Thursday, February 19, 2015

Swim Or Drown: After companies create jobs, NJ cuts funds for tax breaks


Staff Writer |
The Record

As the state pours billions of dollars in business tax breaks into programs aimed at strengthening New Jersey’s struggling economy, it has put the brakes on another incentive program, leaving hundreds of companies without promised payments that could total in the hundreds of millions of dollars.

Seeking to balance the state budget over the last few years, the Christie administration and the Legislature have each slashed funding for the Business Employment Incentive Program, commonly referred to as BEIP, eliminating payments to companies that were promised annual income tax rebate checks in return for moving to New Jersey or expanding here.

The affected businesses range from HighRoad Press — a small printing company that was promised $345,000 over 10 years for its move from Manhattan to Moonachie — to retail giant Bed Bath & Beyond, which is owed $2.8 million for creating jobs in 2012 and 2013. Paying out the money from these awards — estimated at $650 million according to one state estimate — would seem out of reach without an unexpected massive boost in state revenues. The state stopped awarding new grants under the program in 2013.

The situation has left the Christie administration and Democratic legislators offering no firm commitment to restore the funding behind what had been a key effort to make New Jersey more business friendly but instead deepening the business community’s disappointment in state government. While mention is made deep in the agreements that the funding required legislative approval, one business owner said that was never emphasized, and business leaders view the lack of funding as a betrayal.

“When you give somebody something and you take it away, that sends a bad message,” said Tom Bracken, president of the New Jersey Chamber of Commerce. That’s especially true when it affects business owners who often feel that Trenton politicians don’t understand the pressures and difficulties of running a company, he said.

Lt. Gov. Kim Guadagno, who heads Christie’s business development efforts, said the state is “working on fixing the problem.”

“How that fix occurs, I am not sure,” she said at a recent stop in Paterson. “We are working to put the BEIP funding in the budget,” and keep it there.

Hallie Satz owns one of the businesses affected. She is chief executive of HighRoad Press, which received a $345,000 grant award in 2013, payable over 10 years, to move to Moonachie and expand the printing business to 60 jobs from just over 40. Originally from New Jersey, Satz saw the grant as a way to help her expand her business into a 38,000-square-foot plant, which was about 50 percent larger than her Manhattan factory.

The grant “was definitely a major part” of the decision, Satz said. “It never dawned on me that it was something that wouldn’t happen.”

The company moved into the Moonachie plant in July 2013, and a month later celebrated its opening with a visit from Guadagno. At the end of that year, Satz said, she was eligible for her first rebate for the income tax paid for the last six months of that year.

Satz filed her paperwork as required around April 2014 and expected to get her first rebate check before the year ended. To date, she said, she has received nothing. And like other business owners, she found out she wasn’t getting the money only after she inquired.

Satz said that without the money she has been unable to expand as she expected. She now has 45 employees, only two or three more than when she was in New York. And she now must look elsewhere for a down payment on a binding machine she had hoped would be covered by her first BEIP payment.

“You could never run a business that way,” she said, referring to the state’s failure to meet its promises. “I constantly see all kinds of incentives in the newspaper that are being offered. So I guess I am very confused as to what are all these incentives to bring companies to New Jersey when our incentive has been withheld.”

The difference is that under BEIP, rebate checks are sent to businesses each year, so those funds need to be included in the state budget. Under the newer state incentive programs, businesses don’t receive rebates, but rather tax reductions, meaning they don’t have to make payments to begin with. The reduced payments don’t require legislative approval.

The state has awarded incentives worth $2 billion in these programs over the last year.

BEIP was for years the most powerful tool the state had for stimulating job creation, rewarding about 400 companies. The list of beneficiaries includes corporate giants like Bristol-Myers Squibb, Goldman Sachs, JPMorgan Chase and Sanofi Aventis.

But funding apparently was a problem as far back as 2008. By May 2014, the program owed $650 million to businesses, according to a report filed by the New Jersey Economic Development Authority, with the state Senate Budget Committee. The EDA administers New Jersey’s corporate incentive programs.

Referring to payments from the state to the businesses in BEIP, the report said, “Some invoices from 2008, 2009 and 2010 remain outstanding for various reasons.”

The document then said, “A majority of 2011 and 2012 obligations remain outstanding.”

Christie, faced with fiscal pressures from the recession, allowed $90.5 million in the state budget for BEIP to lapse in 2010, a fairly routine action that puts unspent funds for a particular program into the general budget fund. Last year, Christie allowed an additional $43.5 million in BEIP funding to lapse in the 2013-14 state budget.

Christie spokesman Kevin Roberts said the governor had to let the $90.5 million lapse in 2010 because, on taking office, he was faced with a $2.2 billion budget gap left by his predecessor, Jon Corzine.

Roberts said “revenue shortfalls in FY14 [the 2013-14 budget] required solutions to bring it into balance while protecting core services like hospitals, schools and our seniors.”

Last June, the Democrat-controlled Legislature cut all $175 million of BEIP funding to help balance the current state budget, which Christie eventually signed. Legislators reasoned that the state had other incentive programs and that the state’s dire fiscal picture meant there should be “shared sacrifice” by businesses, given that payments to employee pensions were also cut.

As Christie prepares to release his 2015-16 budget on Feb. 24, no one is sure when checks for the BEIP recipients will start flowing again.

State Sen. Paul Sarlo, D-Wood Ridge, chairman of the Senate Budget and Appropriations Committee, won’t say if BEIP will be funded in the next budget until he sees Christie’s budget proposal.

“It’s way too early to tell until we see what the final revenue numbers are,” he said.

Guadagno said the program had “been underfunded for years,” predating Christie’s taking office in 2010. The funding problem was a key reason the state overhauled its incentive programs, switching from the rebate system used in the BEIP program, to a tax credit program, she said.

State Sen. Ray Lesniak, D-Union, a strong supporter of business incentives, said he voted for the current budget — minus the BEIP funding — to ensure the state had a budget in place. He called the failure to make the BEIP payments “a huge concern.”

He said: “If we can change the rules in the middle of the game, then our entire program to attract investment, expand employment and attract businesses to New Jersey loses credibility. We have broken our promise to companies that have expanded their employment in the state of New Jersey.”

Among the disappointed is Thomas Churchill, vice president for operations at Model Electronics in Ramsey. The company moved from Rockland County, N.Y., to Bergen County in 2005 with the help of a grant for $468,000 over 10 years, contingent on bringing 85 new jobs to the state.

Until about 2009, he said, Model Electronics would submit paperwork in February or March, outlining how the company had met the obligations of its grant the previous year. The rebate check would then arrive from the state in September. But in the last few years the state has fallen behind, he said. Last year, Model Electronics received payment for incentives owed from 2011, and Churchill said he is still waiting to be paid for 2012 and 2013.

“When you go into an agreement, you expect it to be funded,” he said, but added that the delay isn’t a big problem for his company because the incentive is relatively small compared with the company’s $10 million annual revenue.

Lesniak said he met with representatives of Union-based Bed Bath & Beyond three months ago to discuss their concerns. New Jersey awarded Bed Bath & Beyond two BEIP grants, one for $166,614 in 2006 in return for the company’s creating 160 jobs, which it did, and a second for $8.5 million in 2011 if it created 340 more jobs, according to a record on the EDA website. While the company received rebate payments for the 2006 award, it has received no money for the second, despite creating 739 jobs since 2011, the record shows.

Asked to comment, Bed Bath & Beyond said, “We have shared our concerns about the BEIP program and our grants with members of the Legislature and the administration, and we are eager to discuss a way to move forward that will work for us, for the program and for our state.”

It’s unclear what recourse companies have, if any, in light of the statement, on Page 7 of a 15-page BEIP agreement obtained by The Record that the “right” of an awarded company to receive its grant payment is conditional on the Legislature appropriating “monies for the grant.”

“Certainly, a business owner has the option to go to court,” said Paul Josephson, a real estate attorney with the firm of Duane Morris of Newark and Cherry Hill, who has represented BEIP applicants. “And presumably, as long as they have satisfied all the conditions of the BEIP grant, they can get a judgment to be paid the money they are owed.”

“The problem then is the court can’t enforce the judgment,” if the Legislature has not appropriated money for the program, he said. Churchill, of the Ramsey electronics business, said the condition was not a point of emphasis in the company’s discussions with the state.

Staff Writer John Reitmeyer contributed to this article.


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