By Joshua Burd
New Jersey’s use of tax incentives drew harsh criticism from a new audit by a state watchdog agency, but commercial real estate leaders say they welcome the scrutiny — and see it as a step toward updating and renewing the programs later this year.
In a series of findings released Wednesday, the state Comptroller’s Office criticized the Economic Development Authority for its oversight of incentives such as the Grow New Jersey and the Economic Redevelopment and Growth programs. Among other conclusions, the audit found the EDA “lacks an adequate monitoring system” to assess whether a recipient is creating or retaining the jobs that are tied to an incentive package, which in turn prevents the agency from providing “accurate and reliable” results to assess the programs’ effectiveness.
Specifically, the comptroller faulted the EDA for relying on recipient certifications about job creation “without any independent verification of the data with supporting documentation or confirmation” from other state agencies. The authority also has failed to require employment information from a company at the time of its application for the incentive programs, the report said, “making it impossible to assess whether the awardees created or retained the jobs” after the award.
“These deficiencies weaken EDA’s ability to perform adequate and appropriate monitoring of a recipient’s performance and further impact its ability to ensure the transparency, integrity and accountability of the incentive awards,” the comptroller’s report states. “In addition, these deficiencies resulted in the approval of incentive awards that were not thoroughly assessed for program eligibility pursuant to statutory requirements.”
Longtime critics of the subsidy programs were quick to highlight the 72-page report, which comes less than six months before the Grow New Jersey and ERG programs are set to expire. But NAIOP New Jersey, the commercial real estate development association, reiterated its support for incentives and the need to update the programs before they sunset.
“It’s perfect timing, quite honestly, because I think it works well with a (new) generation of incentives that have to reflect today’s market realities,” said Michael McGuinness, NAIOP New Jersey’s CEO.
He added that he anticipates that “a meeting of the minds will happen during the spring” among the governor’s office, lawmakers and private-sector stakeholders on how to improve the programs, but cautioned that “we will need to proceed carefully, since the market and investors outside of New Jersey will be closely watching how the process evolves.”
“We cannot be shortsighted, as these investments take time to mature and bear fruit and are truly transformative for many communities,” McGuinness said, noting that a robust incentive package was part of the reason Amazon selected Newark as a finalist for its second headquarters last year.
In the meantime, McGuinness said NAIOP New Jersey “welcomes these findings as a demonstration of the good managerial practices and fiscal prudence needed to ensure the accountability and effectiveness of an organization.”
Gov. Phil Murphy, who ordered the audit after criticizing the programs as a candidate in 2017, on Wednesday blasted former Gov. Chris Christie for the lack of oversight and seemingly for the volume of tax breaks awarded under the Christie administration. But he also vowed to make the incentives more precise and part of a broader economic development strategy, reiterating part of economic plan that he unveiled last fall.
The comptroller examined 48 projects as part of its audit, including six that were provided by the EDA as examples. From that sampling, the comptroller suggested the authority improperly awarded incentives of $179 million, overpaid incentives of $6.6 million and over-certified incentive awards totaling $5.2 million. The report also cited 2,993 jobs that were not substantiated as having been created or retained.
“While acknowledging that our performance audit examined only a sample of incentive grants across the five programs, the number and frequency of the exceptions noted suggest that the issues that were identified exist throughout the five programs and, at the very least, warrant systemic changes within EDA to address OSC’s findings,” the report stated.
“In many — but not all — instances, EDA agrees with our findings and notes certain areas where change has already begun but disputes certain findings as well.”
The agency did in fact push back on several of the findings.
“(As) it relates to economic impact and program results, there is an important distinction between the NJEDA Board’s approval of an application and the actual realization of an award of tax credits,” CEO Tim Sullivan, Murphy’s choice to late the agency last year, wrote in the EDA’s response. “Of the approximately $8 billion NJEDA has approved for projects under the (Urban Transit Hub), ERG, and GrowNJ programs, less than nine percent has actually been paid out to date.
“The NJEDA appreciates the recommendations provided by OSC given this is a pivotal time as the ERG and GrowNJ programs sunset in July 2019. To that extent, and under new leadership beginning in late February 2018, the NJEDA has already begun to take significant actions to ensure the utmost transparency and due diligence is exhibited for all legacy and future programs.”
