Gov. Phil Murphy speaks during a recent briefing. — Courtesy: Governor’s Office
By Joshua Burd
A bill to create a sweeping new program of business and development incentives in New Jersey is awaiting Gov. Phil Murphy’s signature after being passed by state lawmakers on Monday.
The framework, which was announced last week by Murphy and Democratic leaders in the Legislature, calls for a seven-year, $14 billion bank of tax subsidies that would support everything from urban renewal and tech startups to attracting large corporate employers. The governor is expected to sign the bill, which follows a two-year battle in Trenton.
Leaders of commercial real estate and other industries urged Murphy to do so after having grappled with the lapse of New Jersey’s previous incentive programs 18 months ago, ongoing competition from other states and, more recently, the pandemic.
“Now is the time for New Jersey — a high-cost, high-tax state — to do all it can to position itself as the best option for businesses,” said Michael McGuinness, CEO of NAIOP New Jersey.
Known as the New Jersey Economic Recovery Act of 2020, the 249-page bill outlines new tax incentives to replace programs that were popular among developers and brokers. It also expands or creates new subsidies for film and television production, revitalizing brownfields and assisting so-called food deserts, among other areas, all while creating financial caps and oversight for the programs and the state agency that manages them.
Among the proposals is the new Emerge program, which provides tax credits to encourage economic development, job creation and the retention of significant numbers of jobs in imminent danger of leaving the state, according to the bill. The program, which would effectively replace the defunct Grow New Jersey program, will target businesses that build, acquire or lease space in the state with plans to create or retain full-time jobs.
Eligibility is subject to a host of provisions, including a requirement that the award of tax credits, the resulting capital investment and the resulting job creation or retention will yield a net positive benefit to the state ranging from at least 200 to 400 percent, depending on the location. Emerge also has minimum requirements and adjustments for the necessary capital investment based on the type of project, the size of the business, the types of jobs at stake and other factors.
McGuinness said the program would help office properties in New Jersey, noting that many employers are re-evaluating their needs and reallocating space on a regional basis, as they consider that work-from-home and hybrid work arrangements are here to stay.
“Passage of this incentives bill before the end of this financially devastating year could not be more welcome or timely,” he said. “It is the culmination of 18 months of hard work and collaboration and guarantees that New Jersey sees a 200 to 400 percent rate of return on every dollar invested by the new Emerge program. Like the arrival of the COVID vaccine, this bill will be a booster shot for New Jersey’s economy.”
Tax credits under both Emerge and a second program, Aspire, are subject to a combined $1.1 billion annual cap for six years, according to the legislation. The bill also calls for the $1.1 billion annual cap to be split so that up to $715 million of tax credits will be for projects located in 14 northern counties and $385 million for projects in seven southern counties.
Aspire, the successor to the Economic Redevelopment & Growth program, or ERG, will provide gap financing to development projects that would serve a public policy goal but would generate a below-market rate of return. Additionally, the proposal outlines different provisions for commercial and residential projects, providing bonuses or looser requirements for those that serve distressed or targeted communities, along with transit-oriented development and affordable housing.
The bill would also allow the Economic Development Authority, which oversees tax incentives, to review each project’s performance and reduce the amount of the subsidy if it determines that the financing gap is smaller than determined at board approval. If there is no project financing gap, then the developer would forfeit the incentive award.
The New Jersey Economic Recovery Act of 2020 — which was passed overwhelmingly on Monday by the Senate and Assembly, despite concerns about being fast-tracked — follows a fierce debate over the breadth and the legacy of incentive programs that ballooned under former Gov. Chris Christie. The controversy divided Democrats in Trenton, with Murphy ordering an audit of the programs that ultimately raised questions of mismanagement and alleged abuse by the EDA during the Christie administration.
The new program agreed upon by Murphy and legislative leaders last week would help subsidize a host of other initiatives, including:
- Historic property reinvestment — providing tax credits for part of the cost of rehabilitating historic properties in the state, with a cap of $50 million annually for six years;
- Brownfields redevelopment — providing tax credits to compensate developers of redevelopment projects located on polluted sites for remediation costs, with a cap of $50 million annually for six years;
- The New Jersey Innovation Evergreen program — auctioning tax credits for cash, which will be used to invest in startups and other innovation-focused businesses, with a cap of $60 million annually for six years;
- Food desert relief — providing tax credits in order to incentivize businesses to establish and retain new supermarkets and grocery stores in underserved communities, with a cap of $40 million annually for six years;
- Community-anchored development — providing tax credits to anchor institutions to incentivize the expansion of targeted industries in and the continued development of certain areas of the state, with a cap of $200 million annually for six years;
- Main Street recovery — providing grants, loans and loan guarantees to small businesses, with an appropriation of $50 million under the bill;
- Film tax credits — amending existing programs to include provisions for so-called New Jersey film partners and New Jersey film-lease partners and allowing an additional $200 million of tax credits annually over 13 years
Proponents of smart growth and place-based planning praised the policy goals that the legislation would look to support.
“New Jersey Future applauds the Legislature, Governor Murphy and his administration for presenting a comprehensive package of economic incentives that recognizes that place matters,” said Peter Kasabach, the organization’s executive director. “Place-based economic development requires careful targeting, comprehensive planning, and a recognition that creating walkable, mixed-use, diverse, equitable places is a cornerstone of economic growth, and this legislation puts us on track to achieve a New Jersey in which everyone can thrive.
“We are pleased to see that virtually all of our smart growth recommendations have been incorporated into the bill and that there is a strong recognition that government subsidies can and should be directed toward places where we want and need growth.”