Tax Expenditure Bill Would Bring Much-Needed Common-Sense Oversight and Transparency to New Jersey’s Shadow Spending

Today the full Senate is scheduled to vote on A-939/S-1403, a bill that increases oversight and transparency of New Jersey’s tax expenditures and imposes a new 10-year limit on any new tax expenditure. A version of the bill has already passed the Assembly. 

As we’ve noted time and again, New Jersey can’t build a strong economy for future generations if its only economic-development strategy is to open the floodgates and award billions of dollars in business tax incentives each and every year, as it has done the last five years.

But regardless of where one falls on the efficacy of such tax breaks, everyone should be able to agree that New Jersey’s taxpayers deserve strong monitoring of this alternative form of state spending. That’s why this bill is such a common-sense piece of legislation: it increases government transparency around these tax subsidies while making state policymakers more accountable for their actions. Who could be opposed to that?

We continue to support any legislative efforts to bring some rationality to New Jersey’s ongoing subsidy spending spree – over $4.6 billion has been approved so far this decade – and hope that this bill is a starting point for lawmakers, not the final word.

KEY FACTS & NJPP’S TAKE

On the Tax Expenditure Report:

NJPP was instrumental in getting New Jersey to create an annual tax expenditure report, and we’re glad this bill would make improvements to the report.

It would more clearly define the reporting requirements on the “goals, purposes, and objectives” of each tax expenditure, based on the “stated intent of the legislature” or the governor’s determination. It would also describe the data collected and methods employed in determining whether or not a tax expenditure was meeting those stated goals.

On the Unified Economic Development Budget Report:

Background

In 2007, New Jersey lawmakers passed an important piece of accountability legislation specifically focused on tax incentives and subsidies. The legislation required the Treasury to create an Unified Economic Development Budget Report each year that detailed what companies and entities had received subsidies, how many jobs they had created, how much the jobs paid, whether they had laid off workers at other sites and other measurements of the outcomes of the tax break.

But the Treasury has never produced such a report. This spring, Treasury officials told the Office of Legislative Services that federal privacy requirements are what have prevented it from doing so. However, other states have produced similar reports that make their incentives programs more transparent without running afoul of any federal requirements.

What this Legislation Does 

This bill makes a few minor positive tweaks to the 2007 legislation that created the requirement for this report, such as moving the “due date” of the report to be included with the governor’s budget message and including parent companies of those receiving subsidies in the equation.

It also aims to address the confidentiality issue, with a new provision that assures all information obtained to create the report “shall be considered confidential and privileged” and prevents anyone from disclosing or divulging “trade secrets or commercial or financial information which is privileged or confidential.” It remains unclear to NJPP how this provision would or would not help ensure Treasury creates reports that are complete and transparent. But we are glad to see lawmakers trying to move the Unified Economic Development Budget Report forward, because it is an important oversight mechanism.

On the Sunset Provisions:

NJPP is very pleased that the legislation includes an automatic expiration of future tax expenditures (known as a “sunset” provision), but we are disappointed that the bill was watered down in a Senate committee. In particular, we see no legitimate reason that the sunset date was extended to 10 years from 7.

In addition, while we understand the logistical issues with retroactively applying the sunset provision to already-enacted tax expenditures, and can see why that provision was removed, we hope that lawmakers will continue to work towards a thorough and robust examination of all existing tax expenditures.