Gov. Phil Murphy expands New Jersey’s bloated corporate welfare system

Gov. Phil Murphy has signed legislation that expands New Jersey’s corporate welfare system, notably increasing tax incentives for commercial development projects and altering several key provisions of the state’s Aspire and Emerge programs.

The new law, which received final approval in January 2024, adds three additional cities—Camden, East Orange, and New Brunswick—to the list of municipalities eligible for more favorable tax credits.

The Aspire and Emerge programs, which are designed to promote real estate development and economic growth, are part of New Jersey’s broader $14 billion Economic Recovery Act (ERA), signed by Murphy in 2021.

The new legislation revises terms for awarding tax credits under these programs, which are projected to issue up to $6.6 billion in tax credits, with approximately half of that amount still unissued as of November 2023. The tax incentive awards are capped at $1.1 billion annually.

One of the most significant changes in the new legislation is the removal of a requirement that previously mandated the Economic Development Authority (EDA) to reduce tax credits when economic conditions improve more favorably for a developer than initially anticipated.

This change effectively increases the value of bailouts available to developers.

However, the new law also introduces a safeguard: developers of commercial projects must now forfeit their tax incentives if the occupancy of their projects falls below 60% starting in the fourth year of receiving credits.

This provision aims to hold developers accountable for the success and viability of their projects, encouraging them to fulfill their economic promises.

The bill also grants the EDA more flexibility in how it handles tax credit repurchases. Under the new law, the Treasury can now purchase tax credits at a minimum of 85% of their value, an increase from the previous 75% floor.

This change is expected to generate more revenue for the state in the long run, although a fiscal note issued by the Office of Legislative Services in December 2023 indicated that the exact impact of the repurchase terms on state finances remains uncertain.

The legislation also expands the definition of “government-restricted municipalities,” allowing Camden, East Orange, and New Brunswick to qualify for more generous incentives.

These cities now join Trenton, Atlantic City, and Paterson in receiving enhanced tax breaks due to their economic distress or other specific factors, such as being county seats or having key transportation intersections.

The Aspire program, which replaced the Economic Redevelopment and Growth Grant (ERG) program, remains a crucial tool for financing commercial, residential, and mixed-use real estate projects.

To qualify for Aspire support, developers must demonstrate that their projects would not be economically viable without the tax incentives, and that the project will yield a net benefit to the state.

While these changes are expected to boost economic development in designated areas, critics argue that the state is continuing to prioritize corporate interests at the expense of broader fiscal sustainability. New Jersey has long grappled with economic inequality, with wealth concentrated in the hands of a few while many residents face poverty and underfunded public services.

Proponents of a progressive tax system argue that New Jersey should focus on increasing revenues from wealthier individuals and corporations rather than expanding corporate welfare programs.

“Economics is about whether families have the resources they need to put food on the table, a roof over their head, and save for the future,” said Lisa McCormick, a frequent critic of Murphy, the former Wall Street executive who was elected eight years ago.

Murphy signed the New Jersey Economic Recovery Act of 2020, which created a seven-year, $14 billion corporate welfare package of tax incentive, financing, and grant programs that were promised to build a stronger, fairer New Jersey economy.

In 2023, New Jersey’s real gross domestic product (GDP) was $656.48 billion, reflecting steady growth consistent with the trajectory from all previous years, except during the 2008 global financial crisis and pandemic periods.

McCormick contends that the state’s economic growth disproportionately benefits corporations, with workers and communities receiving less of the economic pie.

The expansion of corporate welfare incentives will exacerbate disparities by ting state funds away from public investments in schools, transportation, and social services, which have faced years of underfunding.

The law’s provisions are designed to attract more developers and to address challenges in cities suffering from economic distress, but the long-term fiscal consequences of the expanded incentives remain uncertain. With New Jersey running a structural deficit and facing rising costs for public services, some policymakers are concerned that the state’s reliance on tax incentives for development could further strain its budget, especially as tax credits are repurchased at a discount.

Despite these concerns, the state remains committed to fostering economic development in distressed municipalities through the new law, which offers a range of incentives for projects in designated “Incentive Areas” and sets minimum project costs based on the population of the municipality.

The expanded corporate welfare system signed by Murphy is expected to drive development in certain regions, but questions remain about its long-term impact on the state’s fiscal health and whether it will achieve the goal of reducing inequality in New Jersey.