Public outrage surfaced in Morris Plains and in other parts of the state Friday, when Honeywell announced it is moving its headquarters and 150-200 top employees to North Carolina, just a few years after it was given a generous tax incentive to stay in New Jersey.
It was a logical reaction.
And it understandably led to a few smattered calls from those who are against such subsidies — they like to call them “corporate welfare” — to end programs such as Grow New Jersey.
There’s just one problem: Those opinions are misguided and uniformed. And they have nothing to do with the reality of the grants from the state’s Economic Development Authority — grants few people in government, let alone the general public, understand.
Here’s the truth about the $40 million Grow NJ grant Honeywell received in March 2013, according to two industry officials who know the ins and outs of the program as well as anyone:
- The award, as all do, includes provisions that allow the state to get back some (and possibly all) of any award it gives out (although that doesn’t appear to be likely in the Honeywell case — more on that later);
- The award, in fact, may be a big reason why Honeywell is only taking 150-200 workers to North Carolina as opposed to the more than 1,000 the company employs in the state.
That’s right: The grant may have saved New Jersey from a massive job loss, one insider said.
“I’d say this: Because we had this hook, they had to keep all these jobs here,” the person said. “They probably would have moved everybody if it wasn’t for this grant. I actually think it showed the strength of the program in the way that it can shape a company’s decision.”
The source did not want to be identified because they are not involved in the day-to-day operations of the deal and don’t want to interject themselves into the issue.
But they know how this award — and other awards — are figured and could speak on them with authority.
Here’s a closer look at the Honeywell deal.
First, the background.
Honeywell first looked to the state for a subsidy earlier this decade, receiving a Business Retention and Relocation Assistance Grant, or BRRAG, worth $17 million over seven years.
When the first version of the Grow NJ program was introduced, Honeywell reapplied, getting a bigger award in March 2013.
The award (click here for full background) entitles Honeywell to $40 million in incentives over 10 years. Essentially an annual $4 million tax break, it is handed out every 12 months, provided Honeywell meets the provisions in the deal.
And, while the deal pays off over 10 years, it remains in effect for 15 years — meaning if the company fails to comply with the agreement over 15 years, the state can recapture some of the money it granted on a sliding scale formula based on how long the company did actually comply with the grant and how far under it fell when it stopped complying.
“If you miss your obligation by one job, it’s a whole lot different than if you miss your calculation by seven jobs,” the person said. “So, there is a calculation that gives a company credit for what they did versus what they were supposed to do.”
In its agreement, Honeywell said 1,061 jobs in its headquarters were in jeopardy of being lost to Pennsylvania’s Lehigh Valley. It also said the company had 1,509 jobs in the state.
Both numbers are important. The company needs to stay at an 80 percent level on both numbers (approximately 800 employees in Morris Plains and 1,200 statewide) to get its annual award.
If the company falls more than 20 percent below either total, its award will be suspended for two years (that calendar year and the next).
If the company falls short the following year, the award will be canceled, and the state will begin a process of reclaiming any benefit it gave out.
“This happens plenty of times,” one of the insiders said.
The source said the dollars become part of the business plan when a company is thinking of walking away from an agreement.
“It would go into the economics of whether it made sense to close it down,” the person said. “If you’re looking at a site which is $20 million cheaper to operate, and they had to give $30 million or so back, they probably wouldn’t leave. But if it was $100 million cheaper, than that $30 million or so won’t make a difference, so they’ll write a check.”
Honeywell spokesperson Nina Krauss told ROI-NJ on Friday that the company has every intention of meeting its marks and maintaining the award.
“We are in the fourth year of a 10-year Grow NJ agreement,” she told ROI-NJ. “Under the terms of this agreement, we can qualify for incentives each year based on how many people we employ in New Jersey.
“We are committed to the terms of Grow NJ and will continue to comply with the agreement.”
Make no mistake: The state will be hurt by this departure.
New Jersey’s reputation as a place to do business gets hit, as the state no longer will be allowed to say a powerful global company is headquartered here.
And the state coffers take a hit, as the personal income tax on the substantial executive salaries will now go to North Carolina.
Morris Plains, my hometown, figures to feel it, too.
Town officials tell me that Honeywell has been a good corporate citizen, quietly donating funds and resources when needed — and not making a big deal of it when it did.
That, the source said, figures to drop off.
“Corporations are more apt to be involved in a community if they headquartered rather than (just) having a big presence,” the person said. “If they have a big presence, they’ll still do some stuff, but companies always spend more philanthropically where they are headquartered.
“So, when you get a headquarters, it’s more than just getting the jobs, you get the philanthropic and the social leadership that comes with that location.
“That piece is probably the worst part of the news.”
The best part should be this: The state isn’t stupid. Companies can’t get a big incentive and then just leave. No matter how much fun it is be outraged, it just isn’t true.