To the Editor: Praise for BEIP

BEIP Opinion: Jon Shure

Another View: Maxine Ballen

Corrections or additions?

This column was prepared for the May 25, 2005 issue of U.S. 1

Newspaper. All rights reserved.

Between the Lines

One sure way to lose the attention of an editor at U.S. 1 is to call

and pitch a story for "National Whatever Week." That does not mean we

will never write about whatever that is, just that we will wait for a

newsworthy time.

What makes that time newsworthy, of course, may not be exactly what

the promoter hopes for. The news angle could be good news or very bad

news. And it’s not usually planned months in advance.

We were taken aback to learn, as we went to press, that this happens

to be National Safe Boating Week. Just a coincidence, we assure you,

as we point to the story’s real theme – changing careers to follow

your dream. Along that line we also have a story about Gerri Willever,

who left her classroom teaching career to buy a martial arts school

(www.princetoninfo.com/200525/50525s02.html), and one about those who

seek an alternative career in real estate

(www.princetoninfo.com/200525/50525s01.html),

Top Of Page
To the Editor: Praise for BEIP

I was happy to read about your recent focus on the biotechnology

industry, emphasizing the impact of New Jersey companies and key

influencers, such as the co-founder of the Biotechnology Council of

New Jersey, Abe Abuchowski ("Prolong: Making Taking Drugs Safer," May

18 (www.princetoninfo.com/200518/50518f01.html). In fact, the

opportunity is now to attract, retain and develop biotechnology

companies in New Jersey. Today there are more than 130

biotechnology companies in New Jersey, which is up from 80 in 1998.

Additional new biotechnology companies are being formed and are

growing at a rapid rate. These companies bring high paying jobs with

annual salaries of $80,000 and higher. The biotechnology industry will

become more profitable in the next 10 years.

Meanwhile, other states and countries are working day and night to woo

our precious biotechnology and pharmaceutical companies away. These

states and countries are struggling to build what we in New Jersey

have come to take for granted: a solid, growing life sciences cluster.

We need programs such as the Business Employment Incentive Program

(BEIP) to protect our interests. And, these companies need state

incentives such as the BEIP program to grow.

A prime example of the return on investment that is possible from

these programs is Celgene, the ninth largest biotech company in the

world. Celgene employs more than 800 people today – up from 35 in

1998. Celgene recommitted to New Jersey earlier this year when it

purchased the former Celanese site in Summit, where it is

consolidating its operations.

Although Celgene could have located anywhere in the world, the company

chose New Jersey. And now, state taxpayers will have the benefit of

Celgene income and payroll taxes. Additionally Celgene employees will

spread other revenues throughout the state as they visit restaurants,

shops, and other venues.

Celgene is a shining example of the BEIP program in New Jersey and the

sound investment it represents.

Debbie Hart

President, Biotechnology Council of NJ

Top Of Page
BEIP Opinion: Jon Shure

Should New Jersey spend millions of dollars in incentives to entice a

large corporation to base its operations here? If so, what kind of

review should be made before the money is spent? Those questions were

raised by the Trenton-based research group, New Jersey Policy

Perspective, in a recent report reviewing the state’s effort to get

Verizon to locate an operations center in Basking Ridge.

Following is an excerpt from that report, and a rebuttal from Maxine

Ballen of the New Jersey Technology Council:

New Jersey’s recent decision to give Verizon nearly $80 million in tax

breaks raises questions about how best to use state resources and

highlights the need for major reforms in how such breaks are handed

out.

Those are the main findings of a new report from New Jersey Policy

Perspective in the think tank’s Economic Development Accountability

Project. The report, Telecom Giant Dials "M" for Money and New Jersey

Picks Up the Charges, raises questions about why Verizon is receiving

such large tax breaks, suggests alternative uses for the money, and

calls for significant reforms in the state’s process for awarding

favorable tax treatment to corporations. "There is no reason to expect

that companies will stop playing states off against each other for

incentive payments or that they will decline what is offered to them,"

the report says, "so reform will have to come from the states

themselves." The report makes four recommendations for opening the

process to more public scrutiny and debate:

New Jersey should not be allowed to borrow money again to pay business

incentives. These expenditures should come from general appropriations

as part of the regular budget process, subject to the same competition

for funding as other state programs.

Any individual incentive agreement that costs the state more than $5

million should require a public hearing by the Legislature and passage

of a resolution in favor of the specific project. Such a process would

alert the Legislature to businesses’ needs and future demands on state

resources.

The state should report each year showing the total amount of tax

revenue lost because of exemptions from the sales tax given to

businesses as part of incentive packages. The report should include

the name of the business, the project for which the sales tax

exemptions were granted, and the amount of revenue lost.

Each year the state budget should include a line item for each company

for every grant payout greater than $25,000 that would take place

during the fiscal year under the various state business incentive

programs; smaller grants could be combined in one line item.

"If tax breaks are as effective in building the economy as supporters

say, these reforms should pose no threat," said NJPP President Jon

Shure. "Corporate executives should be just as willing to make their

case in public as over dinner with politicians."

Public officials frequently say that awarding tax breaks sends a

signal that the state is hospitable to businesses. Unfortunately it

also sends a disturbing signal that the residents of New Jersey are

second-class citizens. They must face higher property taxes and

college tuitions, decreased access to health care and housing

opportunities and any number of other difficulties because there is

too little money in the state treasury. Meanwhile, businesses are

assured that they will get their money no matter what, because the

state is willing to incur debt to make sure.

Every year at the beginning of the legislative budget process,

individuals from various advocacy groups come before the Legislature

to prove their worthiness for a budget appropriation to help them

serve their clients. Companies would face a similar situation if a

legislative vote were required on the biggest tax break agreements.

Those with alternate ideas for how to spend the money would have a

chance to come forward. And elected officials would have to go on

record as to their spending priorities.

More disclosure of who gets what, and how much it costs the state each

year, would provide greater opportunity for the public, watchdog

groups, and the press to keep track and assess the impact of business

incentives. From this knowledge, informed debate can emerge.

In apparent competition with Virginia – whose offer to Verizon has not

been made public – New Jersey agreed to give the company close to $80

million in tax breaks over 10 years: nearly $64 million from the

Business Employment Incentive Program, which gives companies a portion

of the state income tax they withhold from employees and that

otherwise would go into the state treasury; tax credits of nearly $3

million under the Business Retention and Relocation Assistance Grant

program; an exemption, also under BRRAG, from paying sales tax on

equipment, furniture and building materials Verizon buys for its move

to the facility Verizon purchased in Basking Ridge.

In return, Verizon announced it will buy the former AT&T corporate

campus in Basking Ridge and move an operations center and jobs there

from other places in New Jersey and other states. The report questions

whether such incentives are needed by a firm that had net income of

nearly $8 billion last year, pays its CEO over $11 million a year and

recently bid $8.5 billion to purchase MCI: "Verizon is no struggling

start-up business that can claim it needs a little help from

government to make it over the top." The report also notes that the

number of jobs Verizon will retain in New Jersey and bring to the

state in return for the tax breaks would still put the firm’s total

employment in the state below the level of 2001. "In essence," says

the report, "the state is paying a company for having downsized."

The report details alternate uses for nearly $80 million over 10 years

that would help make college tuition, housing and health care more

affordable to thousands of New Jersey residents: "But the money will

not be used for any of those purposes. It will be gambled by a state

that has decided to use tax dollars to back one particular player in

one of the global economy’s most volatile sectors."

Under changes made two years ago, the state borrows the money to pay

tax breaks granted by BEIP, instead of appropriating it from the

treasury. This makes it so that such programs are less likely to be

cut in difficult economic times and that future tax receipts will go

toward repaying bondholders, plus interest.

Top Of Page
Another View: Maxine Ballen

New Jersey’s economic prosperity depends on our ability to retain and

create jobs. Without job retention and incentives such as the Business

Employment Incentive Program (BEIP), New Jersey would likely lose

thousands of jobs and companies to neighboring and competing states.

Over the last six years, BEIP has created over 51,000 new jobs and

generated $9.8 billion in private sector investment through over 200

company relocation and expansion projects. The $9.8 billion in

investment expenditure is approximately three percent of New Jersey’s

current Gross State Product.

Keep in mind that these figures do not account for the multiplier

impact on other jobs, economic activity, and tax revenues. For every

dollar New Jersey provides in incentives, many more dollars are

returned in the form of new income, sales and other ancillary taxes

generated by economic development.

To obtain a BEIP grant, tech companies must create at least 10 new

jobs. Non-tech firms must create 25 new jobs. While BEIP may be a key

factor in bringing larger corporations and jobs to New Jersey, BEIP

also serves as the backbone incentive to smaller businesses to grow

here. All recipients of BEIP promise to bring innovation to our

doorsteps.

Programs that provide incentives to companies to create jobs here are

critical to New Jersey’s economic prosperity. Why would New Jersey

walk away from the economic benefits that come from a corporation’s

presence – which includes not only jobs but increased income and

corporate business tax revenue and increased local property tax

revenue? We wouldn’t. We shouldn’t. We can’t.

We applaud the state’s efforts to attract and retain companies – with

their promise of new jobs – to New Jersey. If we don’t do it, you can

be sure our neighboring states surely will.

– Maxine Ballen

President,

New Jersey Technology Council


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