New Jersey Governor Orders Audit of Tax Incentives

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By Leslie A. Pappas

New Jersey will conduct a thorough audit of corporate tax breaks under an executive order from the state’s new Gov. Phil Murphy (D).

The order directs the state Comptroller’s Office to review tax incentive programs under the New Jersey Economic Development Authority (EDA) to assess whether the $8 billion in state tax incentives approved since 2010 have been worth it, the governor’s office said.

“Tax incentives play a role in smart economic development, but they have to be icing on the cake, not the cake itself,” Murphy said in a statement upon signing the order Jan. 19.

Studies have shown that New Jersey’s economic incentive programs have been less effective than those in other states, with one study showing that New Jersey spends $162,000 in economic incentives for each job, while Massachusetts spends just $22,000 per job, the order said.

Tax Break ‘Largesse’

The New Jersey Business & Industry Association (NJBIA), an industry group that advocates for business in the state, posted the governor’s executive order on its website.

“It’s good to have an analysis of the programs to determine their effectiveness and if there’s a more efficient way to utilize incentives,” NJBIA President and CEO Michele Siekerka told Bloomberg Tax in an email Jan. 22. “We also believe that there should be balance in the incentive programs so there’s funding available for small and Main Street businesses.”

Murphy’s announcement came just days after former Gov. Chris Christie (R) approved a package offering up to $5 billion in state tax breaks for Amazon.com Inc. to build its second corporate headquarters in the state.

New Jersey Policy Perspective (NJPP), a progressive think tank that has been critical of the state’s tax incentive policies in the past, called the move an “essential first step” to overhauling the state’s incentive programs to benefit small businesses rather than multinational corporations.

“A new direction is urgently needed, because the state can’t afford this subsidy largesse,” NJPP’s vice president Jon Whiten said in a statement Jan. 19. “New Jersey’s tax breaks must be smaller, smarter and more targeted to small, growing businesses located in places with access to public transit.”

Comprehensive Audit

The order calls for a “comprehensive performance audit” of the Economic Development Authority’s two primary tax incentive programs: the Grow New Jersey Assistance Program and the Economic Redevelopment and Growth Grant Program, both of which are set to expire July 1, 2019.

The audit will include an analysis of economic benefits realized, including the types of jobs created and where they were created, as well as a review of the decision-making process behind the awards, the order says.

The audit will start within 60 days and must be completed by the end of the year, the governor’s office said.

The Economic Development Authority didn’t immediately respond to requests for comment.

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at lpappas@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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