Noah K. Murray/AP Photo
New Jersey Gov. Phil Murphy during his 2021 budget address, August 25, 2020, at SHI Stadium at Rutgers University in Piscataway, New Jersey
After more than a year of scandals, and new revelations about New Jersey’s corporate tax incentive program, the state’s governor has announced a new, even bigger program to be voted on less than a week after it was announced.
New Jersey plans to renew its corporate tax subsidy program to the tune of $11.5 billion over six years. The program’s advocates say that the incentives, which are tax breaks tied to a certain number of jobs created, bring new businesses and new jobs to the state. But the program has previously come under scrutiny for cronyism and a lack of the regulations that could keep it from running away with the state’s budget.
The move has come fast and with little warning. On December 15, New Jersey Gov. Phil Murphy, a Democrat, announced a new deal to renew the state’s corporate tax subsidy programs, which expired in 2019. The proposal was released to the public Thursday, and lawmakers are fast-tracking the bill, with plans to hold hearings on the bill on Friday and pass it on Monday. Several Democratic state assembly members joined in the governor’s announcement, including Speaker Craig Coughlin. Senate President Steve Sweeney also joined the announcement. Sweeney has long been allied with George E. Norcross III, a major Democratic donor and Camden businessman whose tax breaks under the previous program came under fire. During a recent panel discussion hosted by the New Jersey Bar Association, Sweeney made his preference for big subsidies clear, saying, “At the end of the day, if it’s a big enough cap, then you know I can live with it.”
Murphy’s stance “came as a surprise and it goes against the things the administration has said they believe,” said Brandon McKoy, president of New Jersey Policy Perspective (NJPP), a nonpartisan think tank. “The governor campaigned on the fact that New Jersey over-relied on these subsidies.”
The new program is even larger than the much-maligned program enacted when Republican Chris Christie was governor. Christie set an all-time record for governors in mega-deals, said Greg LeRoy, executive director of Good Jobs First, a government accountability organization; he approved more $100 million deals than any other governor. Though critics acknowledge that Murphy’s bill has upsides—including more job training requirements and caps on tax breaks per job—the overall size of the program, at more than $11 billion over six years, dwarfs any benefits that would come from stricter regulations.
Jon Whiten, former NJPP vice president and an expert on New Jersey economic-development subsidies, noted that he had been pleased with Murphy’s commitment to reining in such incentive programs after watching their explosive growth under the Christie administration. That, however, was then. “A year ago, it seemed like there was widespread agreement that these programs needed to be scaled down,” Whiten wrote in a statement to the Prospect. “This new bill doesn’t do that; in fact, it does just the opposite.”
Under the new proposal, the state is agreeing to forgo $1.4 billion in revenue a year to pay for these subsidies, even though the state’s budget was previously hamstrung by a similar program. The state has already borrowed several billion dollars just to close its budget gap, and now it’s becoming clear the federal coronavirus relief package will not include state and local aid, McKoy noted. “They want to pass this on Monday. So then you just add [to the bill’s deficiencies] a rank disrespect for democratic norms.”
“We saw a sham process like this in 2013—and that resulted in ongoing investigations and a historic New Jersey political scandal,” said Sue Altman, director of the Working Families Party of New Jersey. “This deal violates fundamental principles of good government and transparency, while devoting money the state does not have to pad the pockets of corporations and prop up a cottage industry of politically connected consultants and attorneys.”
“If ever there was a state that should have a full [democratic] process for a tax subsidy program, it’s New Jersey,” said LeRoy.
McKoy added that the move also sets a poor precedent for Murphy’s successors and normalizes a policy that has in the past severely crippled the state’s budget. Despite the fact that the Economic Development Authority may be run competently under the Murphy administration, it may not be under a future administration, clearing the way for unnecessary corporate tax breaks. Murphy’s bill does include some green-energy investments and brownfield development, where buildings are constructed on previously developed land, but critics say this is just a small part of a tax break program for corporate giants.
“New Jersey has really been an exemplar this year in positive progressive tax policies, with their millionaire’s tax and extension of the Earned Income Tax Credit—which are really the best ways of raising money from the people who are making money right now and delivering aid to the people who need aid right now,” said Dylan Grundman O’Neill, senior state policy analyst at the Institute on Taxation and Economic Policy. “So this big corporate subsidy package really seems to fly in the face of that and walk back a lot of the progress that they’ve made this year.”
Critics of these incentives have long argued that corporate tax incentives are not the best way to usher in development or growth.
“Good government groups and grassroots activists have fought for years to rein in and reform New Jersey’s runaway corporate tax subsidy program,” McKoy added in a statement. “While this bill includes important oversight and independent review provisions to help prevent fraud and abuse, those safeguards are completely undermined by the bloated $11.5 billion price tag.”
LeRoy agreed. Just because the program has added safeguards to make it more transparent, he argued, adding clawbacks for subsidies given to companies that don’t hold up their end of the bargain by failing to provide job training or meet the local hiring requirements doesn’t make it a good program—especially if the price tag is enormous and it’s rushed through without adequate public oversight.
“The scale of this is really absurd, and it just threatens those good protections because if you’re going to have such a high scale, you’ll invite more applications,” McKoy told the Prospect.
Last year, advocates were hopeful that a deal between Kansas and Missouri to scale back “wasteful” corporate tax incentive programs that pitted one state against its neighbors would inspire a sea change in New Jersey. At the time, Murphy expressed openness to a similar “truce” with New Jersey’s neighbors and competitors, Pennsylvania and New York. Critics of these incentives have long argued that corporate tax incentives are not the best way to usher in development or growth. Companies first look to state amenities such as public transportation and investment in public education, before they consider tax incentives as a reason to relocate.
“[Corporate tax incentives are] a really discredited part of economic policy,” LeRoy said. “This is exactly not what states should be doing right now.” He pointed out that the argument that such a policy works as an economic stimulus during a recession is bogus. “In a recession, the use of incentives is not counter-cyclical. The incentives are structured so that companies earn them by investing and hiring, but [companies] aren’t doing that in a recession. It’s during a recovery or growth period that they hire.”
