New Jersey Has Awarded Unprecedented Amount of Business Tax Subsidies This Decade, Despite Little Evidence These Tax Breaks Can Grow a State’s Economy

June 11th, 2014  |  by  |  Published in Press Releases

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FOR IMMEDIATE RELEASE JUNE 11, 2014

Contact: Jon Whiten, 609-393-1145 ext. 15 (office) | 917-655-3313 (cell) | whiten@njpp.org

New Jersey has awarded more than $4 billion in tax subsidies and credits to businesses this decade in a largely unsuccessful attempt to spur economic activity and boost the state’s crawl out of the Great Recession, according to a new report released today by New Jersey Policy Perspective (NJPP).

As the total amount of subsidies has boomed, so has the cost of deals with individual companies, with a sharp increase in those worth more than $100 million. Meanwhile, the cost of a job tied to a subsidy award has nearly tripled, leaving companies on the hook for far fewer jobs for the tax payments not made than ever before. And an increasing share of New Jersey subsidies are going to retain jobs that are considered “at risk” of leaving the state instead of creating new positions. All of these troubling trends – which members of both political parties helped set in motion – have been accelerated by 2013’s overhaul of the state’s subsidy programs.

“New Jersey has bet the ranch that handing out tax breaks to mostly large corporations alone will somehow improve our economic future,” says Gordon MacInnes, president of NJPP. “So far, it’s clear that the bet isn’t paying off – yet last year policymakers decided to double-down on this failed approach, and now the odds against the taxpayer are even longer. The bottom line is that New Jersey’s financial crisis worsens with every taxpayer- subsidized payday for a very small share of New Jersey’s businesses.”

The major findings of the report:

• $4 billion in state business tax subsidies have been awarded so far this decade, more than triple the total amount awarded the previous 13 years ($1.4 billion).

• As a result, the rate of subsidy awards has skyrocketed to an average of $75.9 million per month this decade, up from $10.1 million per month in the 2000s and $3.8 million per month from July 1996 to December 1999 (prior to July 1996, these subsidy programs did not exist).

• This decade’s $4 billion has gone to just 252 companies. This means that about 1 percent of New Jersey’s businesses are reaping the rewards of these tax breaks while the other 99 percent lose out from the resulting tax shift.

• The value of a job tied to a subsidy award has nearly tripled during the surge, leaving companies on the hook for far fewer jobs on a per-dollar basis than ever
before. This decade’s $4 billion are linked to an estimated 83,960 permanent jobs, a rate of $47,916 per job. The average per-job award was $16,430 in the 2000s and $8,612 in the 1990s.

• The subsidy surge has included a much greater focus on retaining “at-risk” jobs than ever before. Close to half (43 percent) of the jobs tied to subsidies this decade already existed in New Jersey, up from 25 percent in the 2000s and 0 percent in the 1990s.

• All of these trends have been exacerbated by 2013’s Economic Opportunity Act, which overhauled and expanded the state subsidy programs (with the exception of the focus on “at-risk” jobs which has stayed pretty steady post-overhaul). Through the first six months, a total of $992 million in subsidies has been awarded to 38 projects, shooting the volume of subsidies awarded to a sky-high $165.3 million per month. The estimated 16,488 permanent jobs linked to these subsidies means the average value of a job has also increased post-overhaul, to $60,310.

The unprecedented growth in subsidies, however, has so far done little to significantly improve the state’s economy. Four and a half years into the surge, New Jersey’s economic recovery remains far behind that of its neighboring states and the nation.

This lack of economic payoff thus far for New Jersey isn’t surprising, since state taxes – whether actual rates or, in this case, tax breaks – are not the primary factor influencing business location and job creation decisions. It’s no mystery why, considering that state and local taxes make up less than 5 percent of the cost of doing business.

“It’s obvious that most companies will gladly take a tax break if New Jersey offers it to them, but few will move to a location solely because of it,” says NJPP deputy director and report author Jon Whiten. “New Jersey’s efforts to stimulate growth need to reflect this reality by including substantial investments in important public assets that are the true building blocks of a strong economy and greatly reducing the emphasis on tax subsidies. As it stands now, the state’s priorities are out of whack.”

The report includes six common-sense recommendations that policymakers could take to slow the subsidy surge and bring more transparency and accountability to the use of these tax breaks: placing meaningful caps on spending; requiring more information from companies receiving subsidies; including automatic sunset provisions; eliminating subsidies for existing jobs or, at least, developing more stringent standards for these awards; revising the test used to determine the economic impact of a tax subsidy to make it better documented and more realistic; and working more closely with neighboring states.


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