Governor Murphy Signs New Economic Incentive Legislation
Governor Murphy signed into law the New Jersey Economic Recovery Act of 2020 (NJERA), opening a new chapter in the Murphy Administration’s efforts to incentivize businesses to invest in New Jersey and to assist the State in recovering from the economic downturn caused by COVID-19.
NJERA’s enabling legislation, almost 250 pages long, creates new economic development programs, amends existing programs, and makes operational changes to the New Jersey Economic Development Authority (EDA).
New Incentive Programs
NJERA 2020 creates nine new incentive programs:
- The Historic Property Reinvestment Program provides tax credits for part of the cost of rehabilitating historic properties in this State. Tax credits under this program are capped at $50 million annually for six years. Qualified historic properties potentially eligible for tax credits include those designated on the National Register of Historic Places or the New Jersey Register of Historic Places, by the Pinelands Commission, or by municipalities under certain criteria approved by the State Historic Preservation Officer.
- The Brownfields Redevelopment Incentive Program provides tax credits to compensate developers for remediation costs of redevelopment projects located on brownfield sites. Tax credits under this program are capped at $50 million annually for six years. Brownfield sites include any former or current commercial or industrial site that is currently vacant or underutilized and on which there has been, or there is suspected to have been, a discharge of a contaminant or on which there is contaminated building material.
- New Jersey Innovation Evergreen Program auctions tax credits for cash, which will be used to invest in innovation as a catalyst for economic growth and to advance the competitiveness of the State’s businesses in the global economy. Tax credits under this program are capped at $60 million annually for six years.
- Food Desert Relief Program provides tax credits in order to incentivize businesses to establish and retain new supermarkets and grocery stores in food desert communities. Tax credits under this program are capped at $40 million annually for six years. A grocery store that is the first or second to open in a designated food desert community, or those food stores existing in food deserts and seeking to expand, may be eligible for either tax credits or grants for eligible costs.
- New Jersey Community-Anchored Development Program provides tax credits to anchor institutions to incentivize the expansion of targeted industries in the State and the continued development of certain areas of the State. Tax credits under this program are capped at $200 million annually for six years, but the $200 million annual cap will be split, with up to $130 million of tax credits for areas in the 13 northern counties of the State and $70 million for areas in the eight southern counties. Under the legislation, anchor institutions in areas such as education, healthcare, culture, community development, and economic development are provided with the opportunity to act as investors in targeted development, utilizing proceeds from the sale of State tax credits.
- New Jersey Aspire Program provides tax credits to encourage redevelopment projects by covering certain project financing gap costs. The Aspire Program operates in a similar manner as does the Economic Redevelopment and Growth (ERG) Program, which generally closed for new applicants in 2019. Criteria for eligible projects include, among other provisions, commercial and residential development where the developer has at least a 20 percent equity contribution and, without the incentive award, the redevelopment project is not economically feasible.
- New Jersey Emerge Program provides tax credits to encourage economic development, job creation, and the retention of significant numbers of jobs in imminent danger of leaving the State. The Emerge Program operates in a similar manner as the Grow New Jersey Assistance Program, which closed for new applicants in 2019. Tax credit awards under the Emerge Program require a minimum capital investment and minimum number of created or retained jobs. Although the incentives are more limited than under the Grow New Jersey Program, enhanced incentives exist to drive development projects in municipalities such as Trenton, Paterson, and Camden.
The Aspire and Emerge Programs have a combined tax credit cap of $1.1 billion annually for six years, but the $1.1 billion annual cap will be split so that up to $715 million of tax credits will be for projects located in the northern counties of the State and $385 million for projects located in the southern counties. The $1.1 billion cap does not apply to “transformative projects” completed under the Aspire or Emerge Program. For transformative projects under the Aspire and Emerge Programs, the combined credits over six years is capped at $2.5 billion.
- Main Street Recovery Finance Program provides grants, loans, and loan guarantees to small businesses. The bill appropriates $50 million for this program. Eligibility criteria for the program include the business’s benefit to the community in which it is situated and the degree to which the business enhances and promotes job creation and economic development in communities that have been severely impacted by the COVID-19 pandemic.
These eight programs are subject to a total commitment cap of $11.5 billion over six years, with a potential seventh year should programs have excess capacity after the sixth year.
An additional new program outside of the commitment cap is for the development and manufacturing of Personal Protective Equipment (PPE) in the State. State bidding preferences and tax credits are given to businesses that manufacture PPE. The total allowable tax credits for manufacturers that hire new employees and make capital investments in New Jersey are capped at $10 million annually for three years.
Amendments to Existing EDA Programs
NJERA also makes changes to seven existing economic incentive programs:
- The New Jersey Ignite Program is codified in statute to provide start-up rent grants to collaborative workspaces through a public-private partnership to support the initial months of an early-stage innovation economy business’s rent at its collaborative workspace. The bill appropriates $250,000 for the operation of this Program.
- The Grow New Jersey Assistance Program is amended to clarify various definitions and to grant greater flexibility to amend current incentive agreements. The EDA has broader authority to address deferrals, adjustments, and termination of incentive agreements for businesses, including those affected by COVID-19.
- The Economic Redevelopment and Growth Grant Program is amended to extend certain reporting deadlines and allows an additional $220 million of tax credits to be awarded for certain commercial and residential developments.
- The Film and Digital Media Tax Credit Program is amended to extend the film tax credit provisions to include provisions for “New Jersey film partners” and “New Jersey film-lease partners,” and to allow an additional $200 million of tax credits annually over 13 years.
- The New Jersey Emerging Technology and Biotechnology Financial Assistance Program is amended to include and increase the annual amount of tax benefits for the Net Operating Loss (NOL) Program that the EDA may approve annually to $75 million (from the current $60 million).
- The New Jersey Angel Investor Tax Credit Act is amended to increase the annual tax credit cap from $25 million to $35 million and to add provisions for the participation of venture funds.
- The Offshore Wind Economic Development Act is amended to include changes to change eligibility requirements, disbursement of credits, and deadlines.
General Administration of the EDA
The NJERA makes significant changes to the operations of the EDA which, among other provisions, include:
- Creating the Office of Economic Development Inspector General to act as an independent watchdog, along with the position of a Chief Compliance Officer to manage the Division of Portfolio Management and Compliance.
- Establishing a working group for the purpose of making recommendations for the establishment of entrepreneur zones throughout the State.
- Providing the ability of the State to directly purchase tax credits from program participants, rather than requiring program participants to sell the credits in the marketplace.
- Continuing and enhancing the requirements that incentive recipients comply with prevailing wage, affirmative action, and affordable housing requirements as applicable.
Businesses of all sizes should evaluate whether any of the new NJERA programs may be applicable to them, and those with existing incentive awards from the EDA should review whether their programs’ requirements have changed as a result of this new law.