If you ask any municipal or county economic development director to name one of their best tools for business attraction and retention, the lucky ones will answer “our Urban Enterprise Zone.”  Urban Enterprise Zones were created by the New Jersey State Legislature in 1983 to assist distressed urban communities with redevelopment, as well as economic growth and development.  Currently there are 32 Urban Enterprise Zones (UEZs), eight of which are located in South Jersey: Lakewood Township in Ocean County; Mt. Holly and Pemberton Townships in Burlington County; Camden City in Camden County; Vineland, Millville, and Bridgeton in Cumberland County; and Pleasantville in Atlantic County.

According to the NJ Commerce, Economic Growth, and Tourism Commission, incentives of this program include the following:

• Qualified retail businesses may charge 50 percent of the state’s 6 percent sales tax on certain “in person” purchases.

• Revenue generated from the 3 percent sales tax is maintained in a Zone Assistance Fund (ZAF) and is dedicated to use within the zone for certain economic development and/or public service improvement projects.

• One hundred percent sales tax exemption for purchase of certain materials and tangible personal property.

• One-time corporation tax credit of $1,500 for each new, full-time permanent employee who is a resident of a municipality in which a zone is located and who had been unemployed for at least 90 days or dependent upon public assistance.

• Subsidized unemployment insurance costs for certain new employees with gross salaries of less that $4,500 per quarter.

• Tax credit against the Corporation Business Tax of 8 percent of Investment in the zone by an approved “In Lieu” agreement with the Urban Enterprise Zone Authority and Municipality.

• Priority financial assistance for loans, grants and job training.

• Energy and utility service sales tax exemption on consumption within an enterprise zone by manufacturing firms with more than 500 employees, when more than 50 percent are in a manufacturing process.

• Business Retention and Relocation Assistance Grant (“BRRAG”) for relocation and retention of at least 250 non-retail jobs where the grant is a material factor. Special limitations/bonuses for UEZs.

• Business Employment Incentive Program (“BEIP”) applicants may be eligible for a grant award of up to 50 percent of the state income taxes withheld for new employees hired and may increase up to 80 percent if “Smart Growth.” 

There is no doubt that any one of these incentives would attract a business to locate in these Urban Enterprise Zones; combining them becomes all the more appealing.  And yet a brief reference in the Governor’s budget causes some concern.  It states: 

Reform of Urban Enterprise Zones ($100 million).  This Administration will seek to restructure the Urban Enterprise Zone (UEA) program, preserving its attributes, while preventing manipulation of its benefits by a small number of businesses.  UEZ promotes economic growth in 37 o the State’s municipalities by allowing a reduced 3% sales tax rate and returning to the affected municipalities a portion of the sales tax revenue collected in their zones.  In fiscal 2007, it is estimated that $84 million in sales tax revenue will be returned to zones.

UEZ also allows qualified zone businesses to be exempt from all sales tax on purchases of construction materials and other equipment and supplies.  Contrary to the program’s goals, these current exemptions have given a disproportionately large financial benefit to a relatively small number of businesses.  As a first step to more precisely target these incentives, the sales tax exemption for qualified businesses would be limited to the purchases of goods and materials related to building, initially equipping, or expanding a commercial structure within the UEZ.  Sales tax would be rebated upon submission of auditable receipts, beginning in July 2007.  Other reforms will:

·         Initiate an examination and auditing program in the Division ofTaxation to uncover and prosecute fraudulent or abusive practices by vendors.

·         Evaluate whether the 3% sales tax rate is appropriate for high-ticket,personal luxury items and examine potential exclusions.” 

This reference concludes declaring: “These changes will continue to support economic development in the identified areas of the state by maintaining the existing $80 million UEZ municipal revenue stream, which supports critical infrastructure and development.  Ending fraud and abuse of the UEZ program will benefit the State by an estimated $100 million in sales tax revenue in fiscal 2007.”

I am certain every economic development professional in the State would agree that the integrity of the Urban Enterprise Zone program is of vital importance to their community and any benefit to the State’s current budget crisis is welcomed.  However, the language of the proposed “Reform” is vague and brings many questions to mind; most notably, how does this affect existing businesses in the Zones and how will the auditing process be conducted?

The Southern New Jersey Development Council recognizes that all areas of government must be carefully reviewed for cost savings and increased revenue.  We congratulate Governor Corzine for his leadership in this effort and volunteer to assist the Governor in a process that will achieve these goals without endangering the current UEZ program.