Telcom Giant Dials "M" For Money and New Jersey Picks Up the Charges

By NJPP Staff

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The telecommunications firm Verizon-nationwide provider of phone and Internet service-has had a large presence in New Jersey dating back to predecessor firms New Jersey Bell and Bell Atlantic. And that presence will grow considerably with the company’s plans to open an operations center on a sprawling corporate campus in Basking Ridge.

It should not seem surprising that a major firm would want to be in New Jersey; the state has long proven an agreeable site for many major corporations. The state is just across the Hudson River from New York, arguably the world’s financial center. New Jersey has invested over the years in a high-capacity transportation infrastructure and has taken notable steps to preserve its air, water and open space. The suburban communities that dot the landscape boast some of the best public and private schools in the nation. New Jersey’s workforce is among the nation’s best educated and a surge in immigration has produced throngs of people eager to work their way up.

But as compelling as New Jersey’s attributes might be, Verizon announced its latest commitment to the state only after New Jersey agreed to provide the firm with upwards of $80 million in various tax breaks over a 10-year period. According to published reports, if New Jersey’s offer was not to Verizon’s liking, the firm was prepared to shift significant parts of its operations to Virginia. Indeed, Acting Gov. Richard Codey was quoted as saying, “It was a fight between me and the governor of Virginia. They worked just as hard as we did.”

To a company that had net income of $7.8 billion last year and beat Wall Street’s expectations in the first quarter of 2005, with a $1.76 billion profit, New Jersey offered the following:

1. Nearly $64 million from the state’s Business Employment Incentive Program (BEIP), which gives companies a portion of the state income tax they withhold from employees and that otherwise would go into the state treasury. BEIP money is awarded to firms that move to, or stay in, New Jersey and increase the size of their workforce.
2. Tax credits amounting to nearly $3 million under the state Business Retention and Relocation Assistance Grant (BRRAG) program. BRRAG is for companies already in the state that decide to consolidate New Jersey facilities and retain jobs in the process.
3. An exemption, also under BRRAG, from paying sales tax on equipment, furniture, building materials and anything else Verizon buys in connection with its move to the facility Verizon purchased from Pfizer in Basking Ridge. State officials have not said how much the exemption is likely to be, but based on published reports about how much the firm plans to spend on renovations, a figure between $11 million and $15 million seems accurate.

Verizon bought the new site-the former AT&T headquarters-to house top-level management and other staff in its Domestic Telecom and International units and Verizon Wireless. The 135-acre complex contains seven interconnected buildings totaling over a million square feet of space.

New Jersey officials hailed Verizon’s decision, and boasted of the state’s role in persuading the firm to make that decision. Verizon was praised as a good corporate partner; New Jersey was touted as “the right place for business to do business” by Acting Governor Codey; and other officials proclaimed the event sent a message that New Jersey is once again a national leader in telecommunications.

But aspects of this deal raise questions about how good a deal it really is for the taxpayers of New Jersey-and whether the state should be so heavily invested in handing out money to businesses, especially at a time of state financial crisis when funding for many programs is being cut.

Like other states, New Jersey in recent years has stepped up its efforts to attract businesses from other places and retain those already in the state when they threaten to leave. The state offers a growing variety of programs involving grants, tax credits and tax exemptions that revolve around a single concept: job creation. While subsidies and tax breaks for businesses get little public debate and far less scrutiny than other large state expenditures, they are defended by the state, and businesses, for the number of jobs they add to the workforce, and the stated beneficial spin-offs to the economy from the addition of those jobs.

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