LEGISLATIVE FISCAL ESTIMATE
[First Reprint]
ASSEMBLY, No. 4046
STATE OF NEW JERSEY
221st LEGISLATURE
DATED: MARCH 21, 2024
SUMMARY
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Synopsis: |
Extends certain accommodations for businesses participating in State economic development programs. |
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Type of Impact: |
Multi-year increase in State expenditures. Multi-year net impact on State revenues. |
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Agencies Affected: |
New Jersey Economic Development Authority. |
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Office of Legislative Services Estimate |
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Fiscal Impact |
FY 2024 & Annually Thereafter |
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State Expenditure Increase |
Indeterminate |
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State Revenue Net Impact |
Indeterminate |
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· The Office of Legislative Services (OLS) concludes that the bill will result in an indeterminate increase in State expenditures and have an indeterminate net impact on State revenues over a multi-year period. The OLS lacks the informational basis to project the magnitude and direction of the bill’s countervailing State revenue effects.
· The bill will result in a State revenue decrease to the extent that businesses participating in certain State economic development programs choose to waive the on-site requirements for full-time employees at qualified business facilities because the waiver will allow businesses to remain eligible for tax credits which they could not receive under current law.
· The bill will result in a State revenue increase associated with payments made by businesses equal to 10 percent of maximum annual tax credit the business is eligible to receive for a tax period, depending on certain circumstances. These revenues will be offset by increased State expenditures because the bill requires the New Jersey Economic Development Authority to distribute these payments to support certain economic development activities.
· The bill’s one-year extension of the deadline by which businesses participating in the Grow New Jersey Assistance (GROW) Program and the Urban Transit Hub Tax Credit (HUB) Program can terminate incentive agreements may result in State revenue increases to the extent that these businesses would no longer receive tax credits for which they otherwise might have qualified.
· The modification of incentive agreements by businesses participating in the GROW and HUB programs will result in an increase in State revenues. Lowering the number of new and retained full-time employees retained by these business will cause their tax credit awards to be reduced.
· The provisions of the bill allowing businesses to suspend their obligations under the GROW and HUB programs will have an indeterminate impact on State revenues. The overall impact of these provisions on State revenues will be driven by taxpayer decisions to claim tax credits in future tax years. The OLS cannot predict how individual taxpayer decisions will impact State finances in this regard.
· The provisions of the bill concerning the timing of tax credit utilization will have an indeterminate impact on State revenues. The overall impact of this provision will be driven by taxpayer decisions to claim tax credits in future tax years. The OLS cannot predict how individual taxpayer decisions will impact State finances in this regard.
· The requirement to utilize certain tax credits in equal installments will also have an indeterminate impact on State revenues. While this requirement may limit State revenue losses in certain fiscal years, the bill may cause the State to experience revenue losses over a longer period of time that it otherwise would under current law.
BILL DESCRIPTION
The bill provides certain accommodations to businesses participating in the Business Retention and Relocation Assistance Grant Program, the Business Employment Incentive Program, the GROW Program, and the HUB Program, each of which is administered by the Economic Development Authority. Some provisions of the bill apply to all four programs, while others apply only to the GROW and HUB programs.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS concludes that the bill will result in an indeterminate multi-year increase in State expenditures and have an indeterminate multi-year net impact on State revenues.
Suspension of On-Site Attendance Requirements. Under current law, businesses participating in the Business Employment Incentive Program, Business Retention and Relocation Assistance Grant Program, and the GROW and HUB programs are awarded economic development incentives in the form of tax credits for meeting certain program thresholds. One of these program thresholds is the creation or retention of certain number of full-time jobs at a qualified business facility. The number of jobs created or retained varies depending on the program and the location of the qualified business facility. In order for a full-time job to be counted towards satisfying the program requirements under current law, a full-time employee must spend at least 60 percent of their time at a qualified business facility.
P.L.2022, c.134 allowed businesses to waive, for the period beginning July 1, 2022 and ending on December 31, 2023, the requirement that a full-time employee who is employee by the business must spend at least 60 percent of the employee’s time at a qualified business facility. A business that elected the waiver must satisfy two criteria. First, any full-time employee employed by the business was required to spend at least ten percent of the employee’s time at the qualified business facility through the 2023 tax period. Second, the business was required to make a payment to the Economic Development Authority in an amount equal to five percent of the amount of the tax credit the business received for the 2022 tax period. The authority was required to use funds received via these payments to support small business activities and downtown activation or commercial corridor activities. P.L.2023, c.261 extended the deadline for choosing the waiver option to March 31, 2024.
The bill allows a business to waive the on-site attendance requirements for any tax period beginning on or after April 1, 2024. Under the bill, a business that elects to waive these requirements the must satisfy three criteria. First, if a qualified business facility is located in an enhanced area or government restricted-municipality, any full-time employee employed the business must spend at least 50 percent of the employee’s time at the qualified business facility. If a qualified business facility is located anywhere else in the State, any full-time employee employed by the business must spend at least 40 percent of the employee’s time at the qualified business facility. Second, the business is required to extend by two years the term of its commitment period beyond the time set forth in the incentive agreement. Third, the business is required to make a payment to the Economic Development Authority equal to 10 percent of the maximum amount of the tax credit that the business may receive for the tax period. As under current law, the bill requires to use funds received via these payments to support small business activities and downtown activation or commercial corridor activities.
The OLS concludes that these allowances will result in a decrease in State revenues. Without the changes to the on-site attendance requirement, these businesses would likely not be eligible to receive tax credits because they would not satisfy all of the current statutory requirements of each program; in this situation, a business could not use a previously authorized tax credit, thereby increasing their State tax liabilities. Because the bill allows a business that elects to use the waiver provision to remain eligible to earn the full amount of the tax credit awards, State revenues would be lower than they otherwise would be under current law. The OLS cannot predict how many businesses will use the waiver, or the total amount of tax credits that would be foregone if the waiver were not allowed.
The OLS notes that these provisions will also increase State revenues because the bill requires businesses that waive the on-site attendance requirements beginning April 1, 2024 to make a payment to the Economic Development Authority equal to equal to 10 percent of the maximum amount of the tax credit that the business may receive for the tax period. However, these revenues will be offset by an increase in State expenditures because the bill requires the authority to use these payments to provide loans, guarantees, equity investments, and other forms of financing to support certain economic development activities with municipalities that qualify as an enhanced area or a government-restricted municipality pursuant to the Emerge Program Act. According to the authority, Atlantic City, Paterson, and Trenton are considered to be “government-restricted municipalities,” while Camden, East Orange, Elizabeth, Hoboken, Jersey City, Newark, New Brunswick, Passaic, Paulsboro, and Salem City are considered to be “enhanced areas.”
Termination of Incentive Agreements. During the COVID-19 public health emergency, the Economic Development Authority allowed businesses participating in the GROW program to terminate their program agreements any time before December 31, 2022 without the authority recapturing previously distributed tax credits. P.L.2022, c.134 extended this accommodation to December 31, 2023, commending with the 2020 tax period or any subsequent tax period ending on or before December 31, 2023 and provided this same benefit to a business that executed an approval letter under the HUB program. The bill extends the deadline for terminating a program agreement to December 31, 2024.
The OLS concludes that these provisions of the bill will result in an indeterminate increase in State revenues. Exercising this option would prevent businesses that have been awarded tax credits through the GROW and HUB programs from claiming any credits not issued prior to termination. Any requested, but uncertified or unissued, tax credits would be forfeited in consideration of the termination. Assuming these businesses remain New Jersey taxpayers, they would have increased tax liabilities in the tax years or privilege periods following termination of the incentive agreement. Information available through the Economic Development Authority indicates that about 30 program agreements have been terminated through the end of calendar year 2023.
Incentive agreement termination is available for all projects demonstrating changes to their business model, real estate decision making, and job declines related to the COVID-19 pandemic. Businesses may terminate their incentive agreement with no ongoing compliance requirements. Tax credits already awarded to businesses are not subject to recapture. Applicants must explain that the impact of the public health emergency result in changes to the business, business model, or the continued to desire to participate in GROW or HUB. Once executed, a termination agreement cannot be amended by the authority or the business. Incentive termination agreements include a provision allowing the Economic Development Authority to seek recapture of any tax credits if it is determined that a business’ decision to leave the program was made without consideration of COVID-19.
Temporary Suspension of Program Obligations. The bill extends the time allowed under current law for a business to suspend its obligations under a GROW tax credit, and to extend the term of eligibility for the same period of time. Current law allows a suspension of a business’s obligations for the 2020, 2021, 2022, and 2023 tax periods. The bill extends this provision to include the 2024 tax period as well. The bill also extends the ability of a business to suspend its obligations under the HUB program for the same period of time being afforded to GROW program participants.
The OLS concludes that these provisions of the bill would have an indeterminate impact on State revenues. Although the bill allows for the suspension of participants’ eligibility for tax credits during certain tax periods, it also extends the period of time for which a business that makes this election is eligible for tax credits. This extension would allow businesses to remain eligible to receive tax credits for a longer period of time than allowed under current law. The overall impact of this provision on State revenues will be driven by taxpayer decisions to claim tax credits in future tax years. The OLS cannot predict how individual taxpayer decisions will impact State finances in this regard. Information available through the Economic Development Authority indicates about 40 requests to suspend program obligations were approved through December 31, 2023.
Businesses participating in the GROW and HUB programs may receive tax credits for a period of up to ten years. Under current law, businesses participating in the GROW and HUB programs may carry forward unused tax credits for 20 successive tax periods. Given that current law allows these businesses to suspend GROW and HUB program requirements for four years and the bill allows the suspension period to be extended for one additional year, the tax credit carry forward period for businesses that elect to suspend the GROW and HUB programs may be extended for up to five additional years.
Application of Tax Credits. The bill provides that a tax credit may first be taken by the tax certificate holder for the tax period for which it was issued, for the tax period in which it was issued, or any tax period during the time the business is required to maintain the project at a location in New Jersey set forth in the incentive agreement. A tax credit that is transferred may first be taken by the tax certificate holder for the tax period for which it was issued, for the tax period in which it was issued, or in any of the next three successive tax periods. The bill permits a tax credit holder or transferee to first use a tax credit in the tax period in which it was issued or in succeeding tax period without being required to file an amended tax return for the tax period for which the tax credit was issued.
The OLS concludes that these provisions of the bill would have an indeterminate impact on State revenues. Generally, these provisions allow taxpayers to begin applying tax credits later than currently allowed. The Economic Development Authority currently requires taxpayers to begin applying their tax credits in the tax credit “vintage year,” which is the tax period in which the authority approves a tax credit application. However, there is generally a lag between the year in which a tax credit application is approved and the year in which a taxpayer receives a tax credit certificate because the authority determines that the taxpayer qualifies for the tax credit because they met the requirements of the incentive agreement. In order to being utilizing their tax credits, a taxpayer would have to file an amended tax return for the tax credit vintage year. The bill allows taxpayers to start utilizing tax credits in the in tax periods after the vintage year. The overall impact of these provisions on State revenues will be driven by taxpayer decisions to claim tax credits in future tax years.
Utilization of Tax Credits in Equal Installments. The bill also amends the statutes governing the Business Retention and Relocation Assistance Program and the HUB program to provide that no more than the amount of tax credits equal to the total credit amount divided by the duration of the eligibility period in years may be taken in any period. This restriction on the application of tax credits under GROW was added by P.L.2014, c.63.
Current law includes constraints on the application of tax credits, which constraints vary by program. The regulations governing the Business Retention and Relocation Assistance Program provide that tax credits awarded through the program are to be applied over a period of one to six years, depending on the number of full-time employees relocated or retained. Current law requires HUB tax credits to be taken in equal installments over a ten-year period. The amount of a HUB tax credit that exceeds a business’s tax liabilities for the tax period may be carried forward for use in the next 20 successive tax periods.
The OLS concludes that these provisions will have an indeterminate impact on State revenues. The bill does not increase or decrease the total amount of tax credits that may be applied against tax liabilities; instead, the bill limits the amount of tax credits that may be utilized in a tax period. While these provisions may limit the State revenue loss in a fiscal year due to the application of these tax credits against tax liabilities, they may cause the State to experience revenue losses over a longer period of time that it otherwise would under current law. The OLS cannot provide a specific estimate of the difference in the amount of tax credits that may be applied in a tax period under current law and the maximum amount of tax credits that may applied in a tax period in a tax year due to these limitations.
Additional Modifications to Incentive Agreements. P.L.2020, c.156 allowed a business that entered into an incentive agreement under the GROW program to reduce the number of new or retained full-time jobs specified in the incentive agreement based on a certification by the business of the eligible positions at the qualified business facility commencing with the 2020 tax period and each subsequent tax period remaining in the tax credit eligibility period. The authority is required to calculate a new tax credit amount for the remainder of the eligibility period based on the reduced number employees. The deadline to make this request was originally December 31, 2020; however, subsequent enactments extended the deadline to make this election to December 31, 2023.
The bill renews this option for a business participating in the GROW program and extends this privilege to businesses participating in HUB program elected to modify its incentive agreement pursuant to P.L.2022, c.134 to reduce the number of Statewide employees specified in the incentive agreement. The business is required to certify that all Statewide employment specified in the incentive agreement is assigned to a qualified business facility and that the business is requesting to reduce the number of new or retained full-time jobs specified in the incentive agreement commencing with the 2020 tax period and whether the reduction will continue for each subsequent tax period remaining in the eligibility period. The election to modify an incentive agreement must be made before December 31, 2024.
The OLS concludes that these provisions will result in an indeterminate increase in State tax revenues. The amount of a tax credit awarded through either GROW and HUB is based, in part, on the number of new or retained full-time jobs employed at a qualified business facility. A reduction in the number of new or retained full-time jobs will require the authority to recalculate a business’s GROW or HUB tax credit award. It is likely that the new tax credit amount will be lower than the original tax credit award. Assuming that businesses that make this election remain New Jersey taxpayers, they would have increased tax liabilities in tax periods following modification of the incentive agreement because they will be able to claim a lesser amount of tax credits against those obligations.
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Section: |
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Analyst: |
Staff Fiscal & Budget Analyst |
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Approved: |
Thomas Koenig Legislative Budget and Finance Officer |
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).