New Jersey Squandered $11B On Corporate Tax Breaks: Governor

Over the past 14 years, New Jersey has given out nearly $11 billion in tax breaks to corporations. But it may be almost impossible to tell if the economic gambit has actually produced the types of jobs that politicians promised, a recent state report says.

On Wednesday, the Office of the State Comptroller released an eye-catching report about the gargantuan tax incentives being offered to private corporations by the New Jersey Economic Development Authority (NJEDA).

Done at the request of a Jan. 19 executive order from Governor Phil Murphy, the report offers the following numbers:

“As of February 2018, the NJEDA reported 1,000 approved projects (also referred to as incentive awards) under its various incentive programs. Applicants projected that those projects would create an estimated 161,804 new jobs, retain 80,027 jobs and include anticipated capital investment of approximately $34 billion. The NJEDA approved nearly $11 billion in tax credit incentives for those projects.”

However, there’s one big problem, state auditors found… it’s virtually impossible to tell what types of jobs have been created or retained due to the NJEDA’s byzantine reporting requirements.

“This is critical given that, in many cases, awards are tied, not only to the fact that a job was created or retained, but that it was created or retained in a particular category or sector,” auditors wrote.

In addition, the NJEDA may have improperly awarded $179 million in incentives and overpaid them by $6.6 million, auditors claimed. (Read the full report here)

• See related article: New Jersey Keeps Doling Out Huge Tax Breaks To Corporations

Murphy pointed out that the NJEDA’s corporate tax incentive programs saw $8 billion doled out during the administration of his predecessor, Chris Christie.

“The ineffectiveness of how the state’s tax incentive programs were structured and managed has now been laid bare for the eyes of New Jersey taxpayers, and a full accounting of how as much as $11 billion was squandered is now required,” Murphy declared on Wednesday.

Murphy – a former banking executive with Goldman Sachs who received heavy contributions from labor unions during his campaign for governor – said that there is a role for tax incentives in economic development, but they must be “targeted and closely monitored” as part of a broader investment strategy.

Those investments could include mass transit, public education, infrastructure, and workforce development, Murphy suggested.

“Needless to say, the audit sadly shows that vigilant monitoring of job creation was sorely lacking,” Murphy said in the wake of the comptroller audit. “I look forward to working with the Legislature to encourage state investments in high-growth sectors, support our entrepreneurs and small businesses, and use tax incentives in a sensible, fiscally responsible manner.”

During his tenure as governor, Murphy has advocated in favor of Teva Pharmaceuticals USA, which the NJEDA gave a $40 million, performance-based tax break to move its U.S. headquarters from Pennsylvania to New Jersey, despite multiple lawsuits accusing it of contributing to the national opioid crisis.

Murphy also supported the idea of giving Amazon $5 billion in state tax breaks to locate its headquarters in Newark, a bid that the city ultimately lost.

• See related article: Amazon Officially Passes Up Newark, NJ For New Headquarters
• See related article: NJ Gives $40M Tax Break To Pharma Co. Accused Of Pushing Opioids

On Thursday, Senator Mike Doherty (District 23) said that he's "exploring all legislative options to ensure every subsidy that was wasted in this corporate welfare scheme is returned to our taxpayers."

"While millions of New Jersey residents were struggling to cope with the highest property taxes in the country, the state was handing out millions in tax breaks, and getting little in return,” said Doherty, a Republican. “As far as I’m concerned, any company that claimed tax breaks and failed to keep their promise to use that money to create jobs has committed tax fraud. The lack of oversight at the EDA is appalling."

Story continues below video.

WHO’S GOTTEN TAX BREAKS FROM THE NJEDA?

Some of the corporations that have been approved for recent tax breaks from the NJEDA include:

• JP Morgan Chase - 10-year, $188 million tax break if the company agrees to move more than 2,000 banking jobs from New York to Jersey City
• Pearson Education - $83 million tax break to move 628 employees from Bergen County to Hudson County
• Jaguar-Land Rover North America - $27 million tax break to stay in New Jersey
• Newell Brands - $27 million in tax incentives over a 10-year period to relocate to Hoboken
• Vitaquest International - $29.4 million, 10-year "Grow New Jersey" award to move its manufacturing operations and 110 employees to Paterson
• iCIMS, Inc. - 10-year, $38 million tax credit to relocate to Holmdel's former Bell Labs headquarters
• The Four Corners Millennium Project - $50 million in tax breaks for a development project near Newark's Broad and Market streets

MOVING FORWARD: MURPHY’S PLAN

On Wednesday, Gov. Murphy offered a five-point plan to “enhance the state’s claim to the innovation economy, and make the economy both stronger and fairer for all New Jersey residents.”

• NJ Forward: A jobs-based incentive program capped at $200 million per year designed to increase flexibility for smaller, high-growth companies as well as larger firms in targeted industries.
• NJ Aspire: A gap-based financing tool awarded twice annually and capped at $100 million per year to support real estate goals centered around the innovation economy targeted to urban, transit-rich downtowns.
• Brownfields: A competitive credit capped at $20 million per year to catalyze more environmental remediation projects and increase job creation and economic development.
• Historic Preservation Tax Credit: A new tool for place-based economic development with projects evaluated by EDA, DEP, and DCA and capped at $20 million annually.
• NJ Evergreen Innovation Fund: A $500 million effort that will raise funds over five years by auctioning off state tax credits and will build partnerships with the state and private venture capital funds to co-invest in New Jersey startups.

TAX BREAKS IN NEW JERSEY: EXPERTS WEIGH IN

On Wednesday, several Garden State groups weighed in on the audit – and how to move forward.

New Jersey Business & Industry Association (NJBIA) President Michele Siekerka - “State tax incentive programs for businesses of all sizes should be an important part of our overall economic strategy to make New Jersey competitive and affordable. That said, NJBIA has always supported transparency and sufficient monitoring of these programs to ensure that the state is getting the most back for its investments. We believe that responsible tax incentives still play a key role in our economic development strategy and to attract and retain both our large and Main Street businesses, which need to contend with our extremely challenging business climate, high taxes and costly mandates in New Jersey. We do have concerns that imposing a cap for a jobs-based incentive program will strike at our regional competitiveness. We hope the state will reconsider these limitations moving forward, while administering its tax incentive programs with the appropriate and effective monitoring and oversight.”

Sheila Reynertson (Senior Policy Analyst, New Jersey Policy Perspective) – “Today’s audit of the EDA is the latest in a long line of findings, both by state government and independent organizations like NJPP and McKinsey, that New Jersey’s lavish corporate subsidy programs operate with little oversight and no evidence of spurring economic growth. Every New Jersey taxpayer should be furious knowing that the state has handed out billions of dollars in corporate tax breaks — with no real strings attached — while simultaneously cutting funds for public schools, NJ Transit, and state colleges and universities. The state’s failure to produce annual reporting, as required by law, is an insult to taxpayers who expect state dollars to be sufficiently monitored. The lack of oversight and monitoring undermines the integrity of a tax subsidy program, and more importantly, trust in state government. By their very design, the state’s incentive programs favor corporate interests over the well-being of the state’s economy and its working families. The need for robust reform of corporate subsidy programs has never been clearer, and the proposals outlined today by the Governor are a critical first step in the right direction. Specifically, the state should place strict annual caps on the state’s largest subsidy programs as a mechanism to improve accountability and oversight.”

Labor Union Leaders (joint statement, see below): “Today’s report is jarring, but not surprising. For years, we've heard elected leaders claim New Jersey's public workers are to blame for our state’s fiscal problems. Recently, some legislators even claimed that middle-class workers earning modest retirement benefits will ‘squeeze out’ spending on critical social programs and education. This report is yet another reminder of the actual truth: The real reason our state's financial future is in peril is that, for far too long, New Jersey has showered politically-connected corporations and the super-wealthy with taxpayer-funded hand-outs. This $11 billion could have gone towards so many worthy endeavors – funding education, property tax relief, essential services, retirement security for public workers, roads, bridges, NJ Transit and so much more. Instead, it went into the pockets of already-profitable corporations. We call for an immediate suspension of any grants or awards until legislation ensuring oversight and a fair deal for taxpayers can replace the current, rigged system of corporate welfare. Furthermore, we request an immediate investigation from appropriate law enforcement agencies to determine if laws have been broken, as well as action to reimburse taxpayers for any incentive or grant awarded that violates the public trust. Finally, we call on legislative leadership - from both parties - to acknowledge that attacks on middle-class workers who work hard every day providing services to our state must stop, while we instead examine and rectify the serious policy mistakes that have been made in this area.” (CWA NJ State Director Hetty Rosenstein, ATU NJ State Council Chairman Ray Greaves, ATU International President Lawrence J Hanley, AFSCME NJ Council 63 Executive Director Steve Tully, IFPTE Local 194 President and President of the Hudson County Central Labor Council Barry Kushnir, IFPTE Local 195 President Tim Rudolf, Newark Teachers Union President John Abeigon, Union of Rutgers Administrators, AFT Local 1766 President Christine O'Connell, Council of State College Presidents Tim Haresign)

READ >> 5 Questions With New Jersey's EDA Head: Murphy, Economy, Business

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Infographics: NJ Office of the State Comptroller