Economic Stimulus Bill Requires Transparency, Strategic Focus

June 18th, 2009 by Chris Sturm

An omnibus bill aimed at stimulating New Jersey’s economy, A-4048, is on a fast track in the Legislature, which hopes to adopt it later this month before adjourning for the summer.
The bill would replace the existing Revenue Allocation District (RAD) program with the Economic Redevelopment and Growth Grant (ERGG) program, which would authorize municipalities and the state to dedicate new tax revenues to provide gap financing for development projects, paid for by the projects’ new tax payments.
The bill would also amend the Urban Transit Hub Tax Credit Act to make it easier for developers to take advantage of tax credits for projects that are located near transit in urban centers, and expand it to benefit residential projects located anywhere in those municipalities.
Other provisions in the bill would authorize new local taxes, expand transferability of tax credits for biotechnology firms, provide relief to developers from fees on nonresidential construction, grant funds to municipalities for affordable housing, finance higher education and provide targeted tax relief.

The Devil, As Always, is in the Details
Every community in New Jersey should be able to rehabilitate or replace empty buildings and abandoned properties to create attractive homes and job centers. Reusing already-developed properties makes much more sense than developing open lands, and New Jersey residents need more opportunities to live and work in good locations where they can take advantage of train, bus and ferry services.

The New Jersey Economic Stimulus Act of 2009, A-4048, can help make these things happen — but only if it is amended to ensure that taxpayer dollars are strategically focused, and the public interest is protected through a transparent process.

For example, in creating the Economic Redevelopment and Growth Grant (ERGG) program, the bill provides no opportunity for local residents to participate in the decision of whether their town should give up anticipated tax revenues. (The current Revenue Allocation District, or RAD, law is limited to Areas in Need of Redevelopment and does involve public input.) If residents are not informed about any such deal under consideration, bad decisions can be made that benefit insiders — local officials, the developer, the property owner — at the community’s expense. Such abuse could tarnish this redevelopment tool and make it risky to use, much as the questionable use of eminent domain has undercut its effectiveness as a redevelopment strategy.

The bill also broadens the definition of a “redevelopment project” to include virtually any kind of development project, including one that is built on a farm or forested land. This effectively means that state and local incentives, instead of encouraging the reuse and regeneration of land that has already been developed, could be used to develop unspoiled farms or natural lands — the very antithesis of what is currently considered “redevelopment.”

The bill eliminates the current RAD program, without offering municipalities an adequate tool for financing district-wide improvements to spur private investment, such as fixing infrastructure or creating programs to upgrade facades. Instead, the new ERGG program focuses on making development projects happen through gap financing. If New Jersey municipalities had access to both tools, they could use tax-increment financing as effectively as their counterparts do in other states.

Finally, the bill neglects to include residential projects in its definition of redevelopments eligible for the ERGG program — effectively discouraging the kind of mixed-use development that has come to characterize successful redevelopment initiatives across the state and the nation.

The proposed amendments to the Urban Transit Hub Tax Credit Act will generally make the program more workable. New homes and jobs near urban transit facilities will boost cities and give residents more convenient, environmentally friendly choices for their commute. One additional amendment is needed, however, to better target state funds. The bill should offer the tax credits for new residential buildings only if they are — like the employment centers — located near transit. The purpose of the Urban Transit Hub Tax Credit was to stimulate investment in focused areas in order to maximize use of the state’s comprehensive transit network and transform transit districts. This intent should not be diluted.

The bill also rolls back some important affordable-housing requirements and mechanisms, without offering replacements. While these rollbacks will provide further financial benefits to commercial developers, the result will be a continuing lack of affordable housing near jobs and an unrelenting bias toward zoning out family residential development. Changes to the bill should consider the duration of any developer fee moratorium, the retroactivity of refunding fees and the reinstatement of municipalities’ ability to charge developer fees on their own, since they understand their local market conditions better than anyone.

New Jersey’s economy and communities need new tools that foster both short-term investments and long-term prosperity. If thoughtfully amended, the New Jersey Economic Stimulus Act of 2009 can deliver both.

If you have any questions about this issue of Future Facts, please contact Senior Director of State Policy csturmnjfuture dot org" target="_blank">Chris Sturm.