On June 27, 2013, the New Jersey State Legislature passed Bill
A-3680, known as the New Jersey Economic Opportunity Act of 2013
(the "Bill"). The comprehensive Bill 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 credits and incentives.
The Bill 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 Program (GROW) and the Economic
Redevelopment and Growth Grant Program (ERG), which are
administered by the New Jersey Economic Development Authority
(EDA).
Job Creation/Retention
The Bill seeks to expand the GROW, which is focused on attracting
and retaining companies in New Jersey. The Bill offers broader
incentives and tax credits for businesses that invest and create
jobs in New Jersey. A 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 tax credit, ranging from $500 to $5,000 per job, is tied to the
number of jobs created or retained by the project, the location of
the project, and other standards.
Redevelopment
The Bill also expands the ERG, which will be the sole redevelopment
incentive program for the state. The Bill builds on the existing
ERG to close project financing gaps and incentivize redevelopment,
including rehabilitating or rebuilding public infrastructure
necessary for redevelopment projects, rebuilding certain areas
impacted by Hurricane Sandy, and building markets that bring fresh
produce to urban areas.
In the case of residential redevelopment, the ERG 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 the capital investment for projects in a
Garden State Growth Zone.
Under the ERG, the developer can apply for a state or local
incentive agreement to get back from the state or local authority
up to an average of 75 percent of the annual incremental state or
local revenues from the 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 EDA can convert the grant award into tax credits equal
to the full amount of the incentive grant.
The redevelopment incentive grant under the ERG 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. Applications to the EDA for a state or
local incentive grant must be made prior to July 1, 2019. 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.
Qualified Health Care Facility
The Bill further provides for a new tax credit for repurposing a
"qualified health care facility" into a non-acute health
care and health support services center. The tax credit is equal to
75 percent or, if so determined by the EDA, up to 100 percent of
the developer's capital investment. The minimum capital
investment in repurposing a qualified health care facility is $10
million, and the facility shall employ no fewer than 100 full-time
employees.
Use of the Tax Credit
The tax credit is a gap financing tool that allows corporations to
apply the tax credit dollar for dollar against certain tax
liabilities or to assign the tax credit to a financial institution
over the life of the tax credit (typically 10 years). For instance,
if a developer is awarded tax credits in the amount of $900,000,
which are spread out over 10 years ($90,000 per year), that
developer can assign the tax credits to a third party in exchange
for upfront capital, which, in the case of the ERG, cannot be less
than 75 percent of the value of the total tax credit.
The tax credit has been a fundamental tool in the construction of
affordable housing under the federal Low-Income Housing Tax Credit
Program. The state is using the tax credit as a way to spur
redevelopment projects in areas impacted by Hurricane Sandy and in
other areas, such as urban centers and suburban office parks, that
have typically struggled with redevelopment due to project
financing gaps.
As noted at the outset, the Bill is very comprehensive. This update
is only meant to summarize certain aspects and is not exhaustive of
all facets of the Bill. The Bill still needs to be presented to the
governor to be signed into law. Please continue to follow the Day
Pitney website for updates on the status of the New Jersey Economic
Opportunity Act of 2013.
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.