Busting a cap? Murphy administration officials surprised by incentives pushback — but willing to negotiate

By Anjalee Khemlani
Trenton | Jun 18, 2019 at 2:29 pm
Q&A

As the Grow New Jersey and Economic Redevelopment & Growth tax incentives are set to expire, the Economic Development Authority and Gov. Phil Murphy are bracing for a lapse in the broad-based programs the state can use.

How long that lapse will last remains unknown, but the administration is preparing for it. In addition, it is open to negotiating some of the finer details of the governor’s new incentive proposals.

EDA CEO Tim Sullivan and Murphy spokesman Darryl Isherwood told ROI-NJ the administration is willing to deal with a lapse in the incentives rather than push for an extension of the current programs.

The Legislature is voting Thursday to extend the programs by at least one year.

But, even though the programs expire June 30, Sullivan said the applications that are received up to that date will still be processed after the expiration. So, the state could be approving awards after the programs expire.

Here are some other details about the existing programs, as well as the governor’s proposals to replace the existing programs.

ROI-NJ: What are your thoughts on the pushback from the business community on capping incentives? The governor’s proposal includes caps of $200 million annually on some of the incentives.

Tim Sullivan: I’m candidly a little surprised on the pushback on the notion of caps. A cap is just another word for a budget. Having caps in place, assuming we set a cap at a level that is reasonable and appropriate, I don’t see that is an inhibitor. The governor’s proposals for the caps are based on data; we did a pretty rigorous analysis.

One of the things that makes New Jersey’s current program as expensive as it is or as generous as it is, is it’s a 10-year award. The governor’s program would make it a five-year award, which is more in line with how companies are thinking about their future.

ROI: Is he willing to budge on the cap idea?

Darryl Isherwood: This was just incorporated in the initial proposal from the governor. There was a lot of talking about caps, but nobody came back (with a different number). There was never any negotiation on it. It was just, ‘No, can’t have a cap.’ That number just sort of stuck there. Yes, it was thrown out there, and, yes, there was research behind it, but no one ever attempted to negotiate it.

ROI: What is the downside to an uncapped system?

TS: A lot of companies, and they wouldn’t put their names to this to say this is what they are doing, particularly out of state companies, will call us up and go through our application process as part of their strategy of getting incentives in their own state. Having a capped program in place where we are getting to the companies later in the process — meaning we wouldn’t have a portion of the cap allocated to them until they are much closer to making a decision — will remove the uncertainty factor.

It’s worth noting that the notion of a cap is not foreign to New Jersey. The film tax credit has a cap on it, the angel investor tax credit has a cap on it, the net operating loss program has a cap on it. The film tax credit cap, we won’t go through that this year, angel and NOL year-to-year changes.

ROI: What have you seen in terms of the applications the EDA has approved under the new administration compared to the previous one?

TS: If you look at calendar year 2018, which was the first year that the governor was governor, the EDA approved approximately $400 million awards for Grow and ERG. If you look at the peak years of the program, which were calendar years 2015 and 2016, it was well north of $1 billion. So that number has already come down without caps.

We are certainly taking a harder look and making sure we understand them fully and dig down in the numbers and verify. That has had an impact. It’s just, generally, the economy is in a better place and makes the incentives conversation a little less relevant.

Anjalee Khemlani | akhemlani@roi-nj.com | AnjKhem