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NAOIP Looks at “Next Generation Incentives: Building on Success”

May 6, 2019

The Commercial Real Estate Development Corporation (NAOIP) held an April 30 event at the Raritan Center in New Jersey and the agenda was ambitious to say the least.

Tim Sullivan, CEO of the NJ EDA, kicked off the discussion with some of the strengths and weaknesses of the NJ economy. These included a GDP of $634 billion along with a per capita income of $64,537, which ranks third nationally. We also claim the busiest seaport in the nation, the highest concentration of scientists and engineers, outstanding public schools where nearly 600,000 attend college, and 99% of the state’s population have internet access. Our leading industries include life science, technology, financial services, telecommunications and media.

All is not rosy, though. Out of the 50 states, wage growth in NJ over the past decade has ranked #49 and employment growth #42; our poverty ranking is #47 – all sobering numbers. Since 2006, the Garden State has seen a 50% decline in venture capital. In fact, prior to the Great Recession we were a top five VC destination nationally; today our state stands at number 15. One reason for this is presumed to be not enough small, young companies making that leap to mid-sized and large companies of 1,000 employees or more.

However, Governor Murphy has presented a plan for a “stronger and fairer economy, with a focus on innovation and growth.” His plan hopes to reach five goals by 2025:

  1. Lead region in job growth, with 300,000 new jobs.
  2. Lead region in median wage growth, with a $1,500 increase in annual median wage growth.
  3. Create the most diverse and innovative ecosystem in the U.S.; focus on 40,000 new minorities and women in STEM.
  4. Close racial, gender, wage, and employment gaps.
  5. Build thriving inclusive communities to reduce the urban poverty rate.

But how to achieve these ambitious goals? The governor’s plan focuses on the following: 

  1. Investment in people.
  2. Investment in communities.
  3. Make NJ the state of innovation.
  4. Improve government operations and the business climate.

While NJ remains an R&D-centric economy, it faces heavy competition from established and burgeoning tech hubs such as Boston, Philadelphia, Seattle, Miami, Austin, and the Research Triangle. 

NJ wants to focus on new entrants into the Fortune 500, but also needs smaller firms to grow and reach that next level. Because heavy competition from the aforementioned regions above are impacted by education, NJ is looking to expand projects, like the HUB in New Brunswick. Also as part of this process, NJ wants to enhance training and support so that young companies can access collaborative work space. This is aided by the governor’s plan and proposals via (1) NJ Forward Program; (2) NJ Aspire Program; (3) Brownfield Tax Credit; (4) Historic Tax Preservation Credit Program; and (5) the NJ Evergreen Innovation Fund.

A panel discussion featuring Tony Pizzutillo (Pizzutillo Public Affairs), Eliana Pintor Marin (NJ Legislature), Tom Banker (Banker Group), and Ted Zangari (Sills Cummis & Gross) examined the proposal for the Grow 2.0 program and how they felt it should be revised to meet the post-Great Recession needs of NJ.  The existing program appears strong due to low unemployment levels; however, job growth has stagnated due to heavy competition from neighboring states. The group stressed getting past the budget process in the next couple of months so that we can focus on correctly establishing these programs. 

Zangari offered insights on the current mood in Trenton and the need to be careful because of looming national site selections.  He cautioned that political fighting could lead to negative impressions of the state when it comes to corporate site selections.  He also feels Governor Murphy should receive more credit for economic growth for his efforts in bringing business here, opening trade commissions both within NJ and internationally, the Choose NJ program, and securing 169 qualified opportunity zones along with increasing incentives for tax credit programs for the film industry, evergreen and historic funds, and the nearly completed American Dream project. 

Most policy makers agree that incentives are important, but feel the close-to-expiring historical grow program needs to be refined to meet current-day needs. Site selection needs to make sense, and the following items must be considered prior to cost commitments: 

  • The education and training level of the work force.
  • Infrastructure
  • Land use approvals and permits.
  • University and employer roles.
  • Regulatory environment
  • Quality-of-life factors.

Again, heavy competition from other regional markets are a major concern, particularly with NJ being a more expensive state in which to operate. The proposed Grow 2.0 program, however, may be able to offset that competition by expanding the caps in place and shortening the timeline, including resizing the net benefits test and allowing NJ to be the buyer of last resort tax credits (which currently can only be used by C corps). NJ should present smart growth features that motivate companies to choose NJ, including bonus points and credits as a way to incentivize NJ migration.

Even though NJ did not win Amazon 2.0, the process did help NJ focus on the need to improve infrastructure, housing, transportation, home rule and local property taxes. It also brought to light changing demographics and the fact that young people want choice, be it cities vs. suburbia, mass transit vs. personal vehicles, and so on. 

Tom Banker spoke about the Economic Redevelopment & Growth (ERG) program. Commercial ERG requires the least amount of revisions, however, it needs to improve where rewards go as part of ERG appropriation. Incentives should be more beneficial than the associated administrative burden, and the competitive process should be done semi-annually instead of first-come, first-served to allow NJ to evaluate the impact of proposals. Residential ERG has never been implemented, but if so, it needs an explicit mission statement. Companies relocating to NJ need to be able to determine where their people will live. We need a systematic program with targeted areas of focus and incentives that should vary depending on housing is market rates, COAH, etc., with incentives varying from 30% to 50%. Bids should also be semi-annually and allow for evaluation. And there needs to be a three-year commitment due to long-term nature of relocation efforts.

The event concluded with a panel discussion on tax abatement programs designed to revitalize NJ communities, such as the Payments in Lieu of Taxes (PILOT) program. The program’s benefits are simple, generally varying from ten to 30 years. For larger projects, generally PILOTs are 30 years; smaller programs can be from 5 to 10 years. Developer issues include some smaller projects, the prevailing wage requirement, offset the benefit of the PILOT due to limited resources, and developer budgets.

Truly a lot of ground covered at this NAOIP event!

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Christopher Stoop

Christopher Stoop is a Partner in the firm with over 15 years of experience. Chris caters to a wide array of clients, spanning across both public and private enterprises. His primary focus lies in serving real estate and manufacturing & distribution clients within consumer products space.

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