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
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
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.
President, Biotechnology Council of NJ
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
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
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.
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
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
New Jersey Technology Council
Corrections or additions?
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