After several months of negotiation among politicians and a
conditional veto by the governor of an earlier version of the
legislation, the New Jersey Economic Opportunity Act of 2013 (the
"Act") was signed into law on September 18, 2013. The
comprehensive Act is an aggressive push by the state to promote job
creation and the redevelopment of urban centers, suburban office
parks and areas impacted by Hurricane Sandy by expanding the
various state programs that offer tax incentives.
The Act proposes to merge five economic development incentive
programs, including the Business Employment Incentive Program and
Urban Transit Hub Tax Credit Program, into two existing programs:
the Grow New Jersey Assistance ("Grow NJ") Program and
the Economic Redevelopment and Growth ("ERG") Program,
which are administered by the New Jersey Economic Development
Authority (the "Authority"). The Authority reviews the
various applications for these incentives to ensure that the
projects meet certain eligibility requirements and awards these
incentives, as appropriate.
The Act lowers certain threshold requirements in order for projects
to qualify for tax incentives so as to cast a broader net for the
types of businesses and projects that can receive these incentives.
One key change to the Act as it went through the legislative
process was the removal of the requirement that prevailing wage be
used during construction. This requirement was seen by many as an
impediment to the financial viability of certain projects.
Job Creation/Retention
The Act expands Grow NJ Program, which is focused on attracting and
retaining companies in New Jersey. The Act offers broader
incentives and tax credits for businesses that invest and create
jobs in New Jersey. A qualified project must meet minimum capital
investment and jobs-created or jobs-retained thresholds in order to
be eligible for the tax credit. These thresholds are reduced for
businesses located in Atlantic, Burlington, Camden, Cape May,
Cumberland, Gloucester, Ocean and Salem counties and for businesses
located in a newly created Garden State Growth Zone, which
encompasses the four cities with the lowest median family
income.
The base tax credit ranges from $500 to $5,000 per job, per year;
however, additional tax credits are awarded for particular project
types and project locations that can increase the total tax credit
to as much as $15,000 per job, per year. The amount of the tax
credit is tied to the project type, the number of jobs created or
retained by the project, the location of the project, and other
standards. The tax credit is awarded for a period of 10
years.
Redevelopment
The Act also expands the ERG Program, which will be the sole
redevelopment incentive program for the state. The Act builds on
the existing ERG Program to close project financing gaps and
incentivize redevelopment.
In the case of residential redevelopment, the ERG Program provides
incentives and tax credits for qualified residential projects,
which must have a minimum total project cost ranging between $5
million and $17.5 million, depending on the location of the
project. For residential projects that have already applied for the
Urban Transit Hub Tax Credit, a qualified residential project can
receive a tax credit of up to 35 percent of its capital investment
or up to 40 percent of its capital investment in projects in a
Garden State Growth Zone. However, the Urban Transit Hub Tax Credit
program will be phased out by the end of this year and replaced
with the ERG Program.
Under the ERG Program, the developer can apply for a state or local
incentive agreement to receive back from the state or local
authority up to an average of 75 percent of the annual incremental
state or local revenues from the redevelopment project generated
through various taxes or 85 percent of such revenues for projects
in a Garden State Growth Zone. In the case of a qualified
residential project where the state revenues from the project are
inadequate to fully fund the grant, the Authority can convert the
grant award into tax credits equal to the full amount of the
incentive grant.
The redevelopment incentive grant under the ERG Program shall not
exceed 30 percent of the total project costs unless the development
is in a Garden State Growth Zone, where the cap is increased to 40
percent of the total project costs. The maximum amount of tax
credits that may be awarded for all qualified residential projects
is $600 million, which is further broken out into various caps
based on certain areas of the state.
For both the Grow NJ and the ERG Programs, the definition of a
"qualified incentive area" is broad in some instances and
limited in others. The definition includes, but is not limited to,
Planning Areas 1 through 3, urban transit hubs, smart growth areas,
Fort Monmouth and limited sections of Planning Areas 4A through 5
(which are considered the more environmentally sensitive
areas).
The deadline to apply to the Authority for incentives under Grow NJ
or the ERG Programs is July 1, 2019.
Use of the Tax Credit
The tax credit is an incentive that allows corporations to apply
the tax credit dollar for dollar against certain tax liabilities or
that can be used as a gap-financing tool for development, whereby a
developer assigns the tax credit to a financial institution over
the life of the tax credit (typically 10 years) in exchange for
up-front capital. In the case of the ERG Program, the up-front
capital cannot be less than 75 percent of the value of the total
tax credit.
Numerous federal and state tax credit programs currently offer
incentives for various forms of development aside from the ERG and
Grow NJ Programs, including the federal New Markets Tax Credit,
Low-Income Housing Tax Credit, Historic Tax Credit and Solar
Investment Tax Credit. Though the fundamentals on how the tax
credits can create capital are similar with these programs, each
has varying requirements and deal structures.
As noted at the outset, the Act is very comprehensive. This update
is meant only to summarize certain aspects and is not exhaustive of
all facets of the Act. Please continue to follow the Day Pitney
website for information on an upcoming seminar discussing New
Jersey Economic Opportunity Act and other tax credit programs. If
you have any questions, please contact any of our attorneys listed
here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
