Joe Kelley is glad to get the question. Expects it. Is ready for it. Feels it’s the No. 1 thing he hears when people talk about the New Jersey Economic Recovery Act of 2020, which Gov. Phil Murphy signed into law in January.
So, here goes: How can the governor, who railed against the largesse of incentive awards under his predecessor, Chris Christie, sign on for a package of incentives that appears to be even bigger in offerings — as the Act’s potential $14 billion in awards suggests?
Kelley, who has served as Murphy’s deputy chief of staff for economic growth throughout his first term — the guy everyone in the real estate development world turns to — has a simple answer:
“It’s a bigger pie,” he said.
He goes on.
“Most of these programs have a big role for small and medium-sized businesses. You can make the case they are going to dramatically impact small business and our Main Street community.”
“The governor wanted it to include more programs with more compliance measures — more awards that had stricter guardrails on them,” he said. “Think about it this way: If the overall pot seems like it’s bigger, it’s because, pound for pound, we have a lot more programs. But we have less generous bonuses, too.”
It’s the additional programs that Kelley really wants to talk about. He feels there are more opportunities for small and medium-sized business than people realize.
The key, Kelley said, is understanding how they can stack together.
He points to the new programs — the Main Street Recovery Finance Program, the Historic Property Reinvestment Program, the Food Desert Relief Act, the Evergreen Fund, the Brownfields Redevelopment Incentive Program and the Anchor Institution provisions.
“Most of these programs have a big role for small and medium-sized businesses,” he said. “You can make the case they are going to dramatically impact small business and our Main Street community.”
Kelley notes the Main Street program, which will provide a direct $50 million appropriation for grants, loans, loan guarantees and technical assistance to small and microbusinesses, is a potential game-changer.
“The Main Street program is a tremendous tool for creating catalytic growth inside our Main Street corridors — in the towns that have been disproportionately affected by COVID and the mayhem that has been instilled on our economy,” he said.
Kelley talked about all of this and more in a recent conversation with ROI-NJ. Here’s a look at that discussion, which has been edited for space and clarity.
ROI-NJ: Let’s start with the big picture. The governor waited years to get these incentive programs through — do they meet his vision?
Joe Kelley: Absolutely. This bill hits the ball out of the park on the governor’s key priorities: Investing in the innovation economy, protecting and enhancing the role of organized labor and doing the really smart types of placemaking that other states have done really well.
It starts with what was held over. I think the governor and the Senate president (Steve Sweeney) wisely figured out a way for the old ERG program to be reinstated for this year, which is something I think a lot of people in the real estate community don’t realize. Even though this policy took a fair amount of time to fine-tune, the fact that you have an ERG extension makes up for some lost time, and it makes for easier handing over the baton in terms of real estate investment incentives.
ROI: Let’s look at the money. There is $9 billion set aside for all the programs ($1.5 billion over each of the next six years). Of the $1.5 billion, $400 million is set aside for the “new” programs, which leaves $1.1 billion for the successor to Grow New Jersey (called EMERGE) and the successor to Economic Redevelopment and Growth (called ASPIRE).
“I think the governor and the Senate president wisely figured out a way for the old ERG program to be reinstated for this year, which is something I think a lot of people in the real estate community don’t realize.”
Then, there’s the Transformative Project provision, which potentially could authorize up to $250 million for 10 projects. All told, you get that $14 billion number.
Even progressive groups, soundly in the governor’s corner, were upset with that. They, in fact, called it corporate welfare. How do you balance that?
JK: You have look closely. We took out things like the investment alternative, where you saw big corporate relocations basically get their entire real estate investment paid for by the relocation credit. And we have more creative initiatives, like Transformative Projects and ASPIRE. They could fill large gaps, but they have to hit a lot of different public policy goals.
We’re allowing companies and developers to shoot for the moon, but we think those times are going to be few and far between. We probably won’t use most of the Transformative Project credits, so, therefore, the overall number reduces a fair amount.
ROI: Let’s talk more about the Transformative Project provision. How does the administration see it being used?
JK: The legacy programs were all about counting jobs and trying to legitimize the spending of public monies based off, ‘I’m going to have 1,000, 2,000, 5,000 jobs.’
The Transformative Projects provision is a bit different. I’ll give you two really good examples.
One: We look at it as an opportunity for giant placemaking opportunities: More than 1,000 units of housing with specific public policy guidelines, like affordable housing or workforce housing.
Two: We see it as an opportunity for a sector. Let’s say the film industry, where someone is going to be doing over 250,000 square feet of sound stages. You’re not talking about relocating a company, you’re talking about relocating a sector. So, it’s much more of a moonshot than saying, ‘I want to get company X to put their R&D facility here.’ In this case, it would be getting a healthy chunk of all TV production on the East Coast and landing it in New Jersey.
And both of these ideas lead to even more development.
ROI: How’s that?
JK: The piece which is not talked about enough in the Transformative conversation is the huge potential infrastructure. Take something like the American Dream, which we still love and the governor views as a very durable project. That, at some point, is going to have to have a conversation on public transportation, and Transformative could be used for things like bus rapid transit, or extension of light rail and things like that.
So, from a planning perspective, for either legacy assets or future real estate assets, Transformative could be a game-changer, especially when you combine a lot of these credits with each other or with other programs.
ROI: Let’s go back to the other point — how these programs are about more than just the Transformative projects.
JK: Some of the things that have not been covered much in the popular conversation — which is a bit of a head-scratcher — is the Historic Property Reinvestment Program, the Food Desert Relief Act and the Anchor Institution provisions.
“There’s a lot of tools here that can be combined. The community leaders who have been wondering whether or not the act scratches every single itch need to think about how you put the pieces together and make those Lego blocks all fit into one unique structure.”
Those programs are designed for the entire state and can have a huge impact on some of those rural or suburban counties and towns. They would not only allow for really smart developments to occur in towns, but they also would enable existing real estate assets to be enhanced.
Let’s say you own 50,000 square feet on Main Street, which is in need of sprucing up. The Historic tax credit can help. And, if you add a grocery store because Main Street is a food desert, it is going to appreciate the values of all the real estate assets in the neighborhood, it’s going to attract future development, it’s going to increase the value of that property and it’s going to give opportunity for new development — because someone’s got to build the grocery store, and somebody needs to retrofit the old historic properties.
There’s a lot of tools here that can be combined. The community leaders who have been wondering whether or not the act scratches every single itch need to think about how you put the pieces together and make those Lego blocks all fit into one unique structure — similar to how they do on their capital stacks every day.
ROI: This all sounds complicated — and it sounds as if the state is going to micromanage so much of this growth. Would you agree?
JK: Not at all. New Jersey is a very diverse real estate community in terms of asset classes and backgrounds. One of the challenges of the bill was figuring out something that would be able to work in the Central Ward of Newark and in suburban Cumberland County. That’s not easy.
But the governor has always viewed the role of the state to be an enhancer or complementary in terms of what is going on at the local level, meaning Mayor (Ras) Baraka knows Newark better than anybody else — and we should be heeding Mayor Baraka and his call for how a city should be planned. We shouldn’t be dictating things from top down. We look at incentives through that prism.
There’s no question that certain municipalities may need the state to play a role, especially for some of our smaller municipalities. So, it’s a bit of a balancing act, but, nine times out of 10, we’re going to be deferential to the municipality.
ROI: We’re not out of the pandemic — but it seems like things are starting to turn. And that means more developers and municipalities will be taking a closer look at more of the potential opportunities here. I know the incentives were not created with the pandemic in mind, but explain how they can be used in a post-pandemic economic development world?
JK: I would come back to the multifaceted and dynamic nature of the programs.
Let’s take a Morristown. It was hot and rocking before COVID hit. Obviously, everyone has taken a little bit of a COVID freeze, but there’s no reason why major companies shouldn’t be thinking about putting more headcount there, especially as companies start to think about a more modular kind of pod approach to how they split up their headcount in their real estate assets.
“The governor has always viewed the role of the state to be an enhancer or complementary in terms of what is going on at the local level, meaning Mayor Baraka knows Newark better than anybody else — and we should be heeding Mayor Baraka and his call for how a city should be planned.”
Secondly, there’s no reason why we couldn’t see more historic redevelopment, and there’s no reason why we shouldn’t see Anchor or the ASPIRE programs be used to create more workforce housing. I think, as we come out of this, you’re going to see these programs kind of snap into place in the markets that already were hot.
ROI: Last question. And we turn it to you, who has been with the governor since the campaign and established yourself as a go-to person in economic development. What is your future?
JK: Working for Gov. Murphy has been a tremendous joy and the opportunity of a lifetime. Working with the first lady has been equally outstanding. I would like to stay in government for the rest of my life, if I potentially could. But who knows how things will go? That’s the way government work is.
I would just say, in general, from kind of the successes that I’ve helped the governor achieve — including the Economic Recovery Act, the way we’ve helped manage the economy during COVID, American Dream, which is still evolving — I think of all the things we’ve touched. And I’m extraordinarily proud of the work we’ve done with organized labor, specifically with 32BJ in ensuring that prevailing wage is preserved for their members. And it’s only right that people who are working in the buildings, and on the buildings, both receive prevailing wage. I’m particularly proud of that.