January 22, 2018; NJ Spotlight
Just days after being inaugurated as New Jersey’s governor, Phil Murphy signed an executive order that calls for “the Office of the State Comptroller to begin conducting a full-scale performance review of the incentive programs, with an eye toward evaluating whether they truly generate the type of job creation and economic growth that was regularly touted during the tenure of Republican Chris Christie,” writes John Reitmeyer in NJ Spotlight.
New Jersey’s action is the latest of a series of communities that have started to react against the rising cost of economic development incentives. Earlier this month, NPQ highlighted a vote of the Metro Council of Nashville to require “firms seeking economic development incentives to ‘disclose details like how many county residents they’ll hire, the wages they’ll pay and whether they’ve had any safety violations in the past,’ before the Council votes up or down on the request.” Last fall, NPQ also covered a vote of county commissioners in Buncombe County (which includes Asheville) to shift funds from economic development incentives to finance a small business loan program and expand preschool education.
But the action in New Jersey, home to an estimated 9 million people, marks a new level of prominence of efforts to rein in incentives. As NPQ has noted before, economic development incentives can reduce state tax collections by billions of dollars. (In Tennessee, for example, the cost has been $2.1 billion over the past decade.) Reducing these costs could free up resources that might not only benefit nonprofits, but also better meet public needs.
Greg LeRoy, director of Good Jobs First, a nonprofit advocacy group, has noted that state and local taxes are about 1.8 percent of a standard company’s cost structure—which does not mean that companies won’t seek to reduce costs further if they can. Other factors, LeRoy adds, such as strong universities (often of course supported by state tax dollars) are more important.
Reitmeyer notes that tax incentives in New Jersey in the past eight years ran about $8 billion—or $1 billion a year. This does not include tax incentives, which some have estimated as high as $7 billion, that New Jersey has offered Amazon to site its second headquarters in Newark.
Of course, economic development incentives have often been favored by both Democrats and Republicans, as the latest round of offers among the “top 20” cities named by Amazon indicate. While Newark is the highest at $7 billion, other municipalities known to be offering $1 billion or more in tax incentives to Amazon include Atlanta ($1 billion), Chicago ($1.7 billion), Philadelphia (at least $2 billion), Columbus, Ohio ($2.3 billion), and Montgomery County, Maryland ($5 billion).
In New Jersey, Reitmeyer elaborates, the order regarding the state’s tax-incentive programs “requires a review of the Grow New Jersey and Economic Redevelopment and Growth programs administered by the New Jersey Economic Development Authority (EDA). The audit will include an evaluation of the economic benefits that were realized versus those projected going back to 2010.”
“This Executive Order ensures that we make critical tax incentive decisions based on the facts, and that we always look toward a real return on our investments,” Murphy said. According to Reitmeyer, “The results of the audit will be due before the end of the year.”
Reitmeyer points out that Murphy is not the first to criticize New Jersey’s economic incentives. State Auditor Stephen Eells, for example, released a report a year ago that questioned “how well the state’s largest program, Grow New Jersey, is serving economic development.” The report also “took issue with how well New Jersey officials hold companies accountable when they obtain tax credits.” A report by McKinsey & Co released last summer, Reitmeyer adds, “suggested the state could get more bang for its buck by redirecting the tax-incentive programs to fostering more growth of startup companies and emerging small businesses.”
Murphy’s executive order indicates that the performance review will “both inform the public about the EDA’s operations and assist lawmakers in their deliberations as to whether these programs should be reauthorized when they expire on July 1, 2019.” The audit, says Reitmeyer, will also seek information “on the types of jobs that have been created, including salaries, wages, and benefit levels, as well as the locations within the state where these jobs have been created.”—Steve Dubb