Holtec Tax Break: A Case Study on the Need for Subsidy Policy Reform

Today, Holtec International is scheduled to hold a groundbreaking ceremony on its new facility in Camden. While the company’s investment in the state’s most struggling city is certainly positive, the cost to New Jersey could far outweigh any benefits the state may see, thanks to major loopholes and flaws in the law governing the Garden State’s corporate tax subsidies.

Holtec’s $260 million tax break – to be paid out over 10 years – is based on the state’s estimate that the project will bring 395 permanent jobs and $260.2 million in benefits to New Jersey. So it would come out in the black, if just barely.

But there’s a major problem.

holtec money and run-01That estimate assumes Holtec will stay in New Jersey at the employment levels promised for 35 years. This is an unreasonably long time to predict business activity in the 21st century, and – perhaps more importantly – 20 years longer than the corporation is required to uphold its end of the deal.

After 15 years, Holtec is freely able to move to another state, slash its workforce or threaten to leave in order to gain more tax breaks – and the state would have no recourse to get back any of the $260 million it has already lost to the tax break. If the corporation left after 15 years – which may be unlikely but is made absolutely possible by a poorly designed law – the state estimates it would lose $106 million on the $260 million subsidy. Even if Holtec stayed for 30 years and then skipped town, New Jersey estimates it would still lose millions – $21 million to be exact – on the tax break.

In addition, the Holtec subsidy, as approved, is unnecessarily lucrative.

The taxpayer cost of each of those 395 jobs is a whopping $658,000 – or $1.1 million if we count only the 235 jobs that will be new to the state and not those just shifted from one part of South Jersey to another.

The irony here is that Holtec is touting that the Camden facility will employ at least 1,000 and as many as 3,000 within the first few years. Yet New Jersey’s subsidy law is written to so heavily favor corporations that the company needs only to promise – and be held accountable for – 235 jobs. If the state’s policies were better crafted, we’d be holding profitable multinational corporations like Holtec accountable for as many jobs as possible – not giving them an easy out to not deliver on their promises.

As a starting point, New Jersey needs to fix this broken economic estimate, known as the “net benefits test.” Official estimates of a tax break’s economic benefits to the state should not be any longer than the length of time the corporation is required to uphold its end of the deal. Legislation recently introduced by Assemblyman Troy Singleton would make this crucial change.