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In January 2019, New Jersey Gov. Phil Murphy announced the creation of a task force to investigate the Garden State’s economic development programs. What it found was the stuff of nightmares: Politically connected insiders siphoning up corporate tax breaks for themselves and their clients, big corporations defrauding the state via fictitious threats to move elsewhere, low-income New Jerseyans getting hosed, and a complete lack of accountability to the state’s taxpayers. (My previous coverage of the task force’s good work can be found here, here, here, here, and here.)
The 2013 law authorizing those problematic programs expired, and Murphy vowed not to allow them to be renewed without reform. New Jersey sat out the corporate giveaway game entirely for 18 months.
Today, state legislators passed the Economic Recovery Act of 2020 — by a vote of 68-11 in the state Assembly and 38-1 in the state Senate. Alas, after all that work and time, the new bill is awful. New Jersey had a massive opportunity to fix an utterly broken and ineffective economic development system, and blew it. Let’s break down why.
First, the price tag: More than $14 billion over seven years. That’s $2 billion in corporate giveaways every single year, which is more than the largesse provided under the 2013 law that started this whole thing. Comparable states spend a fraction of that amount annually. Proponents are saying this a “cap” on spending, because the programs can’t increase indefinitely, but at that total, calling it a cap is just an insult to caps.
As readers here hopefully know, research shows that tax breaks have very little effect on corporate location decisions, and they do next to nothing to create new jobs or boost incomes. New Jersey proved how they merely set up an opportunity for corporations to play states off against each other, with threats to move that are often fictitious, in order to win more largesse: Several New Jersey companies said they were moving to the same New York office building in order to receive tax breaks to “retain” jobs.
That state lawmakers are willing to spend so much on something that delivers so little — while facing coronavirus-induced budget problems — is simply a shame.
The money will also disproportionately benefit big corporations, leaving little for the small businesses that are bearing the brunt of the pandemic and that build strong local economies and communities. One of the few bones thrown to small business is a $50 million program that doesn’t even have guaranteed funding, and is mostly built off loans, whereas big corporations receive tax credits they don’t have to pay back.
New Jersey legislators seem to be hanging their hopes on the law’s requirement that pre-deal analyses prove the benefits a corporation will bring outweigh the costs of the tax breaks it receives. But those analyses are notoriously faulty, and prone to conflicts of interest. Taxpayers are going to lose, and lose big.
Second, the process: Murphy and legislative leaders announced a deal on the bill on Wednesday last week. Legislative hearings were on Friday. The bill was approved today. There’s no reason that, after investigating these programs for nearly two years, legislators need to try to fix them in less than a week.
The bill reforms or creates a whole slew of programs — some of which are fine and worthwhile. But by cramming them all together, New Jersey’s leaders are going to smuggle a lot of bad stuff through with the good.
A huge problem in economic development is lack of transparency around how programs operate and are funded. New Jersey’s approach doubles down on those issues.
Third, the lost promise: To be fair, there are some important reforms and innovative programs included in the law that will help protect taxpayers’ interests. For instance, it requires community input and Community Benefits Agreements — that lay out corporate responsibilities to their new neighbors — before incentives can be granted. It also caps the per-job cost of individual deals. And it creates a new Inspector General to oversee the programs and ferret out fraud.
But those solid moves are vastly outweighed by the failure to fundamentally alter a theory of economic development that reams of research — and New Jersey’s own experience — show to be a total failure. Billions of dollars thrown at corporations under new names and formulas isn’t the path to an economic renaissance.
This is a sad situation. New Jersey had a chance to set a standard for the nation in terms of investigating and then reforming the kind of programs that lead to taxpayers granting tens of billions of dollars to corporations nationwide every year. Instead, legislators took a massive amount of work and mostly threw it out the window. Business as usual is an overused phrase, but in this instance, it really fits the situation, and that’s too bad.
UPDATE: In happier news, there are two (two!) new Google antitrust cases to get excited about. The first deals with Google’s dominance of the ad tech industry, which is the industry that connects publishers such as magazines and newspapers to advertisers online. Google owns pretty much every step of the chain between the two, and takes an increasingly large cut of the money that once sustained news organizations. As I detailed here, the loss of local news is a big deal to a community, so this is a really important case.
The second suit is a lot like the case I covered back in October, and deals with Google’s tactics to maintain its monopoly on internet searches. Both were launched by coalitions of state attorneys general.
I’ll be keeping an eye on these as they move forward. And let me know if you, your business, or your community have been harmed by either Google or Facebook (which plays a co-starring role in the ad tech case). My colleagues and I want to get your stories in front of more people.
ONE MORE THING: Good Jobs First released its latest update on how much Amazon has received in state and local subsidies, and the number is mind-boggling: $3.7 billion. Yes, with a B. And as Good Jobs First noted, “The figure doesn’t tell the whole story, as the company has gotten increasingly effective at hiding the full costs of its subsidy packages.” As I explained here, each of these dollars undermines local services and businesses. Local officials really need to knock it off.
THANK YOU: This is my last issue of the year! Thank you so much for subscribing, sharing, emailing, and commenting. It’s been very cool seeing this project grow, and I’ll keep doing it as long as folks keep finding it interesting and useful. Happy holidays, and see you all in January.
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— Pat Garofalo