No proof that $11B corporate tax breaks created jobs, NJ audit finds
TRENTON — A report from the state comptroller issued Wednesday finds that the state didn’t properly administer nearly $11 billion in tax breaks and needs to improve the reporting requirements and monitoring to safeguard tax dollars and deliver promised economic benefits.
The state Economic Development Authority can’t ensure that fees were appropriately assessed, collected and recorded; reported nearly 3,000 jobs were created that can’t be substantiated; and improperly awarded $179 million in incentives and overpaid them by $6.6 million, according to the audit.
“These failures resulted in inaccurate representations of awardee performance to stakeholders and taxpayers,” the audit says.
The performance audit was ordered nearly a year ago by Gov. Phil Murphy, in advance of the state’s tax incentive programs expiring this June and potentially being extended or revamped.
"The comptroller's report confirms some of our worst suspicions — that billions of dollars worth of state tax incentives were awarded by the Christie administration with little regard to oversight or transparency and even less regard for making sure we actually got a return on the taxpayers' investment," Murphy said.
“One would hope that such a huge number would come with an equal level of internal controls designed to ensure that applicants lived up to their claims," Murphy said. "We now know that they did not.”
It says “inadequate monitoring, insufficient oversight, and non-existent policies and procedures … weaken the transparency and accountability of the incentive programs” and the state doesn’t have a process for determining if the state realized the promised economic benefits.
“EDA has a responsibility to New Jersey’s taxpayers and stakeholders to properly administer the incentive programs and to assess the success of each program with a particular emphasis on the extent to which New Jersey’s economic position has improved,” says the audit. “Without such validation, there is no evidence that the incentive awards are doing more than just providing a subsidy for businesses and not detracting from other activities that promote economic growth, such as education, job training, and transportation.”
The EDA relies on certifications and data from the award recipients without verifying the data with records from the Treasury Department or Department of Labor and Workforce Development. It didn’t collect detailed information about businesses’ workforces from the year before they applied for state incentives, making it impossible to know if recipients met future employment promises.
“Establishing an applicant’s baseline employment numbers is essential to ensure that incentives are awarded only for newly created or retained jobs,” the audit says.
“Given these shortcomings, EDA is not in a position to verify and confirm that incented jobs were actually created or retained,” the audit says.
The audit sampled incentive grants across five tax incentive programs: the Grow New Jersey Assistance Program, Economic Redevelopment and Growth Program, Business Employment Incentive Program, Business Retention and Relocation and Assistance Grant Program and Urban Transit Hub Tax Credit Program.
Three of those programs – BEIP, BRRAG and HUB – were phased out in 2013 but have reporting requirements for recipients through 2030 and a remaining incentive obligation to the state of $1.7 billion.
Senate President Steve Sweeney, D-Gloucester, said the legislation that created the tax incentive programs included oversight standards.
“As this report clearly states, the oversight requirements were not followed. That has to be rectified with any new incentive programs," Sweeney said.
"We will work with the administration to create replacement programs that address the same priorities of generating economic growth, creating and retaining jobs and expanding long-term opportunities," he said. "The new incentives must include significant oversight and accountability so that the programs maximize their effectiveness and do not squander resources.”
As of last February, the EDA had approved tax incentives for 1,000 projects. Applicants projected that those projects would create nearly 162,000 jobs, retain 80,000 existing jobs and lead to $33.7 billion in capital investment.
To actually receive the promised tax credits, recipients must meet specific conditions. Between 2005 and 2017, 401 projects were certified and awarded $3.4 billion in tax credit incentives. The audit looked at 42 of those certified projects, a bit over 10 percent of them, plus six other examples.
GrowNJ is currently the state’s primary job creation and retention program, offering annual tax credits of $500 to $5,000 per job, plus annual bonuses of $250 to $3,000 per job. ERG is an incentive program for developers and businesses to fill revenue gaps in development projects.
The audit says $179 million in HUB incentives were improperly reported to five commercial projects because the EDA awarded some incentives – at reduced amounts – to applicants that didn’t meet the requirement in state law that its capital investment must be at least $50 million.
The EDA told the comptroller that the state was still deriving an economic benefit greater than the amount of the award and that the attorney general advised awards can be issued for less than 100 percent of a proposed capital investment. The comptroller says that advice didn’t authorize awards where the investment didn’t meet the requirement in state law.
Most of the approved tax credits have not yet been paid out. The EDA says of the roughly $8 billion approved through the HUB, ERG and GrowNJ programs, less than 9 percent has been paid to date, or $697 million.
In the formal response to the audit, EDA chief executive officer Tim Sullivan said the agency has established a new division focused on post-approval monitoring of projects and compliance; has met with the labor department to set up a data sharing arrangement; has already incorporated many of the audit’s suggestions for business reporting requirements; and is close to completing a new data and documentation system that will be a central database for all EDA programs.
“Under new leadership beginning in late February 2018, the NJEDA has already begun to take significant actions to ensure the utmost transparency and due diligence is exhibited for all legacy and future programs,” Sullivan wrote.
Sullivan said 70 percent of the findings and recommendations relate to the since-expired incentive programs, including 88 percent of the jobs that the audit says can’t be substantiated.
“The NJEDA welcomes the OSC’s audit as an opportunity to assess areas for further improvement, and we appreciate and agree with a number of the recommendations outlined in the report,” Sullivan wrote. “It should be noted that the NJEDA does not agree with the conclusory nature of the OSC audit deeming certain activities to be “deficient,” despite the NJEDA adhering to statutory requirements.”