Benefits of the Urban Enterprise Zone Program Called Into Question by the State

Take a stroll through downtown New Brunswick and the fruits of the city’s Urban Enterprise Zone (UEZ) program are evident.

There’s the recent reconstruction of George Street, the improvements made to Monument Square Park, and the “Clean Team” maintenance workers erasing graffiti, picking up litter and wiping down benches.

You don’t feel like walking? Well, then, catch one of the shuttle buses paid for through UEZ funds that run between the city’s poorer neighborhoods and surrounding areas where many people work.

For years, New Brunswick has been reaping between $900,000 and $1.2 million in UEZ money, according to municipal officials. But the Christie administration’s overhaul of New Jersey’s UEZ program has city officials wondering whether they will be able to continue providing services like the shuttle and the Clean Team.

For consumers and businesses, there won’t be any change in the sales discount available in UEZ districts. Stores in those areas will continue to charge the discounted 3.5-cent tax rate, state officials said.

But the money from sales taxes in UEZ cities like New Brunswick will no longer be going into programs run by municipal officials and overseen by the state.  Instead, sales taxes collected in UEZ districts statewide – about $47 million per year - will go into the state’s general budget fund, according to the Department of Community Affairs (DCA).

The redirection of the money actually began during the previous fiscal year, which ended June 30.

“The local zones did not receive any of the sales tax revenue,’’ said DCA spokeswoman Lisa Ryan. “This was a difficult, but necessary policy decision in the FY2011 budget as a result of the unprecedented fiscal crisis faced by the State. This year, as a result of the need to maintain fiscal discipline in the state budget, local UEZs will not receive any of the sales tax generated in their zones in FY2012.”

That doesn’t mean New Brunswick UEZ program has run out of money, at least not yet. The city’s UEZ account has between $250,000 and $300,000 in unspent funds that were raised in previous years, said Glenn Patterson, the city’s director of Planning, Community and Economic Development.

So the city won’t be able to tap UEZ funds for any more major projects, like the George Street reconstruction, but will continue recurring services, like the shuttle and Clean Team, for the time being.

In 2011, New Brunswick earmarked $125,000 in UEZ funds for the shuttle and $184,000 for the Clean Team, which is also funded through the downtown special improvement district, officials said.

Patterson said the city has enough UEZ money to continue covering the shuttle expenses through the end of this year. “After that, we’ll have to figure it out,’’ he said.

In addition to the leftover money, Ryan said many municipal UEZ program can still tap into so-called “second-generation” funds.

“Second generation funds are monies paid back to the zone by businesses,’’ said Ryan. “For example, a zone lends $100,000 to fund a business expansion. When the business pays the loan principal back plus any interest, it goes directly to the zone as second generation funds for the zone to use for new projects. Statewide, we estimate there to be $30 million in second generation funds in zone bank accounts.”

Legislators and urban advocates have argued that the UEZ overhaul is part of Gov. Christie hard-line approach to cities in this year’s state budget. As other examples they cite the governor’s reduction in state transitional aid to distressed cities from $149 million to $10 million and his rejection of Democrats’ attempt to include an extra $50 million for urban public safety departments.

But the Christie administration has called into question the effectiveness of the UEZ program, which was created under the Kean administration almost 30 years ago. In March, the DCA released a study (http://www.state.nj.us/treasury/pdf/NJ%20Urban%20Enterprise%20Zone%20Program.pdf) that found “no certain quantifiable results” that the program was successful in creating jobs or spurring economic development.

“In the UEZ study that was published earlier this year, zone businesses identified that tax incentives as the most beneficial part of the program,’’ said Ryan. “By keeping the tax benefits, the program preserves the opportunity to retain and add jobs in the zones. “