New Jersey Subsidies Get Even Worse

As if New Jersey's subsidies weren't bad enough already, Leigh McIlvaine at Good Jobs First reports that the state has just passed new legislation that expands the state's investment incentives even further. On Thursday (September 18), Governor Chris Christie signed the New Jersey Economic Opportunity Act of 2013, which reduces the number of state subsidy programs but unleashes the two remaining ones to give even more money than ever. Not only that, the new law reduces job quality provisions and guts geographic targeting of subsidies to the poorest areas of the state. The bill easily passed the Democratic-majority state legislature, making this a bipartisan fiasco.

As Governing magazine reported and I covered in my last post, from the beginning of 2011 through early 2013, New Jersey gave an astonishing $1.9 billion in investment subsidies, "more than the previous 15 years combined," as the magazine noted. The new law removes annual spending caps for Grow New Jersey and the Economic Redevelopment and Growth (ERG) grant while reducing the minimum job creation and investment requirements, thus paving the way for even more applicants to qualify. There is, however, a maximum subsidy per firm of $350 million, a level not reached -- yet.

New Jersey Policy Perspectives (see link above; h/t Leigh McIlvaine) details the decline in job quality standards. For the first time, retail facilities are eligible "if they are 150,000 square feet or larger, at least half-filled with a full-service supermarket or grocery store and located in one of New Jersey’s four poorest cities," which sounds like a description of a Wal-Mart Super Center. "Tourism destination projects" (read: Bass Pro Shop or Cabela's, most likely) are also eligible in Atlantic City. Worse still, tourism projects are not subject to the state's normally high wage and benefit standards. Additionally, Christie vetoed long-standing prevailing wage requirements for workers at recipient firms.

Finally, as Newark's Star-Ledger points out, virtually every location in New Jersey is now eligible to use state subsidies.  This has the effect of diluting the incentive effect these programs could provide to the poorest areas of the state. This is yet another example of a phenomenon I have written about extensively: It is extremely hard to maintain the targeting of subsidy programs to the poorest areas of a jurisdiction as there are always political pressures from richer areas to be included as well. This is true even in the European Union (though far less so than in the United States), where EU state aid law and Commission negotiation over Member States' regional aid maps provide strong support for targeting.

To sum up, it looks like New Jersey will spend over $1 billion a year on incentives -- just at the state level -- while reducing job quality standards, subsidizing low-end retail jobs, and greatly weakening the geographic targeting of its subsidies to the poorest parts of the state. This is a prescription for failure at the state level and an inducement to other states to increase their subsidies as well, exactly the opposite of what needs to be happening.

New Jersey Subsidies More Out of Control than Ever Under Christie

I have written before how state and local subsidies are more out of control than ever, and more recently how the number and size of megadeals has increased substantially since the Great Recession.

Now a new study from Governing magazine (h/t to Al at LinkedIn group Economic Development 2.0) exhaustively analyzes New Jersey's five largest incentive programs and their growth since 2011. Governor Chris Christie has made aggressive use of incentives a centerpiece of his economic development strategy, but the magazine's comparison of New Jersey's job performance with than of surrounding states shows that it simply isn't working. Not only that, according to the report, "at least 20 companies receiving incentives filed layoff notices" before fulfilling their job requirements.

But it is the sheer dollar value of incentives that makes the head spin. According to the magazine's estimates, the state awarded $904 million in 2011 and $872 million in 2012. Adding in this year's awards brings the total to $1,950 million which is, Governing notes, "more than the previous 15 years combined." (Note: 15 years is the entire life of these programs.)

Moreover, some of the biggest incentive awards have been some of the most outrageous. The Urban Transit Hub Tax Credit awarded Panasonic $102.4 million to move nine miles, within the state, from Secaucus to Newark. As I have reported before, giving subsidies to move existing facilities is the most obviously wrong form of incentive use, because no new jobs are being created, but tax revenue is cut. Interstate job piracy is bad, but for the state to fund intra-state piracy is lunacy.

Meanwhile, New Jersey's July unemployment rate came in at 8.6%, #43 of the 50 states.

Kudos to Governing and reporter Mike Maciag for a great piece of reporting, providing a well-documented case study of what out-of-control subsidies look like as the country tries to recover from its ongoing jobs depression.

Cross-posted at Angry Bear.