The state Economic Development Authority’s recent announcement of a pilot Innovation Challenge program — which would offer up to $100,000 to communities to foster “innovation-centered economic development” — makes good on Gov. Phil Murphy’s plan to steer the EDA away from the massive tax credits promoted by former Gov. Chris Christie.
The change is welcome. Not because the EDA’s approach under Christie was necessarily wrong — it provided major benefits to some cities, especially Newark and Camden. But one benefit of our often-fractious political system is that elections bring change — new ideas, new approaches and, perhaps, new results.
Murphy has pledged to focus the EDA’s efforts on smaller companies and startups, with an emphasis on technology companies. Other states — especially Georgia, Texas and Massachusetts — are far ahead of New Jersey in terms of aligning their institutions to promote innovation sectors and hubs. The new Innovation Challenge, although modest, can help jump-start that process in New Jersey.
Eligible projects can involve real estate, infrastructure, green energy, STEM education and job training. Key focuses would be on increasing clusters of dynamic companies, encouraging incubators and building a culture of entrepreneurship. Initially, a total of $500,000 will be available, and successful applicants must commit to a 20 percent match. Additional funding from anchor institutions or other strategic partners will be considered a key plus in the application process.
Yes, this is a significant change for the EDA, going from providing companies with grants and tax credits worth hundreds of millions of dollars to offering communities $100,000 worth of seed money to promote innovation clusters. Under Christie, the EDA provided tax incentives of approximately $8 billion for more than 300 projects.
Interestingly — and perhaps not accidentally (more on this in a moment) — the day after Murphy announced the Innovation Challenge, the Wall Street Journal published an article highlighting the potential costs of those tax incentives. Citing an EDA memo, the Wall Street Journal said the Christie-era programs could cost the state $545 million in lost tax revenue this year and potentially $1 billion a year from 2020 through 2023.
If the Murphy administration was not behind the Journal’s well-timed review of this program, it should have been.
But the question of which approach to economic development is better is essentially unanswerable, because the key variable is unknowable: What would Company X have done without a massive EDA tax credit? We really don’t know, despite what the CEOs and pols say in their press releases.
Life — and economies — are fluid. Nailing down cause and effect can be difficult. And promoting economic development is not necessarily an either/or proposition. The Wall Street Journal article certainly helped highlight the obvious potential downside of Christie’s tax incentives. But, as the former governor told the newspaper, “Things would have been much worse if we didn’t have them.” Which is certainly possible, if not likely. But again, ultimately unknowable.
So, trying something new, as Murphy is doing, is good. Let’s cross our fingers and hope his approach and his focus on what he calls “local innovation ecosystems” proves effective.