, with billions of taxpayer dollars on the line, the honor system is not an appropriate monitoring system,” said Sheila Reynertson, a policy analyst with the NJPP.

“Handing out corporate tax credits based on the promise of ‘job creation’ works only if the state routinely verifies that the jobs are actually created,” Reynertson said. “Unfortunately, no such verification system is in place. Instead, corporations are asked to report their own jobs data without effective oversight or independent auditing.”

“Accountability to the people of New Jersey shouldn’t be treated as an afterthought,” Reynertson said.

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