January 2019 Audit of Economic Development Authority: “Key internal controls were lacking or nonexistent for the monitoring and oversight of recipient performance. EDA was, thus, prevented from determining whether the incented jobs were actually created or retained or from ensuring that the awardees had satisfied the incentive program requirements for these jobs. In addition, the agency lacks adequate policies, procedures, and controls to provide accurate and reliable program results.”
A stunning, but not surprising, audit on an agency which holds up to $11 Billion in approved tax credits while not being able to provide accurate and reliable data on program results. Following the report in January Gov. Murphy launched a special task force to probe how a lucrative tax incentive program championed by former Gov. Chris Christie went off the rails. As Politico reports, “At the heart of the debate is the extent to which the programs have worked and how Trenton should go about reforming them.”
Christie was known to enrich politically connected players who were big sources of campaign cash. As one example, his administration provided a $40 million package of tax incentives to a firm founded by real estate mogul Murray Kushner, who has delivered more than $125,000 to his campaigns and to state Republicans since 2009. And so it went in those days.
In March in damning testimony before the task force, a whistleblower said her former employer, identified as Jackson Hewitt, lied about plans to move out of New Jersey in order to qualify for a $2.7 million corporate tax break. The task force in early April made its first referral to law enforcement of an unidentified target in what could lead to a criminal probe. “We are going to follow the facts in a search for the truth,” said Ronald Chen, the task force chairman. On April 16 Gov. Murphy requested the resignations of gubernatorial appointees to the EDA effective immediately. The Legislature also launched an investigation.
With the tax-incentive programs set to expire in June, Murphy and lawmakers have yet to agree on whether they should be renewed or significantly overhauled. Murphy wants to implement reforms and impose a hard $200 million annual cap on the tax credit program. On the one side are lawmakers and business groups who defend the existing structure, though they acknowledge the incentives must be tweaked and reigned in – to a degree. Assembly Budget Chairwoman Eliana Pintor Marin (D-Essex) said, “I think there is a lot of room for improvement … I just don’t know if we are going to be able to have this monstrous conversation before the deadline.”
If Murphy and the Legislature cannot agree on a plan by the end of June so be it. It can be temporarily extended until a sensible program is implemented. McKinsey found in a 2017 that New Jersey spends five times as much on the average tax break deal when compared to similar states. As a result of the ongoing investigations the State may end up having to grant less tax exemptions that the $11 Billion approved, but Murphy plans at least up to $1 billion a year in reserves against such future tax exemptions.
It’s hard to have any sympathy for firms that may have to actually create the jobs they promised or suffer the consequences. It’s easy to see that the program has been a boondoggle. Not only has there been waste and poor management, but political patronage as well. EDA can indeed attract new businesses to New Jersey, but it has to be well-administered. And how to achieve that goal is what Murphy and the Legislature must resolve.