As A Matter Of Fact...Financing the American Dream

August 16th, 2011 | Published in NJPP Blog: As a Matter of Fact …

By Sarah Stecker, Policy Analyst

Last month, in order to facilitate a deal that the state had already cut, Governor Christie signed a bill significantly expanding two programs that provide tax subsidies for developers, the Economic Redevelopment and Growth grant and the Urban Transit Hub Tax Credit.

One section of the bill (S2972/A4161, P.L. 2011, c. 89) changes state law for the benefit of a single developer, the Canadian firm Triple Five Group. The deal made by the state, worth up to $350 million in tax breaks on the company’s more than $1billion investment, enticed Triple Five to resurrect the five-year-old, on-again-off-again eye sore previously known as Xanadu. The developer rebranded the half-finished mega mall as the American Dream at Meadowlands and said that in addition to “high-end” retail the mall would include an indoor ski slope, skating rink and a wave pool. The state estimated that upon completion the project would generate a whopping 35,000 permanent jobs.

The change in the law was required because Triple Five was not eligible for the grant the governor had promised many months earlier. Even though significant parts of the state – up to 80 percent of the municipalities – were eligible to host an ERG project, the area of the Meadowlands where the development was taking place was not covered by the original legislation.

The final grant amount to Triple Five depends on an analysis by the Economic Development Authority of the American Dream proposal. ERG grants can total up to 20 percent of a developer’s investment and can be paid out for up to 20 years as a portion of the tax revenues attributed to the project.

Another section of the bill amends state law requiring residential developers to produce affordable housing units in addition to market-rate units as a condition of receiving Urban Transit Hub Tax Credits. The change means developers will no longer have to put aside 20 percent of the residential housing they build for low and moderate income people. The law was meant to provide developers an incentive at the same time it would address the dire lack of decent, affordable housing in many areas of New Jersey. Municipalities now will make the decision about how much low-income housing – if any – will be included in a project.

The law also now allows developers to use any unused credits to reduce the developers’ taxes for up to 20 years from when the credit was given. At the same time, the new law increases the tax credit available to 35 percent, up from 20 percent, if a residential developer builds any housing in one of nine mass transit-accessible cities designated under the Hub law.

The change to the Urban Transit Hub Tax Credit illustrates the good that public subsidies could do (incentivize transit-oriented development) versus the risk of corporations abusing these tax breaks.

For instance, the Urban Transit Hub Tax Credit is available to corporations as well as residential developers. Campbell Soup, located ¾ of a mile from the Walter Rand Transit Center in Camden, received a $41.2 million credit in February of this year to renovate its headquarters, including more than $6 million to furnish the refurbished office space. In its application for the credit, Campbell’s officials said they would bring 95 workers to the city as a condition of the award. Four months after the grant was awarded and made public, Campbell’s announced it would lay off 130 of the 1,200 workers at its headquarters in Camden.

The layoffs are unlikely to jeopardize Campbell’s state subsidy because the Urban Transit Hub Tax Credit is aimed primarily at supporting capital investment. To qualify, companies must invest more than $50 million in capital improvements and employ at least 250 full-time workers. Campbell’s is complying with the law, but the state’s taxpayers might rightly raise the question of why they are subsidizing the company’s newly renovated headquarters even as Campbell’s increases the state’s unemployment rate.

New Jersey is providing hundreds of millions of dollars in tax subsidies to corporations, developers and businesses in the hopes of stimulating the state economy and creating private sector jobs. But there is a policy trade-off and it is evident in this single piece of legislation. The Administration, abetted by leaders in the Legislature, is choosing corporations over individuals: high end retail over low-income housing; renovating corporate suites over rebuilding public schools. That is short-sighted. The long-term policies of a prosperous state must address the needs of its citizens, not just its corporations.

The state Economic Development Authority expects to approve rules implementing the new legislation at its September Board meeting.