Stunted Growth

by Jennifer Updike | Apr 1, 2015
Stunted Growth …From the pages of South Jersey Magazine…

The Grow NJ program gives corporations favorable tax breaks to keep jobs in the state, but some are questioning if the plan will do more harm than good.

Tax breaks. Job creation. New multi-million dollar facilities slated for construction in the struggling city of Camden—these all sound like positives for New Jersey, a string of successes for the state’s new tax incentive program, the Grow New Jersey Assistance Program (Grow NJ.) But as it turns out, Grow NJ is a lot more complicated than it looks.

Grow NJ was born from the passage of the New Jersey Economic Opportunity Act, signed into law by Gov. Chris Christie in Sept. 2013. The act consolidated five of the state’s economic development tax programs into two—Grow NJ, and the Economic Redevelopment and Growth Program (ERG).

Since the inception of Grow NJ, it has allotted more than $1.7 billion in tax breaks to 91 approved projects throughout the state, granting big-ticket credits to large corporations like Subaru, the Philadelphia 76ers, Holtec International and Lockheed Martin in exchange for the companies setting up shop in distressed cities like Camden, creating new jobs or preventing existing jobs from leaving the state.

According to the New Jersey Economic Development Authority, the entity that doles out these tax breaks, the initiative has created more than 10,400 new jobs, and has kept 13,000 existing jobs in New Jersey. Locally, more than $600 million in Grow NJ tax incentives have been approved for eight projects in Camden, and more than 700 jobs will be created, officials have said. But it wasn’t always this big. Before the Economic Opportunity Act of 2013 was passed, 19 projects were approved under the program’s predecessor, the Legacy Grow NJ Program, for a total of $541.7 million, creating 2,900 new jobs, and retaining 6,600 existing positions.

While the program has undoubtedly brought—or kept—businesses in Camden, questions had to be asked. Just how much is it helping New Jersey grow? Are any of these jobs earmarked for New Jersey residents? And just how much is it helping the average New Jerseyan?

Critics of the initiative say, well, not much.

“Broadly speaking, these incentives programs—which include Grow NJ—are overused, over-relied on and have sort of been the prime economic development tool of the state post-Recession,” says Jon Whiten, deputy director of New Jersey Policy Perspective. “Broadly speaking, these types of tax breaks have been shown to not really net out much for the state in the long run, in part because they are subsidizing activity that might have happened anyway. And even when they’re not, that’s a minority of the time. Overall, it’s a bad deal for the state and certainly a case of misplaced priorities.”

Others argue that the “trickle-down” theory these incentives are based on is fundamentally flawed.

“When we throw money at cities, who catches it?” says Stephen Danley, an assistant professor of public policy and administration at Rutgers-Camden. “If there is a large investment in Camden, is it going toward ways that Camden residents who live there now will actually see and will affect their lives, or is it going to trickle down?

We are going to give to those who already have and hope it trickles down to those who already live there? There’s a lot of skepticism that this trickle down will happen. And I’m largely a skeptic.”

Meanwhile, Camden residents are left scratching their heads—and wondering who these jobs will go to.

“I think the opportunity to bring a large company into the city is a boon for the city and a great opportunity. It really helps burnish the city’s reputation,” says Raymond Lamboy, president and CEO of the Latin American Economic Development Association in Camden. “But there are some challenges in the city when it comes to employment. And the constituents I am talking to are concerned that the companies are not bringing jobs that are for them.”

The city of Camden needs entry-level jobs, with no or little required training, he says.

“If you look at the numbers, [Camden’s] 16 percent unemployment rate translates to almost 24,000 people out of work. And if you look at that half a billion dollars that has been invested in the city thus far and the number of jobs that are created, you start scratching your head and hoping in the pipeline are other companies that have entry-level positions that don’t require a lot of training,” Lamboy says. “The city has a dearth of employment at that level. If you look at crime, economic issues, poverty—it’s all driven by economic opportunity—or lack thereof.”

What about the taxes?
Another concern is where that tax money is going to come from. Yes, these Grow NJ awards are unrealized revenue—meaning the EDA isn’t writing out a check to these companies; rather, giving them tax breaks each year for 10 years, adding up to the full amount of the award.

But the city has to make up the tax money from somewhere.

“Half of the land in the city is tax exempt. Imagine the pressure on the average resident, on the senior citizen who owns their house free and clear and are getting a tax bill for $6,000-$7,000 a year,” Lamboy says. “That’s what I’m talking about when you talk about these incentives and their impact. There is going to be another [tax] reassessment sometime soon and then you have to question what is going on? Why do I have to pay more taxes when they are not paying any?”

These tax breaks could create issues for these areas in other ways, says New Jersey Future senior director of state policy Chris Sturm.

“I think that the private investment that is happening in Camden is going to create a demand for upgrades in the public infrastructure, and the question is really, how is it going to be paid for? One interesting thing about the Garden State Growth Zones is that they limit in an extreme fashion the property tax revenues from any of the new developments. … So if you have a city road, the city is not necessarily getting the property tax revenue from that time period [of tax exemption] to allow it to upgrade its road,” she says.

Generating tax revenue will be compromised by these incentives, she says. “You look at the taxpayers in Camden. It’s a lot of poor residential [inhabitants] and on the business side, it’s a lot of tax exempt corporations. … [Camden’s] ability to generate revenue in the short-term is very limited. So we would hope that the state of New Jersey would be providing upgrades in places like Camden to support the economic development that’s [going to happen there.]”

But the EDA maintains that Grow NJ has done its job, bringing businesses and jobs to Camden.

“The city of Camden had many ills at one point, with security, housing, commercialism—a litany of things over the past 25 years,” says EDA president Tim Lizura. “So this piece of legislation was clearly enacted in order to change the paradigm for a company to invest in Camden. And I think that it did work. You would not see the Sixers on the Camden Waterfront without this investment. It really is a game-changer.”

How it works
Grow NJ provides tax credits ranging from $500 to $5,000 per job, per year, with bonus credits from $250 to $3,000 per job, per year if the project meets criteria such as being located in an urban area, or for a project that creates a high number of jobs. Awards per job can reach a maximum of $15,000 per year, for up to 10 years, and projects can get up to $300 million over a 10-year period.

More specifically, there are two ways a Grow NJ award is calculated: The first is based on the number of employees and the location of the city, with the possibility of 18 different bonuses, based on things like the industry and wages. The second way an award is calculated is based on the capital investment the company is going to make. There are levels pertaining to number of employees and capital investments, with caps on each level, Lizura says.

To get a Grow NJ award, a company must also show that said credits are a “material factor” in their decision to stay in New Jersey, basically meaning the company would not do the project without the incentives, Lizura explains. They must also demonstrate that capital investments yield a net positive benefit of at least 110 percent of the tax credit amount, 100 percent in Camden. They must show that these jobs are at risk of leaving the state or being eliminated if not for the award, and that the job creation or retention wouldn’t happen without the award, EDA information shows.

Once granted a Grow NJ award, businesses must also maintain project employment for 1.5 times the period of the tax credit, and retain 80 percent of full-time workforce from its last tax period prior to grant approval.

In short, this is one complicated program.

Several major corporations have signed on to build in Camden as a result of Grow NJ funds—like Holtec International’s new technology center; the Philadelphia Sixers’ practice facility; Subaru of America’s move from its Cherry Hill headquarters to a new facility in Camden; and Lockheed Martin’s two new laboratories. Others, like Cooper Health System, have received Grow NJ funds to expand its current facilities in Camden and bring in more jobs.

And the incentive program will bring jobs into Camden—the 235 new jobs and retention of 160 jobs at Holtec; 250 new jobs with the Sixers; 500 retained jobs and 100 new jobs with Subaru; the retention of 250 jobs at Lockheed; and the 19 new jobs and 353 retained jobs at Cooper Health System. And in December online marketing company WebiMax moved into its new head­­quarters in Camden from Mount Laurel. According to EDA data, the company’s Grow NJ Award will create 100 new jobs and will retain 50 existing jobs.

But are these jobs going to Camden residents? Or even New Jersey residents? “We can’t enforce that,” Lizura says. Subaru Director of Communications Michael McHale says that “[p]eople who live in Camden are equally able to apply to the positions. … Clearly it’s easier if we are closer. Let’s see how that develops.” Cooper officials say, “We hire the most qualified candidates for the position,” noting that they currently have more than 485 Camden residents working at Cooper.

Danley puts it simply, arguing that job creation is the “weakest link” in this whole tax incentive debate.

“Subaru is going to bring the vast majority of employees from its Cherry Hill location, the same goes with Cooper. The 76ers largely already have their staff put together, so it’s going to be marginal jobs,” he says. “Corporations that move into Camden largely aren’t hiring people who live in Camden.”

Getting down to business
Subaru’s McHale says the 500 positions being relocated to Camden may have left New Jersey if the company would not have been granted the Grow NJ funds.

“We may well have moved to another state. We were looking at sites in Pennsylvania and there were some very attractive options there. [These positions] would not have been eliminated from the company, but certainly at risk in New Jersey,” he says. “We have kind of outgrown [our current headquarters in Cherry Hill.] It was really time for a new headquarters building. At that point, you start looking around at what is best for the company, what is the best value. You talk to the states involved; we had to understand the benefits of staying in New Jersey, and the benefits of moving to Pennsylvania.”

The 100 jobs created with the move will be a mix of sales, marketing, dealer relations, corporate governance and legal positions, he says. Construction on Subaru’s new headquarters is expected to begin this year and be completed in just over two years.

The company’s move into Camden could only help the area, McHale says. “I think it can’t hurt. We’re a global automaker. If a global automaker comes to town, hopefully that will lift the town. … Then if the city creates hotels and restaurants and all the support employees need, that encourages other employers to come to the area,” he says.

Subaru choosing to stay in the area is a divergence from the current trend in the car industry, he notes. “If you look at the current moves of car companies—Toyota has moved from California to Texas; Mercedes Benz is planning to move from North Jersey to Atlanta. We are very pleased that we can stay in an area that we call home.”

And while Subaru is planning the move to Camden, what about Cherry Hill?

“Our first priority was always to keep Subaru here in the township and [Mayor Chuck Cahn] put every effort forward in working with the company to identify a new site and incentives that would make it attractive for them to stay,” a spokeswoman from the mayor’s office says. “In the end, Subaru made the decision it felt was in the company’s best interest—and while I don’t want to minimize our disappointment in any way, the fact is, Cherry Hill will be fine. We have a very large ratable base (about $8 billion) and new businesses are continually looking to move into and invest in Cherry Hill.”

There is also interest in the Subaru site from other companies. “At the same time, Subaru is staying in the immediate area, and its employees will be able to continue to shop here, eat here, live here, and take advantage of everything that Cherry Hill has to offer,” the spokeswoman says. “And at the end of the day, it benefits all of us as Camden County taxpayers to see the city of Camden revitalized in a positive way, and Subaru will undoubtedly play a large part in that rebuilding process.”

Subaru will remain in its Cherry Hill headquarters until the new campus is built and will continue to be responsible for property taxes until the building is sold, she continues, noting that the carmaker paid about $538,000 in taxes last year, which was dispersed to various taxing entities.

Defense contractor Lockheed Martin was also granted a Grow NJ incentive award to relocate to Camden.

“Beginning in summer 2015, Lockheed Martin will open an advanced research and development facility in leased space within the L-3 Communications complex in Camden. This exciting opportunity will allow us to capitalize on our core technologies and bring new solutions to our customers,” Lockheed officials said in a statement. “We are proud of our strong presence in New Jersey and look forward towards contributing to the Camden community.”

Lockheed also currently has a Legacy Grow NJ tax credit, which requires that it retains 1,000 jobs at its Moorestown location. “Generally all we are really doing is moving 250 employees from Moorestown to Camden,” a Lockheed spokesperson says.

Cooper Health System is another South Jersey recipient of a Grow NJ award. “The New Jersey Economic Development Authority tax credits will allow us to continue our role in the renaissance of Camden and bring more than 500 non-clinical employees to Camden,” says Douglas Shirley, senior executive vice president and chief financial officer at Cooper University Health Care.

“These positions transitioning to Camden include accounting, finance, managed care, marketing, information technology, billing, legal, call center, human resources and continuing medical education—all of which play an integral role in the management of Cooper’s daily operations. Having our teams working together in Camden will allow further integration of services and an increased collaborative working environment for these services. Having a larger workforce in the city of Camden will be a positive reinforcement for redevelopment to continue.” Officials from the Sixers and Holtec did not return South Jersey Magazine’s requests for comment.

And while no one argues that these huge corporations coming to Camden may help the city—some are asking, what about the small business owners?

“If you look at small businesses, there are questions around fairness,” Lamboy says. “I heard one business owner say, ‘Where’s my abatement? Where’s my incentive program?’ Then you look at all the different companies coming in here, and they have upwards of 10, 20-year abatements. I know it’s important that we bring more economic growth into the city. It’s not an either-or. It’s a both—building from the grassroots level up to the 30,000 feet down.”

Critical voices
Some say the program is simply too large.

“New Jersey is definitely an outlier among the states. All the states are doing this kind of thing. You have seen this kind of act everywhere, but New Jersey has really taken it to an almost comical level, in terms of the overall amount of awards it’s been giving out to companies all over the state and in the amount that it’s costing per job,” Whiten says. “Both are super high compared to what the other states are doing.”

Whiten also notes that the average amount that Grow NJ awards to each company in relation to the number of jobs created or saved is “insanely high, [at about $300,000]” per job. He also says that many of these jobs already exist in the state.

And he’s right—do the math, and see that Holtec is getting subsidized to the tune of $658,000 for each of the 395 jobs; the Philadelphia 76ers at about $328,000 for each of the 250 jobs; Subaru at about $196,000 for each of the 600 jobs; and Lockheed at about $428,000 for each of the 250 jobs. And remember, not all of these jobs are new; some already exist and the companies are getting tax breaks just to keep them around.

Whiten also says that in many cases, the companies building these new laboratories and headquarter buildings don’t have to make much of an investment at all.

“In the case of Holtec, the 76ers [and many of] them in Camden, the way the law was written when they overhauled it in 2013 essentially says that companies that are doing these deals in Camden, they can have 100 percent of their upfront construction covered by their future tax breaks. So it pretty much comes out to that the company doesn’t have to invest much at all,” he says. “All they have to do is ship some jobs a few miles over the border and eventually their investment in their new facility will be fully paid for.”

According to EDA information, Holtec’s upfront capital investment was $260 million and its Grow NJ award was also $260 million; the Sixers’ upfront investment was $82 million, and its award, $82 million; and Subaru’s upfront investment was $117.8 million, and its award, $117.8 million; Cooper Health System’s upfront investment was $9.1 million, while its Grow NJ award was far more, at nearly $40 million. However, it should be noted that Cooper is already located in Camden.

Of the major projects in Camden, Lockheed was the anomaly; its upfront capital investment was nearly $146.4 million, while its Grow NJ award was only $107.2 million.

But Lizura says that there are caps in place regarding just how much in Grow NJ Awards can be allotted to each company. “There are project caps—so a project can never get more than $350 million in the city of Camden. Other places, like Cherry Hill, that cap is as low as $40 million,” he explains. “We don’t want to not invest in driving in companies in places like Cherry Hill, [but] it’s much harder to get a company to move into Camden. … So we needed to be more aggressive with the incentives.”

Danley finds fault with the program itself.

“They could have included stipulations [in the Grow NJ tax credit program] that you had to work with the community, you had to put aside a certain amount of money, different things to help ensure some of the benefits of hundreds of millions of dollars are invested in the community. But the fear is, the corporations wouldn’t agree, that Camden wasn’t quite attractive enough to draw them in,” he says.

Another concern Whiten brings up is this: Why is the amount of time a company is required to stay in state for receiving Grow NJ funds—15 years—much less than the amount of time the economic benefit analysis is calculated over—which is 35 years? “That’s because that’s what the law said,” Lizura says. “But I will say that with someone like Holtec, you don’t invest $250 million into a plant and then leave in 10 years. If business is viable, they will still be using that plant in 30, 40 years.”

From a land use perspective
Sturm’s group, New Jersey Future, says that these projects are being allocated to the right areas—such as Garden State Growth Zones (GSGZ) as designated by the act, which include Camden, Trenton, Paterson and Passaic, and from a land-use perspective, Grow NJ is doing what it’s supposed to do.

“Basically, what we concluded was that yes, these incentives are going to places that are designated for growth in the New Jersey State Plan, and they are also going to urban centers near transit and in distressed municipalities,” she notes. “So it was exactly what we had hoped for and what we had worked on through the legislative process. … These are all places that had failed to get a project under the previous program. So it is definitely working.”

GSGZs are defined by the EDA as municipalities “with the lowest median family income based on the 2009 American Community Survey from the U.S. Census.”

Job creation
Despite the criticism of the program, state entities are taking notice of the impending influx of job creation in Camden and are taking measures to prepare. In February, the Department of Labor and Workforce Development in conjunction with the Christie administration and Camden City Mayor Dana Redd, announced a $500,000 commitment to fund a three-phase job training program in Camden.

“There were a lot of jobs being created as a result of the economic incentives,” says Department of Labor Deputy Commissioner Aaron Fichtner. “We wanted to make sure that people in Camden and the surrounding region had the opportunity to compete for these jobs and fill those jobs that were being created.”

The first phase of the grant will fund a 20-person work readiness training program; the second, a pre-apprenticeship program for those interested in entering the construction trade; the third, what Fichtner calls a “very targeted and very customized” job training program.

Among the companies involved in the customized training programs are Camden Iron and Metal (formerly European Metal Recycling,) PriceRite (Ravitz Family Markets) and Comarco Products, he notes.

Plastics Consulting and Manufacturing Company—which received a 10-year, $3.9 million Grow NJ award last year—has indicated an interest in getting involved in future training grant opportunities, but is not included in this initial training grant, Department of Labor officials say.

As to whether there are any more companies interested in these job training programs that have received Grow NJ funds, Fichtner says that is yet to be determined. “We are in early discussion with a variety of different companies,” he notes. “It’s still up in the air, but we have been in touch with a variety of companies, including some that have received Grow NJ funds and those who have not. It’s certainly not limited to [those that have received] Grow NJ funds.”

But Lamboy says that while these training programs are important, they simply aren’t enough.

“Training is important,” he says. “But I talked to a guy [who lived in Camden] who says, ‘Look, I needed a job yesterday. I don’t need to take a six-month training program without the promise of a job at the end.’”

Danley points out another issue with these job training programs. “When a corporation comes here, immediately this chorus starts locally that says, ‘What is this really for? Is this for Camden or is this just another handout for someone else and the people of Camden are going to be used as a prop?’ Oh, Camden needs help and we are going to give $80 million to the Philadelphia 76ers. … Job training programs have been used as a thing to appease people. There’s suspicion that when you’re Holtec and getting a $260 million tax credit, how big is this job program going to be? Is this a PR stunt or a real initiative?”

What about Camden?
And has Grow NJ helped Camden? Well that’s debatable, too, Whiten says.

“That really sort of hits what is a very difficult, very thorny policy question—how to turn around one of the most troubled cities in the country,” he says. “But it also hits on the shortsightedness of granting corporate tax breaks to grow the economy. You really need a holistic approach so you are not just going to get fly-in, fly-out employees. They are not going to invest in Camden, actually benefit the community.

“[It’s mostly] based on the trickle-down assumption that employees go out to lunch and maybe park their car in a parking lot that has an employee or two. … [But] by and large these jobs are not going to Camden; and by and large these jobs aren’t going to be new at all.”

Whiten maintains that Grow NJ, and tax incentives programs like it, simply can’t be the whole answer to Camden’s problems.

“You have to do something to help Camden,” Whiten says. “And maybe there’s a very small piece of the puzzle where this [tax incentive] strategy can be employed. It can’t be done alone, and it can’t be such a large emphasis as it is now. You’ve really seen this go haywire in New Jersey. It seems like every time you turn around there’s another huge blockbuster deal.”

Lizura says that progress in Camden is simply going to take time. “I think it will happen. Our first approvals are just about a year old,” he says. “I think that as it relates to Camden, Grow NJ is one of the most significant paradigm shifts we have seen in a long time. I think it’s working. This is a marathon; this isn’t a sprint.” And despite his misgivings, Lamboy says that he, too, sees improvement in the struggling city.

“I think [Grow NJ] is helping Camden in the sense that it’s raising the profile of the city. It’s making people think twice about the city,” he says. “My father owned a business in the city. When I graduated from Rutgers in ’92, I took over the business.

… People used to [find out the business was in] Camden and say, ‘What? Crazy!’ Now they are starting to say, ‘Camden? Maybe.’ And that’s a good thing.”

Published (and copyrighted) in South Jersey Magazine, Volume 11, Issue 12 (March, 2015).
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