October 26, 2009: No rules? No problem for first tax increment financing award

Even before the state’s new tax increment financing (TIF) program is fully operational with rules and regulations, the New Jersey Economic Development Authority (EDA) has made a preliminary award for the first TIF — $14.6 million to the Depository Trust & Clearing Corporation (DTCC), a large financial services company. Under TIF, the amount of money DTCC will receive depends on the amount of corporation business taxes the company pays New Jersey. Instead of going to the state treasury, a portion of those taxes will be used to reimburse for renovations to the Jersey City office building where DTCC plans to move 1,600 workers now based in Manhattan.

The TIF program was hurried through the Legislature and signed by the Governor last summer as part of the New Jersey Economic Stimulus Act of 2009. The bill includes several new business subsidies.

One thing startling about this grant is that it has been awarded before program rules and the application have been finalized. In a memo about DTCC, the EDA wrote: “Since the rules are not completed at this time and since the applicant has not submitted an application (it has not yet been made available by the Authority); a full review of project eligibility cannot be completed.” And yet a grant was awarded.

DTCC has been the recipient of New Jersey’s largesse before. In February 2009, it was awarded a $74.6 million Business Employment Incentive Program (BEIP) grant for bringing the 1,600 jobs mentioned above to Jersey City. BEIP money only becomes available when the workers are transferred from New York to New Jersey so none of the money has been paid out — yet. This award is one of the largest BEIP grants ever made. Despite this, the EDA said DTCC told them the state was still not pulling ahead in the competition with New York and Connecticut. To beat out the other states, New Jersey officials rushed DTCC to the front of the TIF line.

The idea that this $14.6 million grant was the major reason DTCC decided to move to Jersey City ignores many of New Jersey’s advantages, including the state’s high-caliber workforce and proximity to many businesses’ customers and suppliers. These advantages were cited by DTCC’s CEO in a press release announcing the move last week. DTCC Chairman and CEO Donald F. Donahue said, “New Jersey offers us convenient access to our customers in the greater metropolitan area. We are also excited to tap into New Jersey’s skilled workforce as our business grows in the future.”

Before making such deals — if they must be made — it is critical that the rules and procedures for awarding these grants be developed and implemented. After all, many alternative uses for these funds exist.