N.J. comptroller found oversight of state tax breaks has improved, three years after audit caught red flags

Companies that get tax breaks from New Jersey are subject to better oversight and job verification requirements than they were three years ago, when a scathing audit found significant problems at the Economic Development Authority, the New Jersey comptroller’s office said in a report issued Wednesday.

Still, the comptroller’s latest review of the agency that oversees billions in tax credit awards found that the EDA hasn’t done enough to recover improper awards identified in the 2019 audit, worth more than $200 million.

The comptroller’s office also said the EDA needs to improve transparency in the agency’s annual reports about whether companies are meeting requirements for their tax credits. Businesses can use the credits to offset their tax bills, or sell them for cash to other companies. In exchange for the credits, the award recipients typically promise the state they’ll build or rent offices in New Jersey, while retaining a certain number of employees and creating new jobs.

All in all, out of 21 recommendations issued in the 2019 audit, the EDA has implemented 11, partially implemented seven, and hasn’t implemented three, the comptroller said.

“New Jerseyans are entitled to a return on their investment with these tax incentive programs,” said Acting State Comptroller Kevin D. Walsh, who was nominated by the governor. “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 original audit led Democratic Gov. Phil Murphy to appoint an investigative task force, which dove deeper into the workings of tax break programs that were expanded during the administration of former Gov. Chris Christie. Investigators held a series of public hearings and released three reports that roiled Trenton politics, as the task force alleged oversight failures and behind-the-scenes provisions benefiting special interests.

» READ MORE: Firms that won tax breaks by threatening to leave N.J. were often bluffing, task force concludes

The task force ultimately recommended that the EDA review awards issued to a dozen firms — including a $260 million award, payable over 10 years, to energy technology firm Holtec International, which did not disclose a past debarment by a federal entity on its tax break application. The EDA withheld a $26 million annual installment to the company while it reviewed the matter, prompting Camden-based Holtec to sue the agency last year.

A New Jersey Superior Court judge ruled in Holtec’s favor on Dec. 30. Judge Robert Lougy determined that the debarment section on the application was ambiguous and ordered the EDA to give Holtec the tax credits owed for 2018. A company spokesperson said Holtec was “pleased by the judge’s decision.” The EDA is considering an appeal, a spokesperson said.

In response to the comptroller’s review Wednesday, the EDA said it now “conducts a rigorous, annual review of more than 400,000 jobs associated with various programs” and has developed data-sharing practices with other state agencies to “ensure that tax credits are only disbursed to companies to the extent they meet their commitments for job creation and retention.”

The agency also highlighted its appointment of a chief compliance officer, and said it has given staff tools and training to ask questions and employ “reasonable skepticism” on the job.

“While we continue to make improvements and adapt to the changing economic environment, we are proud of what we have accomplished during Governor Murphy’s administration,” said EDA’s chief executive officer, Tim Sullivan. “We also appreciate the [comptroller’s] recognition that the NJEDA has addressed the most significant issues raised in its prior report.”