Highlights of The New Jersey Economic Recovery Act of 2020

—Background—

The wide breadth and rich depth of the unprecedented, more than $14 billion multi-year “New Jersey Economic Recovery Act of 2020” (P.L.2020 c.156) makes the law a potentially transformative economic development tool. It passed the Legislature on Dec. 21, 2020 and was signed into law by Gov. Phil Murphy at a ceremony with NJBIA in attendance on Jan. 7, 2021. The statute took effect immediately, but as a practical matter only becomes active after the New Jersey Economic Development Authority promulgates the rules and regulations that will govern it.

Most of the new law’s programs will last for six years until March 1, 2027. The new tax incentives will help make New Jersey economic development projects more affordable and, therefore, possible, to help create jobs and a better economy. It will also improve New Jersey’s innovation ecosystem with multiple programs and a significant focus on innovation.

This brief document is not intended to fully explain the many complexities within this new 249-page law, but NJBIA’s hope is that it provides members a big picture look at the reasons we supported it, a few of the concerns we have with the law that may impede its success, and some details that may pique NJBIA members’ interest and lead to a larger conversation about the law and how it could possibly help your business.

Key Parts of Economic Recovery Act of 2020:

• Emerge – job-based component of law intended to replace EDA’s expired Grow NJ program
  • Combined with Aspire to split the $1.1 billion annual cap
    • $715 million for northern New Jersey counties and $385 million for southern New Jersey counties
    • Additional $2.5 billion total over 6 years of program allotted for transformational projects ($100 million and over) outside of $1.1 billion annual cap
  • 6-year program with 7^th year for any uncommitted credits
  • Required for eligibility:
    • Certain project size and job creation/retention threshold
    • Located in a qualified incentive area
    • Tax credits are material factor in creation/retention of jobs
    • Net benefit test of at least 400% unless in certain lower-income municipalities where could be 300% or as low as 200%

• Aspire – building/development-based component of law intended to replace EDA’s expired ERGG program
  • Combined with Aspire to split the $1.1 billion annual cap
    • $715 million for northern New Jersey counties and $385 million for southern New Jersey counties
    • Additional $2.5 billion total over 6 years of program allotted for transformational projects ($100 million and over) outside of the $1.1 billion annual cap
  • Positive net benefit test required except for food delivery, large health care in a lower-income community or residential projects
  • 6-year program with 7^th year for any uncommitted credits

• New Jersey Community-Anchored Development Act – program to incentivize major community nonprofit or government institutions (higher education, health care, cultural, scientific, philanthropic, community or economic development) working with targeted industries
  • $200 million annual cap
    • $130 million for northern New Jersey counties and $70 million for southern New Jersey counties
  • Positive net benefit test required
  • 6-year program with 7^th year for any uncommitted credits

• • Development Targets in New Law
    • Types of Business:
      • Advanced transportation and logistics
      • Advanced manufacturing
      • Aviation
      • Autonomous vehicle and zero-emission vehicle research or development
      • Clean energy
      • Life sciences
      • Hemp processing
      • Information and high technology
      • Finance and insurance
      • Professional services
      • Film and digital media
      • Non-retail food and beverage business including food innovation
      • Other innovative industries that disrupt current technology and any industry identified by EDA going forward

• Geographic
  • Federal Opportunity Zones
  • Certain lower-income communities/distressed municipalities/municipalities with former Abbott school district
  • Lowest income “government-restricted municipalities” such as Trenton, Paterson and Atlantic City get the most support
  • Designated growth areas in State Development and Redevelopment Plan
  • “Employment and investment corridor” included in Emerge which is notable new feature different from the previous Grow NJ program that did not provide as much support for development outside lower-income cities
    • Includes: ports, closed military bases, proposed incubator, tourism or transit projects, large vacant office parks
  • Transit hubs
  • Food deserts
  • Port districts
• Other Notable Targets/Bonuses:
  • Small businesses
  • Labor harmony agreements
  • Child care provided
  • Partner with prisoner re-entry program
  • Partner with higher education institution
  • Built with green technologies
  • Diverse board members of business

• New Jersey Innovation Evergreen Act – Governor Murphy’s signature idea where state tax credits are auctioned off to raise money for venture capitalists to support New Jersey’s innovation ecosystem
  • $60 million annual cap
  • 6-year program with 7^th year for any uncommitted credits

• New Jersey Ignite Act – public-private partnership providing startup rent grants for collaborative workspaces for early-stage innovation businesses
  • $250,000 one-time appropriation

• Manufacturing of Personal Protective Equipment (PPE)
  • $10 million annual cap
  • 3-year program
  • Bidder preferences for New Jersey PPE businesses

• Main Street Recovery Finance Program Act – provide grants, loans and guarantees to small businesses
  • $50 million one-time appropriation
  • At least 40% reserved for microbusinesses, minority-owned and women-owned businesses.
  • Small businesses are only eligible for Main Street grants if they pay their employees $15 per hour or 120% of minimum wage, whichever is higher.

• Historic Property Reinvestment Act – corrects an anomaly in which New Jersey with so much history was one of few states in nation without a tax credit program to support the rehabilitation of historic properties
  • $50 million annual cap
  • 6-year program with 7^th year for any uncommitted credits

• Brownfields Redevelopment Incentive Program Act – tax credits to compensate developers for remediation costs of projects on brownfield sites encouraging development and environmental cleanup
  • $50 million annual cap
  • 6-year program with 7^th year for any uncommitted credits

• Food Desert Relief Act – tax credits to incentivize food stores in food deserts that occur too often in some lower-income communities of New Jersey
  • $40 million annual cap
  • 6-year program with 7^th year for any uncommitted credits

• Improvements to EDA, Existing Economic Development Programs & Other Initiatives:
  • EDA Reforms – creation of EDA Inspector General & Chief Compliance Officer, expands responsibilities, better data sharing between Treasury and EDA
    • $250,000 one-time appropriation
  • Film & Digital Media Tax Credit Program– expands existing program to $2.6 billion over 13 years
  • Expands existing programs to further support innovation economy – New Jersey Angel Investor Tax Credit Act (increased annual cap from $25 to $35 million) & New Jersey Emerging Technology and Biotechnology Financial Assistance Program (increased NOL/R&D benefit cap from $60 to $75 million)
  • Extends sunset of Economic Redevelopment and Growth Grant (ERGG) Program and allows additional $220 million to be awarded
  • Adjusts existing Offshore Wind Development Act
  • Creates a working group to investigate the establishment of entrepreneur zones
  • $5 million to fund zoning and planning grants in certain prioritized municipalities
  • Allow a business to suspend, terminate or adjust some of its obligations due to COVID-19

Lingering Concerns About Economic Recovery Act of 2020 for Employers to Be Aware of that We Hope Get Corrected and/or Do Not Impede Its Success:

• Burdensome Labor Mandates – Tax incentives are needed for New Jersey development in the first place because the cost of doing business is so high, and a big part of that is due to high labor costs. Further increasing labor costs, may counteract the very incentives that were created to address those high labor costs.
  • Full-time employees in the Emerge program are considered those who make at least $15 per hour or 120% of the minimum wage, whichever is higher, and no Emerge bonuses can go to businesses with full-time employees below this threshold.
  • Each worker in any project receiving the extended ERGG program must make at least $15 per hour or 120% of the minimum wage, whichever is higher.
  • Labor harmony agreements are required in the Brownfields program and some projects in the Aspire and Food Desert programs. Additionally, but less onerous than the mandate, is that having these agreements would provide a $2,000 bonus in the Emerge program.
  • There are new prevailing wage requirements for building services work in the Anchor, Aspire, Emerge and the ERGG extension.
  • There are broad prevailing wage requirements for a variety of types of construction work performed under the Anchor, Aspire and Emerge programs throughout the bill, but prevailing wage for construction done with state tax credit programs are less of a new concept than for the aforementioned building services work, which is new.

• Flexibility Needed for New Reality of Remote Work
  • In this pandemic (and eventually post-pandemic) world we all live in, there should be permanent flexibility, both for past tax credit awardees and prospectively, in statute for businesses that have more of their employees working remotely. Employers that bring new jobs to New Jersey should not be penalized for having too many of their employees working from home. Section 71d provides some prospective flexibility but not for past awardees as was originally in the bill before amendments.

• Problematic Tax Withholding Language in Emerge
  • This language would discriminate against western New Jersey (Salem to Camden to Trenton to northwestern New Jersey). New Jersey businesses near the Pennsylvania border often have workforces with more than 20% of their employees living in Pennsylvania, making those businesses ineligible for Emerge due to New Jersey’s reciprocal income tax agreement with Pennsylvania and language in section 71d. Businesses in northern New Jersey that have employees living in New York would not have this problem, because there is no reciprocal tax agreement with New York State and the default tax arrangement is to pay taxes where you work.

• Brownfields Section Should Be More Environmentally Friendly
  • It is not sound environmental policy to have strict limits on doing any brownfields remediation before the application to the Brownfields program.  Quicker remediation only helps the environment and can limit ultimate costs. There should be a look-back period where the tax incentive could serve as a reimbursement for cleanup work already done. Also, to encourage quicker cleanups, the credits could be issued on a rolling basis while the work is going on instead of all at once. This current language will require projects and cleanups to wait longer for the full remediation funding instead of encouraging good actors to start remediation right away.

• Funding for Main Street Relief is Insufficient
  • The bill only includes $50 million for Main Street and that is not enough given the extreme struggles of Main Street businesses throughout New Jersey. Within a $14 billion-plus bill focused on pandemic recovery, helping more Main Street businesses, the very ones that may have suffered most in the pandemic, should be a greater priority than just 0.3% of the total program. These small businesses may also struggle to comply with the mandates placed on most of them to be eligible for this relief, especially the new wage floor of $15 an hour or 120% of the minimum wage, whichever is higher.

• Community Benefits Agreement
  • The successes of community benefits agreements in the expired tax incentive program are definitely something to be expanded where appropriate, but NJBIA is concerned about mandating them. Any Aspire or Emerge project of $10 million or more that does not have certified support from the municipality where the project is located must have community benefit agreements. It is important to not allow this to become too big of a burden to these economic development projects, and it is also critical to not allow a local government’s unilateral control over the agreements to derail a potential economic development opportunity for the whole region or state. There needs to be some state oversight to ensure that any agreement demands are not unreasonable.

—For More Information —

Please contact Christopher Emigholz, NJBIA Vice President of Government Affairs, at cemigholz@njbia.org with any questions about this new economic development tool or any other taxation and economic development issue.