A parade of economists and policy experts offered a panel of state lawmakers a dim view of the effectiveness of New Jersey’s former economic incentive programs, while offering some suggestions for meaningful reforms.
Thursday’s meeting of the special Senate Select Committee on Economic Growth Strategies in Trenton came amid lingering controversy about the programs, run by the state Economic Development Authority. The legislature is grappling with how to revamp the tax incentives, which were allowed to expire at the beginning of the summer.
Gov. Phil Murphy has been a harsh critic in the wake of a comptroller’s report showing the tax credits weren’t meeting requirements and that the program lacked oversight. And he vetoed legislature that would have allowed them to continue in their original configuration, as the legislature considered changes.
Thursday’s State House testimony didn’t offer supporters of the programs much in the way of an endorsement.
“Evidence suggests that if New Jersey continued its current unusual state of not having any economic development incentive programs and spent that money on other public services instead, it might not be any worse off in the long run,” said Jackson Brainerd, a fiscal affairs policy specialist with the National Council of State Legislatures.
The observation elicited a wry quip from the select committee’s chairman, Sen. Bob Smith: “Any questions from senators? Thank you for blowing up the hearing.”
T.J Bartik, senior economist with the W.E. Upjohn Institute, sought to tamp down expectations of incentives.
“I think the first thing that needs to be understood is that, although incentives can make a difference, a lot of times they don’t,” he said.
Bartik also said New Jersey’s incentives should be drastically reduced. Data shows the state offers twice the national average. He pointed to studies looking at the percentage of cases where jobs wouldn’t have been created without the funds.
“Maybe in 25% of the time you’re incenting jobs that actually tips the decision, [causing] the job creation decision to be made,” he said.
As an alternative, experts suggest increasing the cost ratio of incentive programs by targeting distressed areas in need of jobs and tying incentives to other investments like transit and highway infrastructure or job skill training. They also suggested avoiding long-term packages and ensuring that firms hire from areas in need of employment.
Josh Goodman, senior officer of the Pew Charitable Trusts, said states can maximize effectiveness by putting in fiscal protections and conducting regular evaluations of individual awards.
Bartik pointed to Virginia’s recent wooing of Amazon as a location for its second headquarters to make a point about the cost of New Jersey’s program.
“They provided incentives to Amazon on a per job basis or about one-third of what New Jersey customarily provides,” he said of Virginia. “So they got Amazon with one-third the incentives per job than New Jersey customarily does.”
Economists echoed Governor Murphy’s call for a cap to incentives, adding it would help balance budgets. Michael Lahr from the Rutgers Bloustein School said keeping companies honest is difficult, citing the need for raising the cost-benefit ratio.
“If its four to one that means you’re thinking there’s a 75% chance they’re lying. It’s a way to hedge, is to make that benefit-cost ratio go higher than out current 1.1 … we’re basically breaking even, if all the calculations are perfectly correct and the firm’s not lying.”
Among the speakers was Dena Mottola Jaborska, the associate director of NJ Citizen Action, who urged lawmakers to enact reforms.
“This is a program that costs the state and the taxpayers billions and billions of dollars,” she said. “It’s a really serious issue, the Legislature has been very slow to act. It’s been nine months since the Comptroller report came out and we still don’t have any action from the Legislature on the reforms that we know we need.”
Another hearing is scheduled for later in September, which will focus on the impact of the programs on businesses. Smith said he anticipates convening at least two more hearings.
“My bet is that we, before the end of the session, will have some suggestions for everyone to put together a more effective program,” he said.