An audit report released today by the Office of the State Comptroller (OSC) says the New Jersey Economic Development Authority has made considerable progress in administering state tax incentive programs but must do more to ensure tax credits are not given to businesses that failed to earn them.
OSC’s original 2019 audit found a lack of oversight and transparency in how businesses were granted eligibility for tax incentives. That 2019 audit, which included 21 recommendations, said NJEDA had inadequate systems for counting jobs and relied on unverified data reported by businesses to award billions of dollars of tax incentives.
OSC’s 2022 report, which is required by statute to be issued within three years of the original report, determined NJEDA has made considerable progress in verifying businesses were hiring or retaining the employees that they said they were. Separately, NJEDA issued a statement today that noted it has saved taxpayers $342.6 million to date by reducing Grow NJ awards for 82 companies that failed to create or retain the number of jobs that they had committed to at the time of project approval.
“New Jerseyans are entitled to a return on their investment with these tax incentive programs,” said acting State Comptroller Kevin D. Walsh. “We are encouraged to see that positive reforms have taken place since OSC’s original audit, and that EDA is verifying that employees whose positions were incentivized were actually employed by those businesses.”
The latest audit report notes since 2019 OSC and NJEDA have disagreed on whether the authority should award tax credits without considering actual economic benefit data. NJEDA’s policies permitted it to rely on its projections of economic benefits to award tax credits even if those benefits had not been realized.
OSC’s report contends NJEDA has discretion under state law and in contracts with tax credit recipients to take an approach that protects the state’s interests and directly ties tax credits to results. The authority now pledges to change its approach and to reassess the net economic benefits of the tax incentive programs annually for two of the incentive programs, subject to a review by the Attorney General’s office.
“It is easy for a business looking for tax credits to promise results, but harder to deliver,” Walsh said. “EDA’s unwillingness to implement the recommendations in the 2019 report regarding using actual data mean that it has maintained a policy that fails to distinguish between businesses that keep their end of the bargain and those that do not.
“EDA’s movement on this issue is a major positive change that makes it much more likely that the economic incentive programs will succeed,” Walsh said. “So far, there is a pledge and a proposed policy, but the proof will be in the implementation.”
OSC also found that NJEDA has taken little corrective action to recover improper awards of tax credits and payments identified in the 2019 audit involving more than $200 million in awards.
In sum, OSC found that it has implemented 11 recommendations, partially implemented seven, and not implemented three.
NJEDA adopted policies and procedures to address OSC’s recommendations to:
- Develop monitoring and oversight activities that thoroughly analyze whether jobs were actually created or retained.
- Create a policy to establish a business’s baseline employment numbers when they apply so they are only awarded for newly created or retained jobs.
- Create a policy to establish job-reporting requirements and collect documentation to make sure jobs were actually created or retained.
- Establish monitoring processes to assess a business’s performance that compares self-reported data with independent data from the Department of Labor.
- Develop uniform templates for reporting that ensure businesses are satisfying all of the required job factors.
NJEDA has partially adopted OSC’s recommendations to:
- Require businesses to show documentation for a net increase in employment.
- Develop a process for businesses that receive multiple awards to ensure that jobs are not duplicated and businesses aren’t collecting awards multiple times.
- Use “actual” performance data to determine a business’s eligibility for tax incentives awards, a project’s economic benefit to the state, and whether there are grounds to terminate or suspend awards.
NJEDA has not adopted OSC’s recommendations to:
- Develop a process for incentive programs to report on their successes and determine if economic benefits were actually realized.
- Require annual reports for incentive program activities that are based on actual performance.
- Track administrative costs associated with the tax incentive programs to set fees for businesses to pay so that costs of operating the program are covered.
“When billions of dollars of public funds are at stake, it’s essential that EDA transparently and regularly report on what has occurred,” Walsh said. “We believe that our recommendations to publicly report on the tax incentive programs – using actual performance data – will increase public confidence and improve tax incentives programs that stimulate economic growth in New Jersey.”