Audit Finds Lax Oversight with Tax Incentive Program

By Brenda Flanagan

“Well, Panasonic went to Newark. And Goya went right over the border in Secaucus, to Jersey City,” said Secaucus Mayor Michael Gonnelli.

Gonnelli remembers the feeling when those two major corporations announced, “We’re out of here. Leaving Secaucus, leaving New Jersey.”

“I was mayor at the time. I was a little afraid what was going to happen. But on the other hand, I was thinking OK, what’s it going to turn into?” he said.

In 2013, an $82 million tax break from the state Economic Development Authority helped convince Goya to stay and expand — with a new headquarters in Jersey City and a revamped distribution center in Secaucus. Panasonic got a $102 million EDA tax break and relocated to Newark. Gov. Chris Christie cut ribbons and exulted over growing jobs in New Jersey.

“We know that there’s nothing more important to a family than to have the heads of that family have a chance to get a job,” Christie said at the time.

“You find it hard to believe that they would offer the tax dollars that they do. But they do. And there must be a method to their madness,” Gonnelli said.

New Jersey’s EDA claims its Grow NJ program saved 27,000 jobs and will create about 28,000 more, but at a cost: almost $4 billion in tax breaks since 2013. But a partial state audit of all the EDA’s tax incentive programs — while noting the agency mostly has “adequate controls” — questions whether the billions spent on jobs was worth it. Others ask the same question.

“It strikes us that the likelihood is very strong that most of the jobs that were retained — where the subsidy gets the credit — were going to stay anyway,” said Gordon MacInnes.

MacInnes heads the left-leaning New Jersey Policy Perspective. He points to Panasonic as an example.

“The chief financial officer — after the deal was struck — said, ‘Eh! That had nothing to do with our moving and staying in New Jersey,'” MacInnes said.

The audit found lax oversight, noting, for example, “…four of seven businesses reviewed had fewer employees than they needed to receive a full grant but their awards had not been adjusted.” In Camden the EDA offered companies like Lockheed Martin, Holtec and Subaru even bigger, enhanced tax breaks. But the audit examined that rationale and advised, “…such an increase should be questioned and revisited as it may not be in the best interest of the state.”

And MacInnes adds, the EDA can’t verify a company’s motive.

“Yet, that is the threat that is employed by supporters of these tax cuts, to say, ‘If you don’t do this, we’re going to see even greater flight out of New Jersey,’” he said.

The EDA’s chief said, it “…NJEDA takes its fiduciary responsibility very seriously and our obligation to protect the public interest continues to be our primary focus,” and that it “…consistently reviews best practices and utilizes its transactional experience to improve and strengthen policies and processes where the statute allows.”

Meanwhile, back in Secaucus, Ferguson Plumbing took over the old Panasonic site and a warehouse is going up next door. The mayor estimates Ferguson and Goya together boosted its ratables base by $60 million.

“Not too shabby, for a small town like Secaucus,” Gonnelli said.

It’s too early to tell whether the EDA’s Grow NJ tax credits will truly be worth it — the return on investment’s calculated over 35 years. But the authority says it’s ramped up its own internal audits to make sure companies employ enough people to earn those subsidies.