After several months of negotiation among politicians and a conditional veto by the governor of an earlier version of the legislation, the New Jersey Economic Opportunity Act of 2013 (the "Act") was signed into law on September 18, 2013. The comprehensive Act 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 incentives.
The Act 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 ("Grow NJ") Program and the Economic Redevelopment and Growth ("ERG") Program, which are administered by the New Jersey Economic Development Authority (the "Authority"). The Authority reviews the various applications for these incentives to ensure that the projects meet certain eligibility requirements and awards these incentives, as appropriate.
The Act lowers certain threshold requirements in order for projects to qualify for tax incentives so as to cast a broader net for the types of businesses and projects that can receive these incentives. One key change to the Act as it went through the legislative process was the removal of the requirement that prevailing wage be used during construction. This requirement was seen by many as an impediment to the financial viability of certain projects.
The Act expands Grow NJ Program, which is focused on attracting and retaining companies in New Jersey. The Act offers broader incentives and tax credits for businesses that invest and create jobs in New Jersey. A qualified 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 base tax credit ranges from $500 to $5,000 per job, per year; however, additional tax credits are awarded for particular project types and project locations that can increase the total tax credit to as much as $15,000 per job, per year. The amount of the tax credit is tied to the project type, the number of jobs created or retained by the project, the location of the project, and other standards. The tax credit is awarded for a period of 10 years.
The Act also expands the ERG Program, which will be the sole redevelopment incentive program for the state. The Act builds on the existing ERG Program to close project financing gaps and incentivize redevelopment.
In the case of residential redevelopment, the ERG Program 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 its capital investment in projects in a Garden State Growth Zone. However, the Urban Transit Hub Tax Credit program will be phased out by the end of this year and replaced with the ERG Program.
Under the ERG Program, the developer can apply for a state or local incentive agreement to receive back from the state or local authority up to an average of 75 percent of the annual incremental state or local revenues from the redevelopment 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 Authority can convert the grant award into tax credits equal to the full amount of the incentive grant.
The redevelopment incentive grant under the ERG Program 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. 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.
For both the Grow NJ and the ERG Programs, the definition of a "qualified incentive area" is broad in some instances and limited in others. The definition includes, but is not limited to, Planning Areas 1 through 3, urban transit hubs, smart growth areas, Fort Monmouth and limited sections of Planning Areas 4A through 5 (which are considered the more environmentally sensitive areas).
The deadline to apply to the Authority for incentives under Grow NJ or the ERG Programs is July 1, 2019.
Use of the Tax Credit
The tax credit is an incentive that allows corporations to apply the tax credit dollar for dollar against certain tax liabilities or that can be used as a gap-financing tool for development, whereby a developer assigns the tax credit to a financial institution over the life of the tax credit (typically 10 years) in exchange for up-front capital. In the case of the ERG Program, the up-front capital cannot be less than 75 percent of the value of the total tax credit.
Numerous federal and state tax credit programs currently offer incentives for various forms of development aside from the ERG and Grow NJ Programs, including the federal New Markets Tax Credit, Low-Income Housing Tax Credit, Historic Tax Credit and Solar Investment Tax Credit. Though the fundamentals on how the tax credits can create capital are similar with these programs, each has varying requirements and deal structures.
As noted at the outset, the Act is very comprehensive. This update is meant only to summarize certain aspects and is not exhaustive of all facets of the Act. Please continue to follow the Day Pitney website for information on an upcoming seminar discussing New Jersey Economic Opportunity Act and other tax credit programs. If you have any questions, please contact any of our attorneys listed here.