On behalf of our member companies that provide more than 1 million jobs in the state and make the New Jersey Business & Industry Association the largest statewide business association in the country, we thank you for the invitation to submit testimony in regard to the proposed changes to the state’s economic development incentive programs.
Study after study has reconfirmed that New Jersey has one of the most challenging business climates in the country. This is attributed to the Garden State having the highest tax rates in the region; including, the top income tax rate, top corporate tax rate, state sales tax rate, and property tax rate. All of these rates make us the least competitive state in our region.
Despite the high cost of doing business here, New Jersey still has a number of advantages. The state is ideally located with access to major markets like New York City and Philadelphia, a comprehensive infrastructure network, and a well-educated workforce; however, New Jersey’s great qualities come with a large price tag.
Responsible tax incentives play a key role in our economic development strategy to attract and retain businesses in the Garden State. Most policymakers, including members of the Legislature and the Governor, agree that tax incentives are an important and effective tool in New Jersey’s overall economic development toolkit. Simply put, tax incentives “level the playing field” and keep New Jersey competitive with our surrounding states.
Across the nation, states utilize economic development incentives to create and retain jobs, and to encourage companies to relocate and expand within their borders. Programs are tailored to specific industry needs, economic characteristics, and the cost of doing business within the state. As such, directly comparing other states’ programs to New Jersey’s can be a difficult task and often results in an “apples to oranges” comparison.
Because New Jersey has a high cost of doing business, our state must have a more robust tax incentive program to attract and retain businesses. In comparison, Pennsylvania is a much less expensive state within which to do business; therefore, their incentive programs are less expensive as well, since the amount of money needed to close the funding gap is much smaller.
Without robust tax incentive programs New Jersey would struggle to compete in attraction and retention of businesses, jobs, and capital investment. Ultimately, these investments create additional employment opportunities for residents, who, in turn, support a healthy, growing economy. It should be our goal as a state to become a regional, national, and world leader in retention and attraction of business.
At the same time, it is imperative that programs are administered efficiently and effectively, and that the state is receiving substantial return on investments. Therefore, NJBIA continues to support transparency, along with sufficient monitoring and oversight of these programs.
New Jersey revamped its incentive programs with the “Economic Opportunity Act of 2013,” taking great care to make sure that the incentives provided would deliver the promised benefits. As a result, New Jersey’s incentives are all performance-based. Companies have to earn their benefits by generating new tax revenue and satisfying all job and capital investment requirements, prior to receiving a tax credit.
As economic conditions have changed and improved over time, and past investments continue to take shape, it is appropriate to analyze and recalibrate the state’s economic development incentive programs given the changing economy.
Policymakers are currently considering how to best redefine and retool the Grow New Jersey Assistance (Grow NJ) and Economic Redevelopment and Growth (ERG) programs that expire on June 30, 2019. By many measures, these programs achieved their stated goals of creating and retaining jobs in the state, while generating capital investment. The Grow NJ program has been responsible for nearly $1 billion in capital investment and over 18,000 new and retained jobs, while the ERG program has created over $1.2 billion in capital investment.
The basis for the discussion today is focused on A-4730 (Pintor Marin), which changes eligibility requirements and benefits under the Grow New Jersey Assistance Program. As policymakers move forward and design New Jersey’s future economic development incentive programs, NJBIA submits the following recommendations, many of which are embodied in A-4730:
- Reduce overall levels of investment in incentives, given the improvement in economic conditions;
- Concentrate incentives primarily on new jobs, rather than for retained existing jobs at risk of relocating from New Jersey or being eliminated, by imposing more extensive limitations on the incentives that can be earned by retaining at-risk jobs;
- Further increase the State’s return on investment on incentives by reducing incentive amounts, and expecting a higher return in terms of new employment, capital investment, and overall economic and fiscal benefits;
- Continue to strengthen program governance, increasing the documentation required on the amount of incentives needed for New Jersey to be successful in winning on a project‐by project basis, and consider lowering the threshold amount on projects that this applies to;
- Further expand access to small business and rapidly growing technology companies;
- Focus a percentage of future investments on high‐growth sectors (Life Sciences, Information Technology, Financial Services, Pharmaceuticals, Manufacturing and Transportation/Logistics), leveraging large economic development impacts for New Jersey;
- Promote investment and employment in distressed municipalities, locations that enable and promote sustainable development, live-work-play environments that are served by mass transit options, and areas in the state where under-utilized assets exist;
- Maintain the transferability and monetization of tax credits, as many technology, life science, and Fintech startups have no Corporation Business Tax (CBT) liability in their early years, or are otherwise unable to utilize the tax credits;
- Encourage companies receiving an award to incorporate a workforce development component at a local secondary or post-secondary school to train future employees;
- Exercise caution on the use of caps on total awards, as market and economic conditions may shift, and consider lowering the per-job annual award cap.
Additionally, NJBIA has been a leader in helping New Jersey reclaim its stature as the innovation state. Earlier this year, NJBIA released a report titled Indicators of Innovation, which shows New Jersey at a challenging crossroads in its efforts to reclaim itself as the “Innovation State.” For example, New Jersey lags behind our regional competitors when it comes to venture capital investment in the state.
As of March 31st, 2019, New Jersey received $653.8 million in venture capital investment for 21 deals, while at the same time Massachusetts has received $3.1 billion for 143 deals and New York has received $8.4 billion for 234 deals. And this is not a new trend. In 2018, New Jersey received $71.4 million less in venture capital investment compared to 2017. During this same time frame Massachusetts and New York both increased their venture capital investment by $2.7 billion and $3.1 billion, respectively.
In order to help jump-start and sustain an innovation ecosystem, NJBIA sets forth the following recommendations:
- Analyze the impact a policy will have on New Jersey’s overall regional business climate prior to implementation;
- Incentivize investments and employment that leverage universities and other intellectual property assets of our State, such as centers of existing corporate R&D, incubators and other technology assets;
- Increase thresholds for those investing in R&D and small emerging technology businesses, specifically the Research and Development Tax Credit and the Angel Investor Tax Credit;
- Increase venture capital investment throughout the state to attract startup companies that spur economic development and create jobs;
- Support New Jersey colleges/universities to drive increased federal R&D funding to their institutions;
- Increase incubators and accelerator presence at/near our research institutions;
- Provide employers with the flexibility to structure their workforce in a way that is reflective of the innovation economy.
As we face a potential situation where new programs may not be approved prior to the June 30, 2019 expiration date, it is imperative that there be an extension of the current programs or a transitional arrangement, while new programs are established. It is vital that New Jersey continues to attract and retain both small and large business in order to drive economic growth. We urge the Governor and the Legislature to work collaboratively to provide a temporary transition to a more permanent tax incentive program solution before June 30.
An extension provides additional time for policymakers to debate the details of new programs, without the added pressure of a constitutional budget deadline looming at the same time. Moreover, absent this extension, New Jersey’s economy is at risk for continued job growth, which our policymakers want and our state needs. As such, we are pleased to support A-5343 (Pintor Marin, Freiman), which would extend the Grow NJ Assistance Program and the Economic Redevelopment and Growth Grant program until January 31, 2020.
As always, NJBIA remains committed to creating an affordable and competitive business climate; one that drives economic growth and job creation here in New Jersey. We look forward to working with you in this endeavor. We thank you for the opportunity to submit testimony and for your consideration of our views. Should you have any questions or need further information, please feel free to contact me directly at 609-858-9512.