Study: Tax breaks for Camden could cost New Jersey if businesses don't stay for decades

Markets Associated Press

The tax credits the state is using to attract businesses to Camden could end up costing more than they bring in even if the companies fulfill their minimum obligations, an advocacy group warned.

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The liberal think tank New Jersey Policy Perspective said the credits could end up costing taxpayers $97 million more than they generate, mostly because two of the biggest recipients are hardly projecting any benefits to taxpayers.

The study, to be published Tuesday and made available beforehand to The Associated Press, relies on data provided by the New Jersey Economic Development Authority and looks at how much economic benefit the businesses could generate if they all left Camden after 15 years, the earliest they could leave without having to pay back portions of the tax credits.

The incentives were adopted in 2013 by a Democrat-controlled Legislature and signed by Republican Gov. Chris Christie. Since the law was adopted, the state has pledged more than $2 billion in tax credits to companies.

The law gives extra boosts for firms willing to move to Camden, among the most impoverished cities in the country. The state has agreed to more than $600 million in credits for firms heading there.

Gordon MacInnes, president of Policy Perspective, said using the state's economic muscle to try to help Camden is laudable but the state government could be going too far with this program.

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"Maybe we've seen enough and the effort to rebuild Camden has gone far enough in terms of consequences for the taxpayers," he said.

Erin Gold, a spokeswoman for the New Jersey Economic Development Authority, which runs the program, said the companies generally don't plan to go anywhere soon.

"A company's investment in constructing a facility to house their operations is seen as a long-term commitment to that location and community," she said by email.

Nine companies have deals for tax credits for moving to Camden. Among them are Holtec International, which makes components for nuclear power plants; the Philadelphia 76ers, who are building a practice facility and offices; and Subaru, which is moving its U.S. headquarters a few miles from suburban Cherry Hill.

Policy Perspective has been critical of tax breaks for businesses, saying the state would do better to focus on education and infrastructure improvement to attract and retain companies.

In its report, the group focused on one wrinkle of the special deal for firms heading to the city under the Grow NJ program, one major prong of the economic incentive law.

Projects elsewhere in the state need to show they will generate state and local tax revenue equal to 110 percent of their credits, and they need to do it over a 20-year period. The calculations on benefits look not just at how much the businesses could pay in state and local taxes but in growth of other firms that would benefit from their presence.

In Camden, the returns over 35 years would need to equal 100 percent of the cost. The issue is that the companies are required to stay only 15 years. Under a proposed development authority regulation, tax credits could be reduced to reflect uncertainty in the benefit.

The think tank used the state's figures for how much each company would return in taxes over time. Five companies are projected to have negative benefits for taxpayers after 15 years.

Holtec is the most extreme example. It's in line for $260 million worth of tax credits over 10 years for a plan it says could bring thousands of manufacturing and engineering jobs. But the credits are awarded each year only if it invests and has the 395 jobs it has promised.

The state finds that after 35 years the net tax benefit of the project would be $156,000, barely enough to qualify for the breaks. But after 15 years, the company, using the lower employment figures in the calculations, is expected to generate $154 million in tax benefits — $106 million less than the cost to taxpayers.

The company has been in the area for nearly 30 years and plans to stay, though it did consider moving to South Carolina before securing the Camden incentives, spokeswoman Joy Russell said. The intention to remain is backed up by its investment in its new facility, she said.

"Our plan is to stay and grow in south Jersey," she said.

MacInnes said the state should change its incentive law so the period over which companies have to show positive benefits is the same as they are given the tax breaks.

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