NEW JERSEY — Does the “honor system” work when it comes to tracking corporate tax breaks in New Jersey? It’s a pressing issue, say some supporters – and billions of taxpayer dollars are at stake.
Earlier this week, the State Comptroller’s Office released an update on the investigation into the massive tax subsidies provided by the New Jersey Economic Development Authority (NJEDA).
Much of the controversy centers on more than $11 billion that NJEDA has approved for big business over a 14-year period. The tax breaks were supposed to help bring jobs to New Jersey — and keep businesses from moving to other states. But officials and advocates have since alleged that the agency was merely acting as a rubber stamp for wealthy corporations, and that it may be nearly impossible to tell whether the tax breaks have actually produced the kinds of jobs promised by the politicians.
Most of the grants were made before Gov. Phil Murphy took office during the era of former Gov. Chris Christie.
Wednesday’s update from the Comptroller’s Office looked at what the agency has done — and hasn’t done — since the controversy erupted in 2019. Read the full report here.
According to the Office of the Comptroller, the NJEDA has “made substantial progress” over the past three years, including taking steps to verify that companies are actually retaining or hiring the employees they advertise.
But there is much more to do, officials added.
“When billions of dollars of public funds are at stake, it’s critical that NJEDA transparently and regularly reports on what happened,” said Acting State Comptroller Kevin Walsh.
The controller’s report states:
“What we found was full compliance with 11 recommendations, partial compliance with seven recommendations, and non-compliance with three recommendations. We also found that the NJEDA did not seek to recover substantial amounts of public funds which it recognizes should be prosecuted.”
Here are the three recommendations that NJEDA did not adopt, the comptroller said:
- “Develop a process for incentive programs to report on their successes and determine whether economic benefits have actually been realized.”
- “Require annual reports for incentive program activities that are based on actual performance.”
- “Track the administrative costs associated with tax incentive programs to set the fees businesses must pay in order to cover the costs of running the program.”
“It’s easy for a company looking for tax credits to promise results, but harder to deliver,” Walsh said.
“NJEDA’s movement on this issue is a major positive change that makes the success of economic incentive programs much more likely,” Walsh said. “So far there is a commitment and a proposed policy, but the proof will be in the implementation.”
LAWYER: THE “HONOR SYSTEM” DOES NOT WORK
The nonprofit advocacy group New Jersey Policy Perspective (NJPP), which has strongly criticized the NJEDA tax breaks, offered its own version of the comptroller’s report.
In particular, the group said there is a big loophole that needs to be closed: the agency still allows companies to self-report job creation data “without independent oversight or auditing.”
“This report shows that with billions of taxpayer dollars at stake, the honor system is not an appropriate oversight system,” said NJPP policy analyst Sheila Reynertson.
“Handling out corporate tax credits on the promise of ‘job creation’ only works if the state regularly verifies that the jobs are actually being created,” Reynertson said. “Unfortunately, no such verification system is in place. Instead, companies are being asked to report their own employment data without effective oversight or independent auditing.”
“Responsibility to the people of New Jersey should not be an afterthought,” Reynertson said.
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