(Courtesy of the New Jersey Economic Development Authority)
The state agency that administers New Jersey’s tax incentive programs has largely improved its oversight of companies that receive billions of dollars in state tax breaks since the state Comptroller’s Office identified deficiencies three years ago, a new comptroller’s report found.
The New Jersey Economic Development Authority has made progress in verifying that businesses retain or hire the employees they promised to when applying for incentives, the report released Wednesday said.
The authority provides tax incentives to businesses as a way to create jobs and revitalize communities through redevelopment. In a 2019 audit, the comptroller’s office found the authority didn’t adequately count jobs and relied on unverified data reported by businesses to award tax incentives. The authority also relied on projections of economic benefits to award tax credits, even when data failed to show those benefits were realized.
In that audit, the comptroller identified $11 billion in grants and incentives the authority administered through incentive programs including the Business Retention and Relocation Assistance Grant Program, Urban Transit Hub Tax Credit Program, and Grow New Jersey Assistance Program.
State law requires the comptroller’s office to follow up on audits within three years to see if its recommendations were implemented.
In Wednesday’s follow-up report, the comptroller’s office said despite the authority’s progress, it should do more to ensure businesses don’t get tax credits they haven’t earned. The authority also hasn’t done enough to recover the improper awards of tax credits and payments totaling more than $200 million identified in the 2019 audit, the report says.
“It is easy for a business looking for tax credits to promise results, but harder to deliver,” acting State Comptroller Kevin D. Walsh said. The authority’s “unwillingness to implement the recommendations in the 2019 report regarding using actual data means that it has maintained a policy that fails to distinguish between businesses that keep their end of the bargain and those that do not.”
Such oversight and transparency is especially important given how the pandemic has battered the economy, Walsh added. New Jersey’s unemployment rate is now 6.6% — among the worst in the nation — and it reached 16.2% in June 2020.
In response to the new report, the authority agreed to reassess the net economic benefits of tax incentive programs annually for two incentive programs, subject to a review by the Attorney General’s office.
“New Jerseyans are entitled to a return on their investment with these tax incentive programs,” Walsh said.
An authority spokeswoman said the agency “has worked diligently to resolve the issues raised in the original report and has been committed to creating sound processes and operations, especially those pertaining to approvals and compliance. Transparency and responsible stewardship of taxpayer resources remain our highest obligations as we continue to make improvements.”
The authority saved $350 million by reducing tax credit awards to 82 companies under the oversight improvements it has made since 2019, spokeswoman Virginia Pellerin added.
The authority has not acted on three of the 21 recommendations the comptroller’s office made in its 2019 audit, Wednesday’s report says. Those are: establishing a process for incentive programs to report on their successes to determine if economic benefits were realized; requiring annual reports for incentive program activities that are performance-based; and tracking administrative costs associated with the tax incentive programs to shift those costs to participating businesses rather than the state.
Sheila Reynertson, a senior policy analyst at progressive think tank New Jersey Policy Perspective, said the newest report shows “the honor system is not an appropriate monitoring system.”
“Handing out corporate tax credits based on the promise of ‘job creation’ works only if the state routinely verifies that the jobs are actually created,” Reynertson said in a statement. “Unfortunately, no such verification system is in place. Instead, corporations are asked to report their own jobs data without effective oversight or independent auditing. Accountability to the people of New Jersey shouldn’t be treated as an afterthought.”
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