The Re-emergence of New Jersey Economic Incentives
by Kelley Rendziperis, on Jan 26, 2021 11:52:04 AM
On January 7, 2021, Gov. Phil Murphy signed into law the New Jersey Economic Recovery Act of 2020 passed by the New Jersey Legislature on December 21, 2020. This sweeping act, worth $14 billion, provides programs and policies related to New Jersey’s four strategic priorities of investing in talent, building communities, supporting innovation and increasing the state’s competitiveness and business climate.
Of particular interest is the much-anticipated return of economic incentive programs, which have been largely absent from the state since the sunset of the state’s key discretionary incentive programs in June 2019.
The new legislation, as it relates to economic incentives, is different from prior programs as it places caps on the various incentives, while maintaining flexibility to provide benefits to truly transformative projects. The new procedures and requirements attempt to ensure maximum transparency with taxpayers.
The legislation authorizes up to $11.5 billion in tax credits over seven years for new and extended incentive programs including:
- New Jersey Aspire
- Historic Property Reinvestment
- Brownfields Redevelopment
- New Jersey Innovation Evergreen
- Food Desert Relief
- New Jersey Community-Anchored Development
The legislation also includes creative programs to assist small businesses and start-ups. For example, the Main Street Recovery Finance program provides grants, loans and loan guarantees to new businesses. New Jersey Ignite provides start-up rent grants to collaborative workspaces.
Other existing programs that were modified or extended include:
- Film Tax Credit: $200 million in tax credits annually over 13 years
- New Jersey Angel Investor Tax Credit Act: Increased annual cap from $25 million to $35 million.
- Economic Redevelopment and Growth Grant Program (ERG): Application deadline extended to December 31, 2021, for qualifying residential projects.
As shown above, the bill contains an abundance of new programs and changes to existing laws. The Emerge Program is especially relevant to our clients considering the Garden State for future projects.
The Emerge Program appears to be the successor to the popular Grow NJ Assistance Program as a tax-credit based tool for general economic development projects. This economic incentive program is created to encourage economic development, job creation and job retention of positions in imminent danger of leaving the state. The incentive program will do this through the issuance of nonrefundable tax credits.
- The business will make a capital investment at the facility equal to or greater than:
- $20 (rehabilitation) or $60 (new construction) per square foot of gross leasable area for an industrial, warehousing, logistics or R&D facility.
- $40 (rehabilitation) or $120 (new construction) per square foot for all other facilities not listed above.
- The business will create or retain full-time jobs earning either $15 per hour or 120% of the minimum wage (whichever is higher) at the qualified building equal to or greater than:
- 25 new full-time jobs for businesses engaged in a targeted industry; or
- 35 new full-time jobs for any other business; or
- 500 retained full-time jobs for projects located in a qualified incentive tract or government-restricted municipality; or
- 1,000 retained full-time jobs for all other businesses.
- The qualified business facility is in a qualified incentive area.
- The award of tax credits is a material factor in deciding to locate or stay in New Jersey.
- The project will yield a net positive benefit to the state equaling at least 400% of the requested tax credit allocation amount. This percentage can be lowered to a minimum of 200% depending on where the project locates or if it is considered a mega-project.
Other program considerations
- All applicants will be required to submit a full economic analysis of all finalist locations, including non-New Jersey sites, under consideration for the project. Details required for this analysis will include all lease agreements, ownership documents, breakdown of costs and various other details to determine that the incentive is a material factor in locating or remaining in New Jersey.
- All businesses will enter into a community benefits agreement with the local county or municipality in which the project takes place. This agreement may include requirements for training, employment, youth development and many other potential requirements to serve the community.
- Tax credits are awarded based on the number of new or retained jobs. The amount per job will vary based on the category, status of the zone the project is in, and the total number of jobs. This range is between $500 to $4,000 per job per year, with certain bonuses being available under various circumstances.
- If granted, the tax credit may be applied against the eligible business’s tax liability. This credit may be carried forward for use by the eligible business in any of the next seven successive tax periods. If granted to a partnership, the credit will be passed through to the partners, members or owners.
- An eligible business may also apply for a tax credit transfer certificate within three years of the tax period in which the credit is earned. It may be sold or assigned to different entities.
- The authority may recapture all or part of a tax credit awarded if an eligible business does not remain in compliance. These recaptures may include interest on the recapture amount.
One major economic incentive program change Site Selection Group expects to see more frequently is the consideration of remote employees, and it appears Emerge is trying to address this issue.
The past Grow NJ legislation qualified a full-time position that worked a minimum of 35 hours per week at the qualified business facility. The Emerge legislation allows employees that are in flexible work environments to qualify by allowing a company to demonstrate that its real estate requirement can fulfill 50% capacity and that 80% of eligible employees are subject to New Jersey Gross Income Tax.
Not only does this make the program more viable in the current COVID-19 environment, but it also expands the program to be more attainable for service industries that have employees located in the field or at client sites.
While the rebirth of economic incentives in New Jersey is a welcome sight, the eligibility requirements, application process and compliance procedures are perhaps more burdensome than under the prior programs.
We will continue to routinely monitor news surrounding this bill and will provide updates as they become available. If you are considering a project in New Jersey, please contact us for additional information.
For additional information about these updates, please contact me at firstname.lastname@example.org with any questions.
Blog contributions by Rachel Rohn and Cody Gibbs.