LEGISLATIVE FISCAL ESTIMATE
ASSEMBLY, No. 5795
STATE OF NEW JERSEY
221st LEGISLATURE
DATED: JUNE 26, 2025
SUMMARY
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Synopsis: |
Modifies certain provisions of “New Jersey Innovation Evergreen Act.” |
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Type of Impact: |
Indeterminate net impact on State finances. |
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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 |
Multi-Year Lifespan of Tax Credit Awards & Qualified Investments |
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State Finances |
Indeterminate Net Impact |
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· The Office of Legislative Services (OLS) concludes that the bill will have an indeterminate net impact on State finances. The bill increases the maximum initial qualified investment amounts permitted through the New Jersey Innovation Evergreen Program and may allow the New Jersey Economic Development Authority to conduct additional tax credit auctions through the program.
· The provision of the bill expanding the definition of principal business operations will increase State costs to the extent that it allows additional businesses to qualify for investments under the program.
· Increasing the New Jersey Innovation Evergreen Fund balance threshold from $15.0 million to $50.0 million may allow the authority to conduct additional tax credit auctions. In the short term, the State will realize additional revenues from payments received from tax credit purchasers. Over the long term, the State would experience a loss of revenues resulting from the utilization of tax credits purchased through the program.
· The provisions of the bill increasing the maximum initial qualified investment that may be made in a qualified business will result in an increase in State costs to the extent that the authority permits the qualified venture firms to make larger investments in qualified businesses than permitted under current law. These costs may be offset by returns achieved by investments in qualified businesses. However, the OLS cannot predict if and when that will occur.
BILL DESCRIPTION
The bill modifies certain provisions of the New Jersey Innovation Evergreen Act, which governs the New Jersey Innovation Evergreen Program.
Definition of Principal Business Operations. Current law allows the authority to make qualified investments in qualified businesses. To be eligible to receive a qualified investment, a qualified business is required to have its principal business operations located in New Jersey. The bill expands the scope of the term “principal business operations” to include any instance in which a business’s headquarters is located in the State, and of all states, the largest percentage of a business’s full-time employees, who are based in the United States and are not primarily engaged in retail sales, are located in New Jersey.
Tax Credit Auctions. Current law prohibits the authority from undertaking a tax credit auction, if, exclusive of reserves, more than $15.0 million is available the authority from the monies received from any prior auction of tax credits through the program. The bill amends current law to prohibit the authority from undertaking an auction if more than $50.0 million is available from these monies. Increasing this threshold will allow the authority to conduct additional tax credit auctions.
Amount of Qualified Investments. The Act authorizes the authority to allocate monies, generated from the proceeds of tax credit auctions, to one or more qualified venture firms, based on the amount of qualified investments made by each firm to qualified businesses. Current law provides that the amount of each qualified investment may not exceed $5.0 million in initial investment, exclusive of follow-on investments. The bill increases the maximum qualified investment that may be earned for an initial investment to $10.0 million.
However, a maximum qualified investment of $6.25 million may be earned for initial investments made to any qualified business that meets one of the following criteria: (1) the qualified business utilizes intellectual property that is core to its business model and was developed at a New Jersey-based college or university; (2) the qualified business is considered a university spin-off business as determined by the authority; or (3) the qualified business is certified as a minority business or a women’s business. The bill increases the maximum initial qualified investment in a qualified business that meets one of the three aforementioned criteria to $12.5 million.
The bill amends current law to require that a qualified investment either: (1) match a qualified venture firm’s initial investment in a qualified business for the purchase of shares of stock; or (2) in instances where the venture firm has a prior investment in the qualified business, occur at a higher valuation compared to the venture firm’s prior investments into the qualified business, as established by an independent third-party valuation or through participation by a third-party investor at the same valuation as the qualified venture firm.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS concludes that the bill will have an indeterminate net impact on State finances. The bill may result in an increase in State costs, an increase in State revenues, and a loss of State revenues. These additional State costs and revenue losses may be offset by returns and dividends generated by qualified investments in qualified businesses. The OLS cannot predict if, and when, this will occur.
Tax Credit Auctions. The New Jersey Innovation Evergreen Act seeks to address New Jersey’s lack of venture capital financing through the sale of up to $300.0 million in tax credits over a nine-year period. The Act allows the authority to conduct competitive auctions of tax credits.
As of June 17, 2025, the authority has held one tax credit auction under the New Jersey Innovation Evergreen Program. In December 2022, the authority approved the sale of $50 million in tax credits for an aggregate purchase price of $41.1 million. The auction proceeds were supplemented by a Fiscal Year 2023 appropriation of $5.0 million from the State General Fund. The OLS notes that current law allows the authority to auction up to an additional $250 million in tax credits through the end of FY 2029 (June 30, 2029). According to the authority’s website, there is approximately $22.0 million of unallocated capital in the New Jersey Innovation Evergreen Fund. Because the amount available to the authority from the December 2022 auction is greater than $15.0 million, the authority is prohibited from undertaking another tax credit auction.
To the extent that the bill allows the authority to conduct additional tax credit auctions, the State would receive additional revenues in the form of payments from the purchasers of tax credits. Current law requires these revenues to be deposited into the New Jersey Innovation Evergreen Fund and allocated by the authority to qualified venture firms to make qualified investments of capital in qualified businesses, and to pay the administrative, legal, and auditing expenses associated with the program.
However, if all remaining tax credits are purchased and utilized by taxpayers, the State will incur revenue losses of up to $250 million. However, the OLS notes that any revenue loss will be: a) temporally limited because current law places restrictions on the time period during which the authority may auction tax credits under the program; and b) spread out over several years since tax credits auctioned under the New Jersey Innovation Evergreen Program may be carried forward for up to seven privilege periods following the privilege periods in which the credit was first allowed.
Qualified Investments. The Act allows the authority to allocate the proceeds generated from the sale of the tax credits to one or more qualified venture firms, which in turn, make investments in qualified businesses. Each qualified venture firm may apply to the authority to utilize monies in the New Jersey Innovation Evergreen Fund to make up to two investments per year in qualified businesses. The expansion of the definition of “principal business operations” proposed by the bill may allow additional businesses to qualify for an investment under the New Jersey Innovation Evergreen Program. To the extent that the bill increases the amount and frequency of investments under the program, the State will experience an increase in costs.
An investment in a qualified business may achieve a positive return for the State. These returns may offset the cost of any investments in a qualified business. However, the OLS cannot predict if, and when, this will occur. Current law requires dividends and returns on investments to be deposited into the New Jersey Innovation Evergreen Fund. Once the fund’s holdings reach $500 million, 50 percent of any return on investment in a qualified business that is in excess of twice the original and follow-on investment is paid to the State General Fund.
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Section: |
Revenue, Finance and Appropriations |
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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.).