Press Release :: 10/12/06 Payoffs for Layoffs Wrong Direction for State's Economy

At a ribbon-cutting in 2002 for its new US headquarters in Florham Park, Altana Pharma made the prediction that by 2007 the international pharmaceutical firm would employ 1,000 people at the site.

Things didn't work out as the company hoped. On October 3, Altana announced plans to lay off 350 workers. That was bad news for the employees-and it also was bad news for the taxpayers of New Jersey, who to date have handed out $488,553 in subsidies to Altana. The money was part of the deal the state made with the firm when it decided to put its headquarters in New Jersey.

Altana received grants under New Jersey's Business Employment Incentive Program (BEIP). BEIP provides to businesses cash grants worth up to 80 percent of the amount that a company withholds from its employees for their New Jersey Gross Income Tax payments. The size of the payments depends on how many people a company brings to New Jersey, and how much it pays them. Had Altana hired and retained all the people it told the state it would, the firm would have received $4.3 million over 10 years.

The layoffs, which Altana attributed to delays by the federal Food and Drug Administration in approving pharmaceutical products, mean less BEIP money is likely to come the company's way. But fairness to New Jersey's taxpayers should also dictate that the company give back the nearly $500,000 it has received so far. New Jersey has gotten a poor return on its investment. Altana, meanwhile, had net income of $507 million in 2005 from its operations in 30 countries.

"New Jersey taxpayers shouldn't have to support payoffs for layoffs," said NJPP President Jon Shure. "This is one more example of how subsidies are bad business for the state."

The company might get away with paying back only some of the subsidy. And not until two years have passed, during which the state will see whether Altana gets back to the level of 80 percent of what its employment in New Jersey was when the BEIP grants were approved.

The Altana case is one more piece of evidence that state subsidies to businesses are the wrong way to build an economy. Companies have gotten very good at playing states off against each other. Businesses end up getting paid by taxpayers to do what they might well have done anyway. And when promises aren't kept, the state loses. If the money going to Altana and other companies were used instead to build an economy the old-fashioned way-investing in transportation infrastructure, schools, training, etc-the results would last a lot longer.

New Jersey Policy Perspective is a nonprofit, nonpartisan organization established in 1997 to conduct research and analysis on state issues. NJPP's Economic Development Accountability Project aims at broadening debate over state priorities and bringing more scrutiny and discussion to business tax breaks, a relatively little known but increasingly expensive state government activity. NJPP began its work on business tax breaks with release in December 2003 of Taking Care of Business: Does it Cost Too Much? Last year, the project continued with Telecom Giant Dials "M" for Money: And New Jersey Picks Up the Charges. In July 2006 NJPP released Mapping a Route to Dollars: AAA Mid-Atlantic's Four-State Tour. All are available on NJPP's website.