Office of the State Comptroller finds substantial improvements to tax incentive programs at the Economic Development Authority and recommends further steps to protect the State’s financial interests

Report rejects EDA’s position on using current data to determine tax incentive awards; EDA has agreed to change its position on that issue

  • Posted on - 01/5/2022

– A report on the Economic Development Authority (EDA) released today by the Office of the State Comptroller (OSC) finds that EDA has made substantial progress in administering the State’s tax incentive programs, but should do more to satisfy recommendations made by OSC three years ago to ensure that businesses do not receive tax credits they have not earned. 

OSC’s original 2019 audit, which was undertaken in response to an executive order issued by Governor Murphy in January 2018, found a lack of oversight and transparency with regard to how businesses were granted eligibility for tax incentives. EDA had inadequate systems for counting jobs and relied on unverified data reported by businesses to award billions of dollars of tax incentives. OSC’s 2019 audit concluded with 21 recommendations.

OSC’s new report, which is required by statute to be issued within three years of the original report, finds that EDA has made significant progress in verifying that businesses were actually retaining or hiring the employees they said they were in order to receive incentives.  The steps taken by EDA involving counting jobs make it more likely that the economic development goals of the tax incentive programs will be achieved.

“New Jerseyans are entitled to a return on their investment with these tax incentive programs,” said Acting State Comptroller Kevin D. Walsh. “We are encouraged to see that positive reforms have taken place since OSC’s original audit and that EDA is verifying that employees whose positions were incentivized were actually employed by those businesses.”

The report notes that OSC and EDA since 2019 have disagreed regarding whether EDA should award tax credits without considering actual economic benefit data. EDA’s policies permitted it to rely on its projections of economic benefits to award tax credits even if data showed those benefits had not been realized.  OSC’s report contends that EDA has discretion under state law and in contracts it entered into with tax credit recipients to take an approach that protects the State’s interests and directly ties tax credits to results. EDA has pledged to change its approach and to reassess the net economic benefits of the tax incentive programs on an annual basis for two of the incentive programs, subject to a review by the Attorney General’s office. 

“It is easy for a business looking for tax credits to promise results, but harder to deliver,” said Walsh. “EDA’s unwillingness to implement the recommendations in the 2019 report regarding using actual data mean that it has maintained a policy that fails to distinguish between businesses that keep their end of the bargain and those that do not. EDA’s movement on this issue is a major positive change that makes it much more likely that the economic incentive programs will succeed. So far, there is a pledge and a proposed policy, but the proof will be in the implementation.”

OSC also found that EDA has taken little corrective action to recover for improper awards of tax credits and payments identified in the 2019 Audit involving more than $200 million in awards.

In sum, OSC found that EDA has implemented eleven recommendations, partially implemented seven, and not implemented three.

EDA adopted policies and procedures to address OSC’s recommendations to:

  • Develop monitoring and oversight activities that thoroughly analyze whether jobs were actually created or retained.
  • Create a policy to establish a business’s baseline employment numbers when they apply so they are only awarded for newly created or retained jobs.
  • Create a policy to establish job-reporting requirements and collect documentation to make sure jobs were actually created or retained.
  • Establish monitoring processes to assess a business’s performance that compares self-reported data with independent data from the Department of Labor.
  • Develop uniform templates for reporting that ensure businesses are satisfying all of the required job factors.

EDA has partially adopted OSC’s recommendations to:

  • Require businesses to show documentation for a net increase in employment.
  • Develop a process for businesses that receive multiple awards to ensure that jobs are not duplicated and businesses aren’t collecting awards multiple times.
  • Use “actual” performance data to determine a business’s eligibility for tax incentives awards, a project’s economic benefit to the state, and whether there are grounds to terminate or suspend awards.

EDA has not adopted OSC’s recommendations to:

  • Develop a process for incentive programs to report on their successes and determine if economic benefits were actually realized.
  • Require annual reports for incentive program activities that are based on actual performance.
  • Track administrative costs associated with the tax incentive programs to set fees for businesses to pay so that costs of operating the program are covered.

“When billions of dollars of public funds are at stake, it’s essential that EDA transparently and regularly report on what has occurred,” said Walsh. “We believe that our recommendations to publicly report on the tax incentive programs – using actual performance data – will increase public confidence and improve tax incentives programs that stimulate economic growth in New Jersey.”

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The Office of the State Comptroller (OSC) is an independent State agency that works to make government in New Jersey more efficient, transparent and accountable. OSC is tasked with examining all aspects of government expenditures, conducts audits and investigations of government agencies throughout New Jersey, reviews government contracts, and works to detect and prevent fraud, waste and abuse in Medicaid.

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