At EDA audit hearing, lawmakers voice concerns about scope — and why it scrutinized programs no longer in effect

A joint legislative committee hearing Monday raised questions about the state comptroller’s recent audit of incentives administered by the New Jersey Economic Development Authority.

Notably, legislators were concerned by the limited scope of the audit (which looked at just 48 companies out of about 400 that actually have received incentive awards or payments) and the significant weight given to older programs that are no longer in effect (though the awards from those are still being provided, and will for years to come).

State Comptroller Philip Degnan testified Monday and defended the limited scope as intending to provide a thorough analysis in time for the sunset of the Grow New Jersey and Economic Redevelopment Grant incentives in July.

When asked if he thought the report struck a negative tone about business in the state, Degnan said that was not the intent.

The goal, he said, was to simply analyze the EDA’s handling, and ability to handle, incentive programs in a way that holds the state accountable for taxpayer money.

“The report was carefully written to stay in that lane,” Degnan.

That raised criticism from legislators that it was a skewed report — a sentiment echoed by testimony from EDA Chairman Lawrence Downes.

Downes said the EDA is moving in a new direction under CEO Tim Sullivan.

Legislators pointed out the audit did not include the competitiveness of New Jersey as a factor in the programs, or if any companies have in fact violated the rules of the incentive programs.

In the history of the state, Sullivan said, there has been no case referred to the Attorney General’s Office for violations, a point which surprised some legislators.

But there already have been instances of clawing back (getting money back) incorrectly approved incentives either because of a mistake on the company’s part or on the EDA.

“We have clawbacks that happen with some frequency,” Sullivan said.

And the EDA has been working on modernizing the agency.

Sullivan said the agency is implementing a new data and documentation process and will be working with the Department of Labor and the Division of Taxation in the Treasury Department to “triangulate” and verify information provided by companies.

The EDA has taken the comptroller’s report seriously, Sullivan said, but it already was working on some of the issues the audit highlights — and is looking at which issues to address immediately and which need longer-term attention.

The agency also has been less generous about approving incentives, with applications approved reach a total of $400 million in calendar year 2018 — a decrease from previous years.

According to the comptroller’s audit, a total of $11 billion has been approved since the start of incentive programs in the state, but actual awards have only totaled about $700 million.

Sullivan said the problems identified in the audit should be kept in mind as legislators and the governor consider changing the types of incentives the state offers.

Specifically, he said, the state should consider supporting startups and young companies, which are more in need of growing in New Jersey than larger companies.

New Jersey Policy Perspective also testified Monday, saying the state has been too generous with its incentives and that it supports the governor’s proposal to introduce caps on new incentives.

“Some changes made in 2013 were positive — like more stringent standards for subsidies given to corporations shifting jobs around the state,” according to NJPP senior policy analyst Sheila Reynertson.

“But, on the whole, the Economic Opportunity Act greatly expanded the size and scope of these offerings while eliminating several key financial protections for taxpayers and the state of New Jersey.

“New Jersey must restrict corporations’ ability to sell their tax credits. The very idea of a secondary market for tax credits should give the Legislature pause. New Jersey’s tax subsidy program is so overly generous that it enables the sellers to receive far more money in subsidies than they actually owe in taxes.”

For now, the EDA will have 90 days to create a corrective action plan to address the findings of the audit, and the comptroller’s office will follow up again in three years to examine improvements.