In October of 2018, New Jersey Governor Phil Murphy released his economic development plan which, as its title suggests, intends to rebrand New Jersey as the “State of Innovation.” The plan is comprised of four umbrella initiatives intended to stimulate the growth of cutting-edge industries in the state and overhaul many of the state's economic development incentive programs. Murphy's plan also addresses the state's existing tax incentive framework in hopes of creating sustainable, targeted yet scaled-down incentive programs that work in tandem with his proposed initiatives and further his policies.

So long as he gets the green light from the Democratic-controlled legislature, by 2025, Murphy expects his proposals will: (1) add/create 300,000 new jobs; (2) increase median wage growth by 4 percent or $1,500 on average; (3) double the current rate of venture capital investment to $645 million; (4) add 40,000 more women and minority workers in STEM related jobs; and (5) increase women and minorities' average annual wage by at least $15,000. This article provides a brief overview of Murphy's proposed initiatives, highlights some anticipated changes to the state's tax incentive framework, and discusses a few obstacles this administration must address in implementing same.

Four Pillars of Murphy's Economic Development Plan

1. NJ Accelerate

The NJ Accelerate initiative seeks to create a fiscally responsible state government equipped to accommodate the needs of the business community in times of accelerated change. The twin prongs of this initiative include: (1) streamlining the regulatory process to support the future economy, and (2) expanding access to business-related resources. While the Administration will support transparent environmental, health and labor standards, it also intends to remove regulatory bottlenecks and support small businesses by establishing new lending programs to increase access to capital as well as a dedicated small business unit within the New Jersey Economic Development Authority (NJEDA). The Administration will also create a comprehensive digital portal—linked to a digital permitting platform—to improve everyone's access to business services. To that end, the Administration has appointed a Chief Innovation Officer to lead an interagency team tasked with implementing unified processes and technology solutions across state agencies.

2. NJ Innovate

NJ Innovate seeks to jump-start New Jersey's future economy. The Administration hopes to create a reliable source of public and private funds for New Jersey-based startups within staple and developing industries. Murphy proposes creating the NJ Innovation Evergreen Fund (NJIEF), which will partner with and incentivize venture capital firms to invest in NJ-based startups. NJ Innovate also redesigns soon-to-expire state incentive programs to encourage redevelopment projects in targeted “Opportunity Zones.” The Administration proposed the NJ Forward Tax Credit (NJFTC) as a more efficient, capped, job-creation tax credit program that will focus on expanding and maturing high-growth, high-wage sectors.

Another component of NJ Innovate focuses on developing New Jersey's clean energy industry to play a larger role in the state's economy, position the state to be at the center of the American offshore wind industry, and ensure it becomes 100 percent clean energy-based by 2050. To spur the development of a strong offshore wind energy industry, Murphy proposed creating the Wind Innovation & New Development (WIND) Institute as well as a series of transit-connected innovation centers that will provide commercial space for entrepreneurs. The first of these centers, “The Hub,” will be located in New Brunswick and is expected to provide 4 million square feet of mixed-used space to support research, experimentation and commercialization through targeted programs to nurture the growth of startups and drive innovations for established corporations.

3. NJ Talent

Under NJ Talent, the Administration will attempt to foster a workforce that meets the needs of New Jersey's established and up-and-coming industries. This initiative encompasses policies designed to help residents prepare for and find work that supports families, as well as attracts, retains and develops the state's current and future workforce. NJ Talent hopes to ensure every public high school will provide a computer science program, expand access to free community college, implement STEM loan forgiveness, and commit resources to the state's existing professional development programs. The Administration will also try to incentivize employers to hire from often-overlooked talent pools and raise the minimum wage to $15 an hour. Finally, Murphy hopes to improve access to lifelong learning and career management opportunities with the creation of the NJ Career Network under the State's Department of Labor and Workforce Development.

4. NJ Communities

NJ Communities seeks to create an environment that spurs development in cities and downtown areas to entice the young workforce it hopes to attract. Under this initiative, the Administration will attempt to shore up the state's mass transit infrastructure and create incentive programs that encourage targeted long-term investment in low-income and under-resourced communities. NJ Communities will also encompass a new placed-based incentive program, brownfield remediation and redevelopment tax credit and loan program, and a new historic tax credit, to incentivize cleaning up and developing such sites into housing or mixed-use developments.

New and Improved Incentive Programs

The New Jersey Economic Opportunity Act (EOA), which was signed into law in September of 2013, combined the state's then-existing economic development programs in order to attract more businesses, retain businesses already located in the state and boost job creation efforts. The EOA also expanded the state's Grow New Jersey (“Grow NJ”) and Economic Redevelopment & Growth (ERG) programs, designating them as New Jersey's principal job-creation and development incentive programs, respectively. In their current forms, Grow NJ rewards qualified businesses that have created or retained jobs in this state with annual tax credits ranging from $250 to $5,000 per job. The ERG program, on the other hand, addresses development projects facing revenue gaps or have a below-market development margin or rate of return. However, under the EOA, both of these NJEDA-administered programs—which collectively award an estimated $1 billion in annual incentives—will be discontinued as of July 1, 2019.

In an effort to keep these programs in place beyond the current sunset date, Murphy proposed certain changes intended to increase program efficiency, ensure their long-term economic sustainability and bring incentives into closer alignment with the Administration's policy objectives. With respect to the Grow NJ and ERG programs, Murphy proposes to: (1) cap tax breaks awarded thereunder at an aggregate amount less than $1 billion, and (2) shift their focus away from individual businesses in favor of specific industry sectors.

Under NJ Innovate, Grow NJ will be replaced by NJFTC, which will continue to foster job growth while also incentivizing employee skill development. In contrast to its predecessor, NJFTC will ensure its long-term stability by reducing the amount of tax credits awarded, and prioritize job creation over retention, particularly in urban centers and in high-wage, high-growth fields. Whereas Grow NJ awarded an estimated $1.05 billion in tax breaks in 2017, with each award lasting for up to 10 years, NJFTC will cap total annual incentives at $200 million dollars and limit each award to five years.

Under NJ Communities, the ERG program will be replaced by NJ Aspire, a competitive tax credit incentive run by the NJEDA to facilitate the conversion of underutilized properties into job and tax-generating development opportunities. NJ Aspire will provide gap-based financing to development and redevelopment projects, particularly in cities, downtowns and suburban neighborhoods served by mass transit. Murphy intends NJ Aspire to award no more than $100 million in annual incentives to the most impactful and development-ready projects that serve to create market-rate housing in distressed communities, mixed-income and affordable housing near transit in appropriate suburban communities, and act as a catalyst for tourism, arts and other culture-related projects.

Conclusion

As exciting as all this may sound, however, Murphy's plan is only conceptual at this point. The specifics of these proposals have yet to be determined and will largely depend on cooperation from the State Legislature. Although Democrats control both chambers, recent reports indicate that unless both branches are willing to compromise, cooperation may be hard to come-by. Murphy must also address new concerns raised by the State Comptroller's Office (OSC) following a performance audit of the NJEDA's administration of these programs. The OSC's report, published Jan. 9, 2019, details numerous deficiencies related to NJEDA's management and oversight of these incentive programs, from its inadequate policies and controls to its failure to assess and collect appropriate fees.

Notwithstanding these potential roadblocks, Murphy's plan is a clear indication as to the direction in which he intends to lead this state. His initiatives are strategically focused on priming the state's economy and workforce to play a leading role in new, emerging and innovative industries. Murphy hopes to foster the development of new, small and diverse businesses, thereby reducing the state's dependence on large corporations to provide economic and job growth. Moreover, the Administration seeks to entice younger workers to New Jersey by incentivizing the development of walkable and vibrant communities that Millennials find attractive. Murphy hopes these initiatives, along with a host of other economic development tools, compliment the incentive programs his Administration has proposed and together, make New Jersey the “State of Innovation.”

Michael J. Marotte serves as co-chair to the Corporate and Business Law Practice Group, the Telecommunications Law Practice Group, and the Insurance Law Practice Group at Schenck Price in Florham Park. Raajen V. Bhaskar is an associate in the firm's Sparta office, in the Commercial Litigation and Insurance Law Practice Groups.