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Time to freeze N.J. tax incentives

Thursday, July 9, 2015   (0 Comments)
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NJ.com 07/06/15

A tax incentive in New Jersey is like a coupon at Macy's: It's become so common, so utterly expected, that nobody wants to buy anything without it. This has long been our state's primary job creation strategy, but lately it's turned into a feeding frenzy. The program has exploded under Gov. Chris Christie, with help from state Democrats. Now, nearly every big investor expects to get a break. The latest is Quest Diagnostics, which is threatening to abandon a major facility in Teterboro. It's not even clear why the company wants to leave: It's located right across from Teterboro Airport, where it can fly in samples and move blood daily. But Sen. Paul Sarlo is still sponsoring a bill to qualify it for a big tax break. Why? Because "there's some discussion" on a move, he says. This is how it happens: Pet projects come along, and the state's incentives program gets stretched and altered, until it eventually strays from its mission. Now it's bursting at the seams, with no caps on the total tax credits awarded and no objective way to evaluate whether they're paying off.

Meanwhile, our state is one of the worst in the nation when it comes to job growth. Which raises the question: Is any of this even working? Even the supporters of this program think it's time for a second-look. So the state is hiring Rutgers academics to study New Jersey's two major tax incentive programs. They will look at how the state estimates a project's economic benefit, to make sure it actually outweighs the tax break. That's a good thing. But the challenge here will be to not get caught up in the tunnel vision of examining only New Jersey's programs, as we have done in the past. We need to look at the strategies of other states, too, to see what works best. Massachusetts, for instance, has a $1 billion fund to provide grants and tax incentives to biotech start-ups. Researchers found it has worked very well and generated jobs. This state focused on one main industry. New Jersey focuses more on location, with a special effort to draw business to cities. Which approach works best? Let's hope the academics answer that.

Then there's the more fundamental question, which no study can ever really answer: Are the companies that threaten to leave bluffing? After all, if a subsidy only rewards a company for doing something it would have done anyway, all New Jersey gets out of the deal is lost revenue. The state can check the plausibility of a threat to leave, by exploring the viability of such a move. But there's no way to know for sure whether CEOS are truly serious about moving without peering into their souls. That calls for a cap. It would at least force state officials to be more discerning. They'd have to ask, of these three top executives, which are the two least likely to be bluffing? We need to impose some discipline on this process. Instead of continuing to broaden the boundaries of the program, let's freeze the subsidies entirely until the Legislature caps their total amount. No politician wants to be the one who stands up to a company that threatens to leave, says, "I dare you," and watches it walk away. It's a game that's stacked in a corporation's favor. But unless we gamble cautiously, we are giving away all our power.


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