A day after Democrats criticized Gov. Chris Christie’s plan to divert sales tax revenue from Urban Enterprise Zones, the governor’s office issued a report setting out why he is diverting that revenue.
The report released Thursday calls for the elimination of those districts by the end of June, calling them “bureaucratically cumbersome,” expensive and falling woefully short of stimulating the economy.
UEZs, commonly found in distressed urban areas, many of which are represented by Democrats, are shopping districts that charge a 3.5 percent sales tax instead of the normal state sales tax of 7 percent.
The proceeds from those taxes were intended to be used to improve the shopping districts through beautification, façade improvements and loan and grant programs.
However, last year, Christie diverted the sales tax proceeds to the state general fund to close the budget gap, and said in his budget report he intends to do it again this year.
While Democrats have hailed UEZs for being economic engines, the report from the New Jersey Institute of Technology and consultants, Delta Development Group and HR&A Advisors, paints a dreary picture.
Among its findings:
*Only 8 cents in new state and local revenue were produced for every $1 the state invests in the UEZ program.
*Only 83 cents in “ripple effect” economic activity was generated for every dollar of state investment.
*Less than 5 percent of investment funds were actually spent on construction, expansion, or renovation.
While the report called for ending the UEZ program, which the Department of Community Affairs supports, it stops short of endorsing the report’s recommendation of eliminating the reduced sales tax.
The benefits the office believes will come out of the reduced sales tax are the very ones that the report shows that the UEZ is failing to achieve.
“We believe maintaining the tax incentives offered to certified zone businesses will continue to stimulate private investment, create jobs and provide for continued job retention helping to sustain the zone’s economic vitality,” states the DCA memo, which was sent to state Treasurer Andrew Sidamon-Eristoff.
The study also found that there was “a lack of consistent measurable documentation” of investment in either the grants or tax incentive programs.
Over a 6-year-period (2002-08), the UEZ had more than $230 million in funds that were supposed to be used for business enhancement programs and construction projects that were left unspent.
The UEZs also suffered from low participation, the report found. Of the 34,429 businesses that are eligible to participate, only about 20 percent actually do.
The consultants believed this may have been because of a feeling the program is just not beneficial and that there’s too much paperwork involved.
The report added that UEZs have done little to weed out the root problems that are symptomatic of distressed municipalities.
“Many urban areas in designated UEZs are still characterized by chronic unemployment, disinvestment, and blight.”
One of the study’s most disturbing findings was that UEZs generally have poor returns on investment. For example, of the $85.5 million the state loses in revenue because of the reduced sales tax, the cuts only stimulated about $78 million in annual household spending and supported 531 jobs.
“This means that only six jobs are supported for each $1 million in foregone tax revenues – a high cost to (New Jersey) with a nominal return,” the report stated.
Assemblywoman Joan Quigley, (D-32), of Jersey City, said the report makes clear that Christie’s administration “has little interest in residents and businesses in working class neighborhoods.”
Assemblywoman Annette Quijano, (D-20), of Union, echoed Quigley’s sentiments.
“Without the UEZ program, many of our urban cities would be ghost towns today,” she said in a statement. “In the 1970s and ‘80s when the mall industry exploded and manufacturing companies fled for greener pastures, our urban cities were left to wither and die without any impetus for revitalization.
“Along came the UEZ program and we started to see once vacant and abandoned downtowns blossom again, new streetscapes were created and old factories were transformed into newly productive businesses,” she said in a release.
Christie said in a statement issued by the Treasury Department he will root out ineffective economic development programs that do little to stimulate the economy.
“The New Normal in New Jersey budgeting means funding priorities that work, and dispensing with outmoded or ineffective programs,” he said