LEGISLATIVE FISCAL ESTIMATE

ASSEMBLY, No. 2441

STATE OF NEW JERSEY

218th LEGISLATURE

 

DATED: MAY 21, 2018

 

 

SUMMARY

 

Synopsis:

Establishes Main Street Economic Growth Program to encourage business development in small, highly developed municipalities.

Type of Impact:

Decrease in annual State revenues; increase in annual State costs.

Agencies Affected:

New Jersey Economic Development Authority, Department of Community Affairs, Department of State, Department of the Treasury, and certain municipalities.

 

 

Office of Legislative Services Estimate

Fiscal Impact

Year 1 

Year 2 

Year 3 

 

State Cost

Indeterminate Increase

 

State Revenue

Indeterminate Decrease

 

 

 

 

·         The Office of Legislative Services (OLS) concludes that the enactment of the bill would result in an indeterminate decrease in State revenues and an indeterminate increase in State costs.  The OLS cannot quantify the bill’s fiscal impact as participation levels in the proposed Main Street Economic Growth program will depend on how the New Jersey Economic Development Authority (EDA) and eligible municipalities implement the program.

 

·         The bill would result in an indeterminate loss in annual State revenue from providing tax credits to eligible businesses located in designated “Main Street areas” against Corporation Business Tax or Gross Income Tax liabilities in an amount equal to approximately 15 percent of the cost of eligible employee compensation expenses.  Although the OLS expects the credits to generate additional economic activity that may accrue fiscal benefits to the State, these fiscal benefits are not expected to outweigh the cost to the State of awarding the tax credits. 

 

·         The EDA would incur additional annual costs associated with program administration and the provision of technical assistance to qualified businesses.

 

·         The bill establishes the “Main Street Economic Growth Assistance Fund” for the purpose of issuing loans and loan guarantees to eligible businesses.  Monies made available by the EDA and other public and private sources may be credited to the revolving fund.  Depending on the performance of the loans and loan guarantees, the creation and operation of the revolving fund could result in a net positive or negative impact on EDA finances in any given year.

 

 

BILL DESCRIPTION

 

      The bill establishes the “Main Street Economic Growth Program” for the purpose of providing financial and technical assistance to businesses located in designated “Main Street areas” of small municipalities.  The bill directs the EDA to establish the program in consultation with the Department of Community Affairs and the New Jersey Business Action Center located in the Department of State.

      The bill authorizes the governing body of each municipality that has a population under 11,000 and which is more than 70 percent developed, according to a Department of Environmental Protection dataset, to designate a “Main Street area” within the municipality.  This designation would set forth the municipality’s policy and plan for addressing economic conditions in the “Main Street area.”

      The bill provides for corporation business tax credits and gross income tax credits for businesses located in designated “Main Street areas.”  Credits are to equal 15 percent of the cost of eligible employee compensation expenses for participating businesses, provided that the tax credits do not exceed 50 percent of the tax liability otherwise due.

      In addition, the bill requires the EDA to create the “Main Street Economic Growth and Assistance Fund” for the purpose of providing loans, loan guarantees, and technical assistance to businesses located within designated “Main Street areas.”  The EDA is to decide the terms of each loan or loan guarantee and the amount of technical assistance provided under the program.

      The bill also instructs the EDA to issue an annual report to the Governor and Legislature on the program and to adopt rules and regulations to implement the program.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS concludes that the enactment of the bill, which proposes to establish the Main Street Economic Growth program, would result in an indeterminate decrease in annual State revenues and an indeterminate increase in annual State costs. 

      Approximately 115 municipalities would become eligible to participate in the “Main Street Economic Growth Program.”  However, the OLS cannot determine the number of municipalities and businesses that would participate in the program, because “Main Street area” designations are to be determined by the EDA and eligible municipalities.

      The bill would cause an indeterminate loss in annual State revenue resulting from the provision of tax credits to eligible businesses against Corporation Business Tax or Gross Income Tax liabilities.  The tax credit is to equal 15 percent of the cost of eligible employee compensation expenses, provided that it does not exceed 50 percent of the tax liability otherwise due.  The OLS expects these credits to generate additional economic activity that may accrue fiscal benefits to the State.  However, given that: (1) the tax credits are not subject to a net benefits test requirement; (2) the tax credits may not be a determining factor in a business’s decision to create or retain jobs in eligible areas; and (3) most businesses located within the downtown areas of eligible municipalities operate in the retail, restaurant, and service industries; the OLS does not expect these potential fiscal benefits to exceed the cost to the State of awarding the tax credits.  The OLS also notes that the bill does not limit the aggregate volume, or maximum individual allocation, of tax credits that may be awarded to eligible businesses under the Main Street Economic Growth program.    

      The EDA also may incur additional annual costs as a result of the bill.  These costs would be associated with the administration of the Main Street Economic Growth program and the provision of technical assistance to eligible businesses through staff research and time.

      In addition, the bill establishes the “Main Street Economic Growth Assistance Fund” for the purpose of issuing loans and loan guarantees to eligible businesses.  The revolving fund may be credited with monies received from the EDA and other public and private sources.  Depending on the performance of the loans and loan guarantees, the creation and operation of the revolving fund could result in a net positive or negative impact on EDA finances in any given year.

 

 

Section:

Local Government

Analyst:

Joseph A. Pezzulo

Assistant Research Analyst

Approved:

Frank W. Haines III

Legislative Budget and Finance Officer

 

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).