Tax Incentives: A Way Forward to Economic Prosperity

tax-incentives.jpgEconomic progress doesn’t guarantee life, liberty or the pursuit of happiness. But it does create the social, cultural and personal conditions that help to position us as we try to attain our dreams while serving as positive, contributing members of our local communities...

As legislators, it is our responsibility to create plans and to introduce proposals that will help foster a climate to generate broad economic growth for those we are privileged to represent. While I have long supported the creation of tax incentives, we must never forget the needs and requirements of the community that offers those benefits. The key in my opinion is to offer programs that have as their guidepost transparency and accountability, while creating the broadest of tangible economic benefit. Those of us who believe that our tax code can be responsibly used to spur the economy and create jobs must be the loudest voices calling for an accountable, transparent and results-based program.

In today’s climate, every state faces increased competition to expand our economic horizons. That competition comes from our neighboring states and those all across our country and around the globe. And, while the fight for a more affordable and efficient New Jersey remains, we cannot lose sight that reasoned tax incentive policies have a place in the overall construct of our state’s pro-growth agenda.

During my tenure in elected office, I have advanced proposals to create a balanced and fair approach to economic development that looks to foster a hospitable climate for businesses, while maintaining the safeguards that protect New Jersey communities.

Here are some of the highlights of the legislative proposals and principles that I have championed over the years. I still believe these can form the framework for a more defined, open, responsible and economically beneficial tax incentive structure without putting New Jersey at a competitive disadvantage with our neighboring states when it comes to attracting and retaining businesses:

The Time Test. Redefine the current “net positive benefit test” (under the GROW NJ program) that the New Jersey Economic Development Authority (EDA) uses to judge the worthiness of businesses’ application so that it ties directly to the period of time the applicant commits to the project.

Increasing Employee Wage Growth. Businesses receiving incentives under the GROW NJ program must pay prevailing wage rates to all employees that perform building maintenance, custodial or security services. This ensures that companies pay a decent, livable rate of pay to what are often the lowest wage earners in a company.

Permanent Report Card. One of the most consistent criticisms of state tax incentives is that they do not follow up to judge the efficiency and the true impact of the program. I would require a comprehensive written report to the Governor and Legislature on a yearly basis that provides a comprehensive review and analysis of the GROW NJ and Economic Redevelopment Growth programs, the effectiveness of these programs on private sector job creation, and the retention of capital investment. I would further require the EDA to post their report on the internet.

Judging Fiscal Responsibility. This would prohibit the EDA from awarding any economic development subsidy to a business that is overdue more than 24 months on any principal or interest payment on any previous award by the state.

Keeping it Local. Any subsidy of $100,000 or more to a developer must include a guarantee that they would enter into a community benefits agreement in the community of the project’s location.

Diversifying the Pool. Require that each recipient entity of a development subsidy include on their progress reports to the EDA, information concerning the recipient’s supplier diversity goals and policies, including amounts paid, during the previous fiscal year for products and services supplied by a female business, a small business, a minority business, or a veteran-owned business.

This isn’t an exhaustive list and other proposals I have written in this space can be found by visiting the New Jersey Legislature’s website. That said, plenty of good ideas on this topic can be found elsewhere. Recently, Josh Goodman and Khara Boender, with Pew Charitable Trusts, wrote an article, How States Can Consider and Design Effective Tax Incentives, suggesting three guidelines that states can follow regarding tax incentives. These are:

  • Establish principles for designing tax incentives.
  • Develop procedures to consider proposed incentives in a deliberative manner.
  • Conduct upfront analysis of proposed incentives to forecast their effectiveness.

As stated previously, I believe that our tax code can be responsibly used to grow New Jersey’s economy. However, by ending and not amending our current programs in a reasoned manner, we risk seeing the real and tangible gains made by our tax incentive programs in communities throughout our state swept away in this current political maelstrom.

However, let me be crystal clear on this point. I do not support an indefinite extension of the existing tax incentive programs as currently constructed. The recently released report regarding the New Jersey EDA was troubling in many ways, and pointed out some glaring issues that warrant immediate corrective action. However, the report was also an incomplete picture of the total landscape of our state tax incentive policies and the successes that have been achieved. I look forward to the conclusion of the Attorney General’s report on this matter, and support unequivocally holding accountable anyone who has cheated New Jersey taxpayers through their actions with respect to defrauding our state by illegally gaining access to tax incentive benefits. I strongly encourage the Governor and Legislative Leadership to work cooperatively to find a solution that allows our tax incentive programs to flourish in a more accountable fashion, free from short term political attacks that hold our state’s economic fortunes in the balance.

That’s my take, what’s yours?

Showing 5 reactions

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  • Matt Ernandes
    commented 2019-07-11 18:47:44 -0400
    I fully understand and am sympathetic to the slow growth of wages nationwide while profits and salaries to top level executives rise.. But to require a business to pay prevailing wage because it receives a grant is not the solution. As a former municipal manager and school business administrator I saw first hand the paperwork and bureaucracy created to attempt to enforce the payment of prevailing wage. Wage reports — many sheets—were submitted monthly to the municipality/school district and to the Department of Labor. To attempt to ensure that the reports were not falsified, interviews were conducted periodically and unannounced on site with the employees listed on the report. How many more State employees would need to be hired to be effective in the monitoring and enforcement?
  • Frank Friedman
    commented 2019-07-11 17:55:38 -0400
    I agree with all the fixes, a pretty exhaustive list, I must say. As for paying the prevailing wage, we have resisted for too long paying a living for all, and now wages need to be revised upward more than we might like. The CBO may be right in the long run … that some jobs may be lost. At this point, I would like to see more ways to ensure that jobs are NOT lost, and first and foremost, this includes keeping corporate activities here in the US, rather than Mexico and China. I wonder how much the average buyer saves from good made in Mexico and China versus how much money oversees enterprises an giving away to their investors.

    How we compete with China poses and interesting question. Trump’s answer is to bully them into changing their behavior so that their corporations compete with ours on an equal footing. This is a tall order, since the Chinese way of doing things involves government support for industries they deem important to their economic goals. While we are trying to get the Chinese government to follow international “rules” in terms of propping up industry and fair pay for all workers, the United States needs to 1) stop propping up industries that either do not or should not need it (Big Farm Corporations and non-renewable energy companies, for example) and start helping companies that are vital to our economy (and the environment and small companies) and need help.

    The Chinese will do what is best for them. We need to do what is best for the United States, and paying PEOPLE a decent wage need to be at the top of the list.
  • Matt Ernandes
    commented 2019-07-11 16:45:42 -0400
    I applaud the Governor and the task force for uncovering the abuse. This is not new. For decades there have been questionable awards that did not pass the “smell test”. I am pleased, Senator, you have not buckled to the “picking on South Jersey “ blame game. But I do not agree with all of your suggested fixes, such as payment of prevailing wage, a requirement for all job titles burden on municipalities and school districts, results in the business becoming less competitive. What is needed is full disclosure and exhaustive vetting of the businesses, including the political contributions made by itself and its officers during the 5 years prior to the application.
  • Paul Bryant
    commented 2019-07-11 15:05:00 -0400
    Senator Singleton,
    I am in accord with your thoughts on tax incentives. I have always believed that tax incentives should at the very least be revenue neutral, over time. Through the weakness of current tax incentive laws, businesses have taken full advantage, which leaves our State at a disadvantage. Thank you for taking a stand to restrain the abuses, and presenting solutions to create an environment that is fair for NJ and businesses that want to move here.
  • LaShaunda Carter
    commented 2019-07-11 14:32:57 -0400
    I will be in DC next week speaking to our State Leaders about this very subject.