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NJ's Long Con - A Peril to Trenton's New Administration

The Trenton Times has a good editorial today. Titled “N.J. $82M[illion] incentive to bring 76er practice facility to Camden is purely for show,” the piece uses the specific example of the aforementioned incentive granted to the Philadelphia 76er basketball team over the next 10 years to make a larger point about the worrisome trend over the last several years of massively increased subsidies and incentives paid to NJ companies in order to keep them in New Jersey:

[C]oaxing the team across the Ben Franklin Bridge showed New Jersey has what it takes to do attract a marquee sports name and its billionaire owner.

What it takes is simply money, and the state has spent far too much placating businesses that threaten to leave the state. Since 2010, New Jersey’s Economic Development Authority has awarded 252 companies more than $4 billion in subsidies — tax breaks and credits. That’s more than triple the amount awarded over the previous 13 years.

That expensive and preferential treatment extended to approximately 1 percent of corporations in the state is not paying off as well as it should. A study by the think tank New Jersey Policy Perspective (NJPP) finds the policy to be largely unsuccessful in boosting the state’s economy with the value of a job tied to a subsidy award rising to $48,000, “leaving companies on the hook for far fewer jobs on a per-dollar basis than ever before.”

The report to which the Times refers, prepared by New Jersey Policy Perspective, provides a great deal of information about the explosive growth of the state’s tax incentives and subsidies over the last several years under the Christie Administration. In the decade of the 2000s, the value of incentives granted to corporations totaled about $1.2 Billion. In the current decade, that figure is up to $4 Billion so far, and that’s for barely more than 4 years!

This total represents tax revenue lost to the state, contributing greatly to the budget crisis the state is experiencing. To make up, in great measure, for the tax giveaways to a mere 1% of the state’s companies, the Christie Administration has resorted to deep cuts in the state’s budget such as the huge reduction announced last month in the state’s pension payments for public employees.

As bad as the budget squeeze has been, this massive tax giveaway isn’t even benefiting NJ. According to NJPP, the state’s economy is still a basket case:

The unprecedented growth in subsidies, however, has so far done little to significantly improve the state’s economy. Four and a half years into the surge, New Jersey’s economic recovery remains far behind that of its neighboring states and the nation. Just 40 percent of the jobs New Jersey lost in the recession have been recovered (including only 48 percent of private-sector jobs); the state has the highest share of workers who have been unemployed for more than six months; and New Jersey continues to lead the nation in the percentage of homeowners (one in twelve) who are in foreclosure.

The NJPP paper points an accusatory finger at the “Economic Opportunity Act of 2013,” passed by the Legislature last year and signed by the Governor, as a major culprit  in its words of  “opening the floodgates” of NJ subsidies:

[T]he law dramatically expanded the reach of New Jersey’s subsidy programs, increased the total subsidy amount any one company could receive, created more generous award amounts than the old programs provided for comparable projects and removed most caps on the subsidies (a $600 million cap is in place on residential redevelopment projects, but none exists for jobs-related subsidies or commercial redevelopment projects).

This major critique of the state’s incentives is bad news, then. What’s the Trenton angle?

First off, historically when New Jersey gets a cold, Trenton catches pneumonia. Anything which negatively impacts the state as a whole will hurt Trenton even more. The City’s economy is much more fragile than the state as a whole, and dependent on state aid to balance its books and provide needed services. When NJPP says “the state has the highest share of workers who have been unemployed for more than six months,” you know that the percentage of Trenton’s citizens is much, much higher than the rest of Jersey.

Even harsher, though, is the direct impact of the “Economic Opportunity Act of 2013.” The proponents of this legislation made a lot of claims about the great benefits of this law, claims that now look more than a little hollow. However, for Trenton and a handful of other towns around the state, the law was guaranteed to have a negative impact on the finances of this town.

Readers of this space will recall that I talked about this impact a few times several months ago. I quoted the official analysis prepared for the Legislature by the NJ Office of Legislative Services that explicitly stated the program “will result in significantly reduced property tax revenues” [Emphasis mine – KM] for Trenton and a handful of other towns, as the City will lose the benefit of local tax revenue from major new commercial development financed from these programs for most of 20 years!

So, to recap. A policy of massive tax gifts and subsidies to corporations that was supposed to boost the fortunes of the state is not helping, as New Jersey badly lags behind the rest of the country in economic recovery.

And this policy is also designed to lose Trenton money. for years to come.

I mention this because our City Council unanimously signed on to this program in December of 2013. Several members of Council expressed serious misgivings then on participating in a program that even at the time looked to be of dubious value to the people and fortunes of this City. This needs to be close to the top of the City’s agenda going forward for the next several years. Unless there are revisions to the terms of the City’s participation in the programs established in the Economic Opportunity Act of 2013, we could be victimized yet again.

In the 1990’s and 2000’s Trenton saw a number of big programs and property developments that were supposed to boost the City. But after decades of things like Regional Contribution Agreements, Arenas, Hotels and Stadiums, we can see how all those turned out.

Many of the same individuals who at the time promised many great things for Trenton from these very things – including Doug Palmer, Robert Prunetti and Brian Hughes – are reported to be advising the incoming Jackson Administration during its transition into office next month. Their counsel frankly might not be the best to warn us away from the perils facing Trenton from this new program, based on past experience.

And with corporate beneficiaries of this program such as Robert Torricelli’s Woodrose Associates on board as campaign contributors and supporters of Mayor-elect Eric Jackson, there are more than enough players involved who might distract distract the City and its leaders from the best interests of Trenton’s citizens and taxpayers.

The Trenton Times and NJPP tell us today that the State is spending Billions of Taxpayer dollars on corporate giveaways of dubious economic value to the State as a whole. For Trenton, these giveaways might be little more than a long confidence game from the State, offering us more of the same snake oil we’ve been sold for decades, contributing to the City’s ongoing misery.

1 comment to NJ’s Long Con – A Peril to Trenton’s New Administration

  • Michael Smith

    Whether a tax credit,tax deduction,tax incentive or anything in between if it helps people keep more of their money in their pocket it’s a good thing. Unfortunately the business and economic climate created by New Jersey politicians state and local make it necessary to literally pay company’s to locate or do business here in New Jersey. Hence the problem is much bigger than the mere dispensing of tax incentives and subsidies This matter is correctly called corporate welfare and a wealth redistribution scheme…..Republicans love welfare too. Democrats get with the programs for a piece of the action….Who passes up the opportunity to appear beneficent while using other peoples money?