N.J. should reform tax breaks and include a cap | Editorial

For more than a year, New Jersey Gov. Phil Murphy and state Senate President Steve Sweeney have been at war over certain tax breaks for businesses. Despite apparent agreement about some proposed reforms — such as requiring community benefit agreements from recipients and more rigorous oversight — a major roadblock remains.

Murphy is determined to cap at $300 million the total annual dollar amount of these tax breaks; Sweeney and his Senate allies would rather cap the number of tax breaks awarded to individual applicants and have no limit on the total overall. We support the proposed reforms outlined in a report released last week, as well as Murphy’s call for an overall cap on the total amount spent on tax breaks each year.

This battle’s larger context is Sweeney’s loyalty to South Jersey political powerbroker George E. Norcross III, the Murphy nemesis who masterminded the 2013 consolidation of N.J. Economic Development Authority tax breaks into two — Grow New Jersey (Grow NJ) and the Economic Redevelopment and Growth Grant Program (ERG). Together these programs aimed to help attract investment in communities across the state, and also promised $1.6 billion to companies moving to or expanding in Camden alone.

If only the Murphy-Norcross fight, with its opposing narratives, dueling task forces, and somewhat overlapping recommendations, were about getting Trenton to rethink its corporate welfare business. The 2013 act ramping up New Jersey’s tax breaks followed a number of setbacks to the state, including a sluggish rebound from the recession and the devastation of Hurricane Sandy.

When used strategically, such breaks can stimulate growth, but they must be managed effectively. Too often, they’re handed out in exchange for ephemeral promises about creating jobs and encouraging private investment.

There’s scant data that tax breaks in general yield anywhere near the benefits to a community they provide to a company’s bottom line. Jackson Brainerd, a policy specialist with the National Conference of State Legislatures, told Sweeney’s special Senate committee last September that there is “no evidence” such incentives “bear any relation to the broader performance of a state’s economy.” And the public money that underwrites tax breaks is revenue unavailable for more pressing purposes.

The Senate committee’s report made a number of sound recommendations — including creating an Inspector General’s Office to evaluate tax breaks and other state economic development programs. This in itself would dramatically improve a process that seemed more about maximizing the size of incentives in order to cover amenities such as corporate helipads than creating jobs or hiring local residents.

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Supporters of the Senate recommendations question whether an overall cap would disadvantage New Jersey, where taxes are higher than in Delaware, Pennsylvania, and other competing states. Meanwhile, progressive organizations and tax break foes such as New Jersey Policy Perspective and N.J. Working Families are as adamant as the governor about the necessity of an overall cap.

Murphy’s office points out that competing states have such caps, and that commonsense budgeting practices suggest placing no limit on potential fiscal obligations is a bad idea. We agree: an overall cap is a smart move.