State corporate welfare program missed its mark by $350 million

 The New Jersey Economic Development Authority (EDA) said that 82 companies failed to create or retain the number of jobs they committed to at the time of project approval under the Grow New Jersey (Grow NJ) Program and so Governor Phil Murphy’s corporate welfare program was reduced by $350 million.

A report issued in January 2019 by the Office of the State Comptroller (OSC) identified significant issues at the EDA related to incentive project approvals and oversight.

Since then, the EDA has taken steps to address concerns articulated by the OSC, including more formal data-sharing practices with the New Jersey Department of Labor and Workforce Development and the Department of the Treasury/Division of Taxation to ensure that tax credits are only disbursed to companies to the extent they meet their commitments for job creation and retention.

In its January 9, 2019 audit report, A Performance Audit of Selected State Tax Incentive Programs, the OSC made 21 recommendations to the EDA regarding its administration of various tax incentive programs but the agency has complied with only 11 of those recommendations.

“New Jerseyans are entitled to a return on their investment with these tax incentive programs,” said acting State Comptroller Kevin D. Walsh, who is pictured above. “We are encouraged to see that positive reforms have taken place since OSC’s original audit and that EDA is verifying that employees whose positions were incentivized were actually employed by those businesses.”

“What we found was full compliance with 11 recommendations, partial compliance with 7 recommendations, and noncompliance with 3 recommendations,” said the OSC. “We also found that EDA has not sought to recover substantial amounts of public funds that it acknowledges should be pursued.”

A follow-up report released today acknowledged some progress but said there is disagreement concerning control over various tax incentive programs.

The report notes that OSC and EDA since 2019 have disagreed regarding whether EDA should award tax credits without considering actual economic benefit data. EDA’s policies permitted it to rely on its projections of economic benefits to award tax credits even if data showed those benefits had not been realized. 

OSC’s report contends that EDA has discretion under state law and in contracts it entered into with tax credit recipients to take an approach that protects the State’s interests and directly ties tax credits to results. EDA has pledged to change its approach and to reassess the net economic benefits of the tax incentive programs on an annual basis for two of the incentive programs, subject to a review by the Attorney General’s office. 

“It is easy for a business looking for tax credits to promise results, but harder to deliver,” said Walsh. “EDA’s unwillingness to implement the recommendations in the 2019 report regarding using actual data mean that it has maintained a policy that fails to distinguish between businesses that keep their end of the bargain and those that do not.”

“EDA’s movement on this issue is a major positive change that makes it much more likely that the economic incentive programs will succeed,” said Walsh. “So far, there is a pledge and a proposed policy, but the proof will be in the implementation.”

The EDA has also made a number of critical organizational changes, including appointing a Chief Compliance Officer, creating the Division of Compliance and Program Management, reorganizing its front-end program teams to ensure a more transparent staff recommendation and decision-making process, and procuring an additional independent, external compliance auditor, among other changes.

To reinforce a culture of compliance, transparency, and continuous improvement, the EDA has provided staff with tools and training to encourage them to ask provocative questions, dig deeper, and employ commercially reasonable skepticism.

“Since the OSC’s initial report, the EDA has worked hard to resolve the issues raised in the report and has reinforced its commitment to being a best-in-class steward of taxpayers resources to ensure the programs we administer benefit New Jerseyans and our communities,” said EDA Chief Executive Officer Tim Sullivan.

Sullivan noted that the EDA’s commitment to transparency and responsible stewardship of taxpayer resources is clearly reflected in all programs recently launched and under development, including those created by the Economic Recovery Act of 2020.

The list of companies for which Grow NJ awards have been reduced to date is available here.