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137 W. HANOVER ST. - TRENTON, NJ 08618 - NJPP@NJPP.ORG

TRENTON - Proposed changes to the state's tax increment financing law, now being rushed through the legislature, could result in significant revenue loss for the state and for its municipalities, counties and schools as it diverts public money to developers. The bill is scheduled to be released by the Senate and Assembly budget committees this afternoon and will likely be considered by the full legislature on Thursday.

The Economic Stimulus Act would allow the state and municipalities to divert and give developers revenues from 22 state and local taxes and fees, including the corporation business tax, the sales and use tax and the property tax. This is more than any other state in the country. New Jersey's current tax increment financing (TIF) law, known as the Revenue Allocation District (RAD) Financing Act, allows nine revenue sources to be diverted for use in a RAD. This proposal would more than double that number.

"In a time of economic crisis, with falling tax revenues forcing state and local governments to make deep cuts to public services and furlough employees, New Jersey and its municipalities can ill-afford to funnel needed tax revenue to private developers," said Sarah Stecker, NJPP Policy Analyst and co-author of NJPP's forthcoming report on TIF in New Jersey.

Particularly alarming is that three-quarters of these revenues would be diverted for as long as 20 years. That means in addition to giving state and local taxes and fees to developers today, the proposal would allow the state and its municipalities to do so for 20 years into the future.

"At a time when New Jersey has been forced to make cuts to programs essential to the well-being of some of the state's most vulnerable residents, legislators should avoid gambling future revenue on speculative real estate development," said NJPP Policy Analyst and co-author of NJPP's forthcoming report on TIF in New Jersey Naomi Bressler. "Once the economy recovers, this money will be needed to restore today's program cuts."

Originally conceived as a tool to help revitalize blighted and impoverished areas, in many states TIF has become little more than a subsidy to developers. In Cumberland County's Millville, the only TIF in New Jersey so far, $2.5 million in public money was given to the two developers of a shopping center; that money could more appropriately have been used for schools, road maintenance and garbage collection.

"Tax increment financing is always risky," said Greg LeRoy, executive director of Good Jobs First, a national organization that works on economic development accountability. "Put simply, it is a gamble with taxpayers' money far into the future, at the expense of public education and other public services. New Jersey's proposed TIF law would allow more revenue streams to be diverted than any other state, yet there has been no estimate of its costs, nor does the state have a disclosure system to report its actual future costs."

First discussed by the Assembly on June 11th, legislators seem insistent on approving this bill quickly. Rather than rushing through with the changes, this bill should be held until a full fiscal analysis of the costs and benefits of the bill can be determined. This will make for a more transparent process and will provide the public with a better understanding of the impact this legislation will have on the state and its municipalities not only today but into the future.

In addition, New Jersey Policy Perspective recommends the following:

1. No state taxes should be diverted; the diversion to developers should be limited to property taxes. The need for public services funded by public revenues increases with economic growth. Therefore, serious thought should be given before any funds at all are diverted.
2. All affected local taxing bodies should be required to approve these subsidies to developers. TIFs divert tax revenue from funds available to cities, counties and schools for a significant period of time, leaving them with the burden of providing public services to more people with a smaller tax base. More residents - or even shoppers or workers - increase the need for school and roads. If the tax base is smaller, the costs of these services are shifted to other taxpayers.
3. Projects built using TIF revenue should be subject to first source hiring agreements and should pay a living wage and provide health benefits to workers in both temporary construction jobs and permanent jobs. Projects that create a large number of jobs should establish training programs designed to qualify local workers for those jobs or agree to participate with local employment and training agencies to give local residents the first chance to qualify for the jobs.
4. The application process and subsequent implementation of all TIFs should be transparent online. Information about the incremental revenue generated for the TIF and how that money is spent should be understandable and accessible on the internet. The information should include the number of workers hired for each project in the TIF, where those workers live, how much those jobs pay and if the jobs include healthcare and retirement benefits. Companies that do not comply with the reporting law should be subject to stiff penalties, including the suspension of any remaining TIF-supported benefits until compliance is achieved.
5. The TIF program should be sunsetted after five years, with a full performance audit and fiscal impact analysis submitted to the legislature before it can be considered for reauthorization. Given the diverse range of public services that stand to be affected by an expanded TIF program, New Jersey cannot afford a TIF program with an open-ended claim to the public treasury. By sunsetting the program to end in five years, with a full performance audit to determine its effectiveness and a fiscal impact analysis to take a full accounting of its costs and their effects on public services, New Jersey can protect itself from the harms now unfolding in other states that have failed to install such a safeguard.

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