‘False statement’ helped secure $2.4M tax break from New Jersey
The task force examining problems in New Jersey’s tax incentive programs detailed another round of issues at a hearing Thursday, including one applicant that faked interest in an out-of-state alternate site and another given permission to count its fees to the state as a business investment.
The most recent of the issues flagged by the task force happened earlier this year, when the Economic Development Authority approved nearly $40 million in incentives for a nonprofit that it could have easily discovered didn’t adhere to lawsuit disclosure obligations.
The most significant example appeared to revolve around Rainforest Distribution Corp., which distributes organic foods and received a $2.4 million tax break in 2016 as part of moving from Queens to Bayonne four years ago. In its application, it appears to have falsely told the EDA it would move to a site in Orangeburg, New York, if it didn’t get the incentives.
At issue were representations made to the state by Rainforest’s commercial real estate consulting firm, CBRE, which also suggested withholding information about a draft lease for the Bayonne site. The filing with the state was backdated nearly three weeks, asserting that the company was thinking of moving to a site in Orangeburg its executives had never heard of at the time.
“At that point in time, we had no intention of doing anything,” said Alexander Ridings, Rainforest’s chief executive officer, who said CBRE made a "false statement" to the EDA in some correspondence.
Rainforest paid CBRE $128,000 for its work, Ridings said.
CBRE announced while the meeting was happening that the executive who handled the matter, senior vice president Susan Harte, no longer worked for the company, effective Wednesday.
"CBRE takes great pride in its reputation for upholding the highest ethical standards, which we demand from each of our 90,000 professionals around the globe,” the company said in a statement.
In a separate matter, task force attorney Avni Patel outlined how the EDA had awarded $39.6 million in future tax incentives this past February to Elwyn, a nonprofit healthcare and human services provider moving to Camden from Pennsylvania, even though it hadn’t disclosed a number of lawsuits in which it was a subject, some during the review process.
“Many of these actions are publicly discoverable and could have been found by the EDA,” said Patel, who said they wouldn’t have necessarily disqualified Elwyn from getting its tax break.
“The task force believes that it is the EDA’s responsibility on behalf of the New Jersey taxpayers to ensure that tax incentives are being awarded to companies that we legitimately want to incentive to come to New Jersey because they are abiding by the moral, ethical and legal practices addressed in the legal disclosures,” Patel said.
The Philadelphia 76ers basketball team was allowed to include its EDA fees of around $400,000 in the ‘soft costs’ portion of the capital investment it spent in calculating its tax break for a practice facility in Camden. It seems to be the only case in which that happened.
The team was approved for $82 million in tax breaks, which was lowered to around $79 million because it didn’t spend as much as it expected. That was “an odd duck,” as most applicants spend more than promised, said Susan Greitz, the EDA’s director of incentives relationship management.
“I don’t think this was a special decision for the 76ers,” Greitz said. “This was my understanding that the Camden alternatives would be afforded the ability to include these fees at the time.”
Task force attorney Jim Walden said “essentially the public paid for the EDA’s fees,” being deprived of future tax money.
“This applicant actually underperformed but got a benefit that other companies did not get,” he said.
The state Economic Development Authority is funded through fees it receives from businesses seeking and receiving tax incentives as well as returns on its business investments, not from the state budget.
The fees from applications are small, at $5,000 or less. But the revenues from companies that get tax breaks can be substantially larger, at up to $2 million over time for the biggest awards, and the task force is questioning if that’s a conflict of interest that motivates the agency to approve more awards.
The fees from Grow NJ amounted to $38 million over six years, peaking at $13.2 million, or 30 percent of EDA revenues, in 2017. Without Grow NJ, the agency’s revenues would have been $12.5 million over the six years spanning from 2013 to 2018.
“What the task force is concerned about is the potential conflict of interest that exists with respect to an agency that’s self-funded, and part of that funding stream is the approval of applications that require diligence and require a gatekeeper,” Walden said.
“No one’s got a personal motivation,” he said. “They don’t get more money in their pocket if they approve applications. So that should be clear to everyone that that’s not happening. But we’re just concerned about whether or not this system creates at least a potential for people to have conflicted loyalties.”