By Andrew Shapiro
Gov. Chris Christie recently signed comprehensive new incentives legislation to help the state compete more effectively for businesses and jobs. The new law, known as the New Jersey Economic Opportunity Act of 2013, takes a creative, balanced approach to designing complex, market-based financial incentives to encourage businesses to expand or relocate to New Jersey.
The new program provides for more limited incentives in some areas that need less public support, and injects more significant stimulus to promote growth in urban locations that need it most — especially mass-transit-oriented developments in the urban centers, including Trenton. This legislation, which took nearly a year to negotiate, ultimately had bipartisan support.
Here are six ways the new law will improve the state’s ability to compete for business:
1.) Targets “smart growth” in urban centers where redevelopment costs are higher. The new law clearly favors urban redevelopment, allowing much higher levels of incentives for companies that locate in urban mass transit “hubs,” with special emphasis on cities in Garden State Growth Zones (Trenton, Camden, Passaic, Paterson) and other “distressed municipalities.”
Businesses locating in Trenton would have to create/retain one-quarter of jobs and invest only one-third of capital investment otherwise required by the statute for projects locating elsewhere in the state. A manufacturer creating only three new full-time jobs and investing at least $20 per square foot into an existing building would qualify.
2.) Expands incentive opportunities to broader areas of the state. While some of the previous incentives programs were available statewide, the most valuable programs were limited to certain cities or older suburbs. The new law makes a broader menu of tax credits and grants available in more areas of the state, but restricts incentives in environmentally sensitive areas.
3.) Enables smaller “high growth” companies to qualify. To attract technology start-ups and companies in life sciences, finance, energy and defense, the new law reduces the number of employees needed to qualify for job-creation tax incentives, and eliminates a $20 million investment threshold imposed by the previous law. A promising technology startup with as few as 10 employees (but lots of growth potential) could qualify for valuable tax credits under the new rules. The law also provides for developers to build “incubators.” (The government earlier this year also created the Angel Investor Tax Credit which encourages venture investments among smaller investors).
4.) Streamlines programs. The state’s five biggest tax incentives programs have been merged into two concentrated programs. Now, there is one set of tools for employers through the GrowNJ program, and another set for developers through the Economic Redevelopment and Growth Program (“ERGG”). Consolidation addresses the needs of both the supply and demand sides of the market.
5.) Provides more modest support for existing New Jersey jobs. The new law cuts back on incentives available to New Jersey businesses that are considering relocating outside of the state. Incentives for such “retained jobs” are reduced to 50 percent of the award available for new jobs. This is a fiscally responsible approach acknowledging that, as a relatively high-cost location for business, New Jersey needs to be competitive. It recognizes that the state cannot start counting new jobs until it can retain those already here. However, the state still feels that attracting new jobs is more valuable to the state’s economy.
6.) Elevates standards for receiving incentives. The N.J. Economic Development Authority has always applied a keen due diligence review to proposed projects, but the new law codifies and elevates those standards into law. Companies must prove incentives are necessary to make expansion or relocation to New Jersey possible, and the CEO of the company must personally certify the need for incentives.
The Economic Opportunity Act is a smart and long-awaited piece of legislation that streamlines the state’s business incentive tools and concentrates assistance in the areas of the state that need it most.
Given the time consumed in negotiating and approving the new legislation, there is a backlog of companies that will now be seeking approvals for expansions and relocations to the state. We expect to see a number of corporate expansion announcements in the coming months as a result.
Andrew Shapiro is managing director of Princeton-based Biggins, Lacy, Shapiro & Co., LLC (BLS & Co.), which worked with the state’s Smart Growth Coalition on the drafting of the Economic Opportunity Act. BLS analysts Iryna Hamkiv and Noah Chrismer contributed to this article. On the Web: blsstrategies.com.
