Biggins Lacy Shapiro & Company, LLC

NJ's New Incentive Law: What Does It Mean?


New Jersey’s elected leadership came together to end an 18-month stalemate that left the State without incentives tools to grow and defend the State’s economy during a particularly challenging time.  In some ways the over-riding challenges of the pandemic “paused” the normal market dynamics by which companies make long-term decisions about where to locate jobs and investment – a kind of suspended animation while crisis management preoccupied the daily news cycle.  However, long-standing competitive challenges and accelerated changes in workplace patterns (even-post vaccine) are retaking center stage with news of Goldman and other large companies considering moving out of the New York metro area.

Confronting these rapidly changing market realities, New Jersey is finally stepping forward with robust and intelligently designed tools to persuade companies to grow and invest in New Jersey. The following is a summary of the key elements of the new legislation enacted to go live in early 2021.

EMPLOYMENT INCENTIVES: “EMERGE”

The legislation employs the same basic mechanics of the former Grow NJ program but with more modest incentives amounts and other important differences.  The program provides for transferable tax credits for job creation and (to a very limited extent) retention. Credits will be earned on an annual basis for a term of up to seven years. Amounts vary based on geography and other factors (including “bonuses”), and subject to certain limits, as follows:

IMPORTANT CONSIDERATIONS 
  • Eligible Jobs:  Relaxing the EDA regulation limiting eligibility to employees spending at least 80% of their time at the project facility, the new law requires that the business provide “a plan” for occupancy of at least 50% of the eligible employees. In addition, at least 80% of the income tax withholdings of eligible employees must be subject to NJ personal income tax. [Note: This provision is complex and problematic, especially for areas relying on commuters from PA which are exempt from NJ withholdings, and thus will likely be amended.]
  • New Jobs:  The primary focus of this program. Tax credits available set forth in the table above.
  • Existing Retained Jobs:  Companies seeking incentives to retain existing jobs must have at least 1,000 jobs “at risk” to qualify, except in Paterson, Trenton and Atlantic City (GRMs) and “qualified incentives tracts” (New Market Tax Credit-eligible tracts statewide) where the threshold is reduced to 500 jobs. Subject to other requirements, eligible existing retained jobs generate 50% of the amount available to new jobs.
  • Mega Projects:  A new category, to be defined by EDA regulation, which gives projects of special significance flexibility in location choice while accessing the highest amount of incentives ($56,000/new job) otherwise reserved for projects in the three GRM cities.
  • Maximum Award/Material Factor:  All awards are subject to a determination by EDA as to the minimum amount required to induce a company to locate the project in NJ.  Moderating the Grow NJ “but for” standard, the new program requires CEO certification that the requested tax credits are a “material factor” in the decision to proceed with the project, and more detailed documentation of costs in a competing location, including incentives.
  • Net Benefit Thresholds:  A fiscal ROI to the State is required at levels ranging from 200% to 400% depending on location category described above.
  • Minimum Investment:  Modest minimum capital investments are required, calibrated to project type, and subject to adjustment by EDA, as well as specified sustainability and prevailing wage standards.
  • Term/Commitment Period:  Credits can be eared over a maximum term of seven years, requiring a commitment to maintain jobs of 1.5 x tax credit term (max 11 years).  Must maintain 80% of previous statewide headcount, and 80% of project jobs or tax credits will be reduced, termination and recaptured.
  • Tax Credit Refundability:  Transferable tax credits can be sold to the Treasury at 90 cents/dollar – an important support for market pricing to afford predictability for companies considering growing in NJ.
  • Community Benefit Agreement:  Applications for require municipal letter of support. In addition, subject to exceptions, projects >$10 million in project costs require local public hearing, a Community Benefit Agreement (e.g., training, employment, “free services” and related benefits for under-served communities), overseen by a “community advisory committee.”  The municipality can provide alternative process.  Labor harmony agreement also may be required.
REDEVELOPMENT INCENTIVES:  “ASPIRE”

This new law also seeks to address redevelopment project financing gaps.  Key features include:

Project Amounts: Designed to provides transferable tax credits to address “financing gaps” available tax credits are subject to certain limits. Tax credit amounts will be the lessor of the following four tests: 

  • Max Amount/Project: $32 million/project in most locations. Increased to $50 million for projects in Paterson, Trenton and Atlantic City (GRMs) and certain other locations.
  • Max % of Project Costs – Project costs incurred (excluding land) incurred after approval: 45% of costs in most locations. 50% for commercial projects in GRMs
  • Net Benefit Test:
    • Commercial projects must deliver a “positive” net benefit in excess of tax credit amount (on NPV basis), level subject to EDA discretion (35% lower test for GRMs).
    • Residential projects are exempt from Net Benefit Test.
  • Financing Gap: EDA will determine the lowest amount of tax credit needed to close “financing gap” – generally measured based on difference between pre-incentives investment return versus market hurdle rate required to attract private capital.

Equity Requirement:  Minimum of 20% of project costs

  • Maximum Term:  Limited to 15 years for commercial; 10 years for residential projects
  • Minimum Project Costs: Minimum project sizes based on location, ranging from $5 million $17 million.

Affordable Housing Requirements: Residential new construction projects are subject to 20% minimum COAH on-site units, plus 5% “workforce” units; provided, if a municipality has substantive cert or judicial determination, the COAH minimum is 10% and workforce increases to 15% minimum.  Residential applications will be jointly reviewed by EDA and HMFA.

Community Benefits: [Same as Emerge program, but applied to commercial projects only]

Windfall Protection: Complex provisions allow the State to recoup funds if a project exceeds certain financial performance benchmarks.  [Note: This provision contains inconsistencies and is problematic for project financings; may be subject to future review and amendment.]

IMPORTANT NOTE ON PROGRAM CAPS – "ASPIRE" & "EMERGE"

A total annual cap of $1.1 billion over the program life (up to seven years) has been set for tax credits approved under both the Emerge and Aspire programs – the allocation between them subject to market demand, but ultimately decided by EDA.  The combined $1.1 billion in annual credits under both programs will be allocated: $715 million/year for projects in 13 northern counties and $385 million/year in eight southern counties.

OTHER PROGRAMS
  • Transformative Projects:  Large scale commercial or industrial projects with financing gaps – at least 500,000 sf (250,000 sf in film studios, production facilities, etc.) or residential/mixed use projects with at least 1,000 units – can qualify as “transformative projects” allowing for elevated project award caps of $250 million (but no more than 30% of project cost). This designation is limited to 10 projects overall (no more than two per municipality), and total credits under this program are capped at $2.5 billion over six years.
  • Community-Anchor Institutions:  Innovative new program providing tax credits to anchor institutions – e.g., universities, hospitals, museums, etc. – to incentivize growth of targeted industries while advancing institutional missions. Tax credits are capped at $200 million annually over six years and allocated $130 million to 13 northern counties and $70 million to eight southern counties.
  • Innovation Evergreen Program:  Establishes a fund for investments in innovative companies locating in NJ, capped at $60 million annually for six years.
  • Food Desert Relief Program:  Provides tax credits to incentivize supermarkets and grocery stores in “food desert communities” capped at $40 million annually for six years.
  • Historic Property Reinvestment:  New program providing tax credits up to 40% of eligible costs of rehabilitating historic properties, subject to cap of $50 million annually.
  • Brownfields Redevelopment: Retooled program providing tax credits to compensate developers for up to 40% of eligible remediation costs or $4 million per project, capped overall at $50 million annually over six years
  • Main Street Recovery Finance Program: Grants, loans and guarantees to small businesses, capped at a total of $50 million.
  • New Jersey Ignite:  A public-private partnership to provide start-ups with grants to defray rent costs in collaborative workspaces, subject to $250,000 overall program cap.
  • Offshore Wind Economic Development Act:  Amendments to eligibility requirements, disbursement of credits and deadlines.
  • Film Tax Credits:  Amends and extends program and provides for additional $200 million of tax credits/year over 13 years.
  • Emerging Technology and Biotechnology Financial Assistance Program: Adds flexibility to popular NOL transfer program.
  • Angel Investor Tax Credit: Increases annual cap to $35 million and add provisions for venture funds.

The legislation also included important new “integrity” and compliance procedures which are welcome in establishing clear guidance on the proper use of these programs.

BLS & Co. is staying in close communication with the State and key business groups on these rapidly moving developments. Some of these programs are expected to be amended in a “clean up” bill in January, and EDA is working on the regulations and application process to enable the programs to go live as soon as possible.

We will continue to advise clients and partners on case-by-case basis.  As always, please don’t hesitate to reach out if BLS & Co. can help you interpret these new incentives programs and evaluate potential projects.


Published: 12/21/2020
Biggins Lacy Shapiro & Company, LLC
609-924-9775
info@blsstrategies.com