Governor 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.
Rather than an across-the-board increase in incentive packages, 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, and where the state is seeking to encourage “smart growth” – especially mass-transit-oriented developments in the urban centers. This legislation, which took nearly a year to negotiate, was ultimately supported by Republicans and Democrats alike.
Here are six ways the new law will improve the state’s ability to compete for business:
1.) Expands incentives opportunities to broader areas of the state. While some of the previous incentives programs were available statewide, the most valuable programs were limited only to certain cities or older suburbs (referred to as State Planning Areas 1 and 2). The new law makes a broader menu of targeted tax credits and grants available in more areas of the state, but still restricts incentives in environmentally-sensitive areas.
2.) Targets more resources for “smart growth” 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 the newly-created Garden State Growth Zones (Camden, Trenton, Passaic and Paterson), and other “distressed municipalities.”
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 that was an enormous barrier to entry for smaller companies. For example, 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 new law also provides for developers to build “incubators.” (I should note that the governor and legislature 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 now been merged into just 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”). This consolidation effectively 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 (whose jobs are deemed “at risk”). Incentives for such “retained jobs” are reduced to 50 percent of the award available for new jobs. This is a balanced and fiscally responsible approach acknowledging that, as a relatively high cost location for business, New Jersey needs to be competitive. It also 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 are more valuable to the state’s economy.
6.) Elevates standards for receiving incentives. While the New Jersey Economic Development Authority has always applied a keen due diligence review to proposed projects, the new law codifies and elevates these standards into law, and raises the bar even higher. Companies must prove that incentives are necessary to make an expansion or relocation to New Jersey possible, and the CEO of the company must personally certify the need for incentives.
In short, the NJ 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 back-log 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 Biggins, Lacy, Shapiro & Co., which helps companies successfully plan and execute location strategies. BLS, based at 47 Hulfish Street, worked with the state’s Smart Growth Coalition on the drafting of the Economic Opportunity Act. BLS has represented clients on some of the largest projects in New Jersey, including new headquarters for Prudential and Panasonic in Newark, which, together with other BLS projects, resulted in tax credit awards of more than $800 million. BLS analysts Iryna Hamkiv and Noah Chrismer contributed to this article. Visit www.blsstrategies.com for more information.