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Testimony on New Jersey Economic Development Authority and Tax Incentive Programs

Feb 11, 2019 by AFP

Monday, February 11, 2019, 10:00 AM
Senate Economic Growth Committee
Assembly Commerce & Economic Development Committee
Committee Room 4

Dear Chairwoman Cruz-Perez, Chairman Johnson, and Members of the Committees:

Thank you for the opportunity to speak today.  My name is Erica Jedynak and I am the New Jersey State Director of Americans for Prosperity.  As one of the largest grassroots organizations in the nation, Americans for Prosperity (AFP) is dedicated to educating citizens on how free market policies lead to more New Jersey residents living their version of the American dream.

AFP is committed to standing up for the people of New Jersey and against corporate handouts.  As such, one of our priorities is decreasing and eliminating cronyism.  New Jersey is one of the worst states in the nation when it comes to the practice of picking winners and losers—giving special handouts to a favored few and leaving everyone else to pay the price.  Too often, the winners are special interests who lobby for tax breaks while the losers are hardworking people and small businesses who are forced to pick up the tab.

We have no shortage of examples to show the history of waste and failure that these targeted incentives have produced in our state, revealing a pattern that should raise the alarm for lawmakers and their constituents alike. In 2014, the Philadelphia 76ers received $82 million over 10 years in tax incentives for a new practice facility in Camden. It was reported that this investment would bring 250 full-time jobs to the city, with many of those being existing jobs with the team. Even if we generously accept the 250-job figure, that still works out to more than $300,000 of taxpayer funding per job.

We also cannot forget the $260 million in tax incentives over 10 years for Holtec International, a nuclear energy company, to build a manufacturing and design facility on the Camden waterfront. The agreement with the state required the creation of 235 new positions and the relocation of 160 existing jobs; by the time the facility was up and running officials could not provide any specific information about how many jobs the facility had created. Again, even assuming the creation of those jobs, the state of New Jersey agreed to pay more than $650,000 per promised job. This is utterly outrageous.

New Jersey’s Economic Development Authority (EDA) administers the tax incentive programs responsible for the handouts I’ve just mentioned and many more.  The EDA’s myriad tax breaks (that only benefit certain companies and industries) represent corporate welfare at its worst and drain the state budget while skewing the tax code.  As past projects have shown, such giveaways ultimately turn out to be a poor use of taxpayer dollars.

Looking at the impact of the EDA as a whole can help shed further light on the extent to which taxpayer dollars are being wasted on broken policies designed to benefit special interests rather than the state as a whole. Since 2010, New Jersey has issued $8.4 billion in corporate tax breaks according to New Jersey Policy Perspective.  This means that New Jersey taxpayers have spent, on average, $61,000 per subsidized job since in the last nine years.  Imagine what $8.4 billion could look like instead if it was, instead, tax relief across the board for the 9 million residents in New Jersey.  Unfortunately, despite these immense costs and large number of recipients, New Jersey has produced little return on the taxpayer’s investments.

As a recent audit of the EDA shows, New Jersey does not seem to be heeding the warnings of such reckless tax incentive programs.  The audit found that, among other things, $11 billion in tax incentives have been approved for 1,000 projects, however the EDA failed to assess whether recipient businesses actually created the nearly 162,000 jobs or $34 billion in capital investments they promised.  What’s worse, the EDA also did not implement any assessment process for the outcomes of the awards.

Additionally, the audit determined that the EDA’s outcome reporting was severely limited and that the existing reporting may actually include inaccurate or misleading data.  Specifically, this resulted in nearly 3,000 reported jobs that were never substantiated as having been created or retained.  It also found that the EDA’s economic impact and cost-benefit analyses were seriously deficient, overstating certain benefit and economic impacts, and that the EDA failed to assess and collect appropriate fees from applicants and recipients.

Given these exceedingly poor results, any business would clearly stop investment in this program.  Unfortunately, the state of New Jersey continues to engage in this misguided policy.  Rather than wasting more money on ineffective targeted tax incentives, this legislature should focus on creating a stronger job creation environment for all businesses, not simply the well-connected who can afford to lobby government.

While the audit confirms that tax incentive programs such as the EDA do more harm than good for New Jersey taxpayers and small businesses, we nonetheless thank Governor Phil Murphy for ordering this important assessment.  This issue unites people across the political spectrum, and we look forward to continuing to work with the administration on policy solutions and rallying citizen-activists across the state to transform New Jersey for the better.

New Jersey is not an outlier in this issue; in fact, research has shown that economic development incentives have little to no positive economic impact. It also seems to rarely have a real impact on business decisions, with research suggesting that companies only make relocation decisions based on taxpayer incentives between 2-25% of the time. This means that when policymakers rely on these targeted handouts to create jobs, they are focusing on the wrong things.

Take, for example, Mercedes’ 2015 decision to relocate their headquarters to Atlanta, Georgia. The company cited high state taxes as the reason for relocation, despite the fact that the state of New Jersey was at the time offering a $50 million incentive package for them to stay. Even that level of egregious corporate welfare, which would have put taxpayers on the hook for even more waste, couldn’t outweigh the harmfully high taxes our state is levying against businesses and individuals—in part to pay for these wasteful, unnecessary, and ineffective corporate welfare programs.

The Governor has put forth several recommendations that would increase transparency and accountability for economic development programs, including annual caps. While caps would certainly be a step in the right direction compared to the current system, AFP-New Jersey would urge policymakers to go further.

Rather than continue to pour taxpayers dollars into these wasteful and unnecessary programs, we should eliminate all state-level targeted incentive programs and instead put that funding toward lowering tax rates, particularly our corporate income tax and property taxes, which are holding New Jersey back when it comes to attracting business investment.  Our state is currently ranked last in the nation by the nonpartisan Tax Foundation’s State Business Tax Climate Index Ranking. This overly burdensome tax environment is what keeps our state from being competitive in our region—and until we address our tax rates, businesses will continue to choose other locations or fail to deliver on job creation promises.

It is time for New Jersey take a stand against failed corporate welfare policies like targeted tax incentives and instead focus on policies that create real opportunity.  Prosperity comes when government gets out of the way and lets individuals of New Jersey create new and innovative products which make all of our lives better.  It is time for a new approach and a new future for New Jersey.

Sincerely,

Erica L. Jedynak
New Jersey Director
Americans for Prosperity