This week, NJBIZ talked to Economic Development Authority President Tim Lizura about the Economic Opportunity Act of 2013's hits and misses in its first year of implementation since being signed into law by Gov. Chris Christie last September.
Lizura talked about how the law has been able to drive investment to New Jersey’s “targeted communities” and give new life to its manufacturing base. At the same time, Lizura said the streamlining of five former incentive programs into two under EO13 hasn’t proven to be as straightforward as he would’ve liked it to be.
So, how do some of the state’s other government, business and policy leaders feel about EO13’s performance in the last year?
NJBIZ reached out to New Jersey Business Action Center Executive Director Lauren Moore; Sills Cummis & Gross real estate attorney and EO13 architect Ted Zangari; and Jon Whiten, deputy director for liberal think tank New Jersey Policy Perspective, for differing perspectives and opinions on the law.
NJBIZ: How would you grade EO13's performance in its first year?
LM: The Business Acton Center has seen a tremendous increase in the number of incentive proposals we generate, along with a substantial amount of inquiries from businesses who want to know more about New Jersey as a business destination. In my view, this uptick in interest is a direct result of the Economic Opportunity Act of 2013. These incentives are game-changing and have helped to make New Jersey more competitive with other states. Further, the Economic Opportunity Act allows us to deepen our conversations with business executives about choosing New Jersey for business location decisions.
TZ: I would give EO13 an ‘A-.’ The Grow NJ program has lived up to its potential as the ‘Goldilocks’ incentive — not too generous, not too stingy, but enough money to close or sufficiently narrow N.J.’s cost differential with competing states.
JW: It depends on how you judge it. If performance is judged solely by the law’s ability to, as one lobbyist described it recently, ensure that ‘business is the customer, and, as in retail, the customer is always right,’ then it gets an ‘A.’ If, however, performance is judged on how well it is serving New Jersey’s economy, its taxpayers and future generations, it has — as we predicted a year ago — mostly been a failure as it has taken the state’s historic surge in subsidies to unprecedented levels while removing some vital safeguards.
In just 10 months, New Jersey has OK’d $1.5 billion in incentives under the EOA — an average of $157 million per month, more than double the very high rates we saw earlier this decade. At the same time, the amount of tax breaks the state is awarding for each job has also skyrocketed, to $74,851 per job. In other words, companies so far under the EOA have been getting close to twice as much per job created or retained as they were earlier this decade, and about five times as much per job as they were in the 2000s.
NJBIZ: What has been the law's greatest accomplishment thus far? Biggest failure?
LM: N.J. is now a part of the conversation as a business location. This new tool allows us to be aggressive in a very competitive environment when creating and retaining jobs. In addition, it has done a tremendous job of leveling the interest for companies looking at both North and South Jersey and has allowed for greater geographical balance in the scope of economic development projects. Our South Jersey region is now much more competitive in (the) Greater Philadelphia market. …
Growing and retaining jobs is an ongoing process, and there is always room for improvement. The BAC along with the Partnership for Action team will continue to bring our experience with the business community into the important conversations when it comes to business retention, expansion and attraction ‘tools.’
TZ: The Grow NJ incentive is now sized and scaled in a way that allows our state to compete with Sun Belt states — something that never happened before except in the case of the Urban Transit Hub megaproject incentive. The law has a few shortcomings, but nothing that I would characterize as a failure.
JW: The EOA’s greatest accomplishment is that it so far hasn’t exacerbated one troubling trend we’d seen in recent years: the increasing focus on keeping ‘at-risk’ jobs in the state. That’s not surprising, since one of the positive elements of the legislation was that, in most cases, it made job-shifting within the state less lucrative than bringing jobs here from out of state. Under the EOA, the share of subsidy-related jobs that are already in New Jersey and just being ‘retained,’ at 43 percent, has not substantially increased since the early part of the decade. It is worth noting, however, that this remains a very high share and is nearly double the percentage seen in the 2000s. …
The EOA’s biggest failures can be distilled into a few main points: 1. It has doubled down on the singular strategy of using tax breaks to grow the state’s economy — despite the fact that these types of incentives are known to be a zero-sum game and often end up subsidizing activity that would have happened anyway. 2. As noted in recent bond offerings, it has already threatened to stunt the growth of corporate business tax revenues at a time when New Jersey faces a dire fiscal crisis and can’t currently meet its legal obligations and pay for its essential services. 3. It has unnecessarily put the taxpayers at risk by using a net benefits test that is completely divorced from reality.
The $260 million award for Holtec is a good example. The tax break was approved because the EDA estimated that there would be a net economic benefit of $155,520 to the state over 35 years. Yet under the terms of the incentive, the company is only required to stay in New Jersey for 15 years. After that, it can leave without any penalty. If Holtec stayed for only 15, 25 or even 30 years, that slim economic benefit would turn into a loss of as much as $149 million — and that’s if the EDA’s assumptions about economic growth and trends will hold over three and a half decades (think back to 1979 and that becomes a big question mark).
So while subsidy supporters like to say that the net benefits test ensures that there is no taxpayer risk in these incentive deals, that’s clearly not the case, as the details of the Holtec deal show.
NJBIZ: What needs to be addressed, whether through follow-up legislation or dialogue, as the law heads into its second year?
LM: Successful economic development requires collaboration and partnerships. We really want to engage all levels of government throughout the State. Engaging all levels of government will help us to broaden our partnerships and engage in conversations that will help create viable economic development opportunities throughout the state.
TZ: It would be great if the Grow NJ program could do more to promote, through bonuses, the recruitment of headquarter operations and manufacturers as well as the hiring of military veterans. Having said that, I think policymakers should now ease up on changes to the program and give Choose NJ and the private sector an opportunity to sell this powerful new recruitment and retention tool.
JW: There are a number of things the state should do to right the course a bit and begin steering our economic-development policy platform back towards reality. Here are three that policymakers should consider immediately: Returning meaningful spending caps to the incentive programs; revising the net benefits test to rely on more realistic economic projections; and providing a thorough accounting of the outcomes of these incentives, as required by a 2007 law that’s never been implemented.
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