On the New Look of the BEIP Program

Originally appeared in NJ Biz on June 23, 2003

Attorney Ted Zangari of the Sills Cummis law firm in Newark co-chaired a panel-with Commerce Secretary William D. Watley-that recommended changes in the state's popular Business Employment Incentive Program (BEIP), which offers grants to companies that bring new jobs to the state.The report helped persuade Governor James E. McGreevey, who had suspended BEIP in January due to budget constraints, to reinstate the program. Zangari discussed the new BEIP program with Associate Editor Shankar P.

NJBIZ: What are the key differences between the existing BEIP guidelines and the revamped BEIP?

Zangari: First, we recommended broadening eligibility of the BEIP program by lowering the job requirement to a uniform 25 jobs, even for a company expanding in or relocating to a nonurban area. That number would be lowered further, to 10 jobs, for a biotech firm or other emerging-technology company. Second, we've made the point-scoring system more transparent. A potential applicant, shopping from state to state for a location, would be able to know from the start how it could achieve the maximum grant of 80% (of state income taxes paid by new employees for up to 10 years]. Third, we recommended the use of bonus-point incentives for applicants with sites in so-called smart-growth areas.

We eliminated the urban/nonurban distinction for eligibility. That distinction sought to promote growth in urban areas through the use of a stick. If a company wanted to locate in a nonurban area, it had to create 75 jobs instead of 25 in order to qualify for BEIP. We've removed that stick and instead added carrots-bonus points if, for example, a company's location is on a former brownfield site, or in a redevelopment zone, or near a mass transit hub.

The points awarded for new-job creation under the existing BEIP top out at 250 jobs. We're recommending another tier for additional jobs. Also, we've recommended bonus points for so-called big game applicants-those proposing to create over 500 jobs or invest more than $20 million-and even bigger bonus increases for more than 1,500 jobs created or more than $75 million in investment. At 2,500 jobs, or an inestment of $125 million, an applicant could obtain the maximum bonus of 30%.

Finally, we recommended a streamlining of the BEIP reporting process that is less burdensome – not only for the BEIP grantee but also for the EDA [New Jersey Economic Development Authority], which administers the program.

NJBIZ: How has the business community reacted?

Zangari: Governor McGreevey and I outlined the BEIP recommendations before a crowd of business ex- ecutives and political leaders last week at Rutgers Business School. Afterwards, key business leaders complimented our recommendations. Too many studies and commission reports end up gathering dust on the top of some file cabinet because no one sticks around to do the proper follow-through, educating trade associations and lobbying public officials. We're doing that, and more to make sure the budget bill adopted on or before June 30 includes legislative authority for our recommendations, and to ensure that corporate executives throughout the world understand that New Jersey remains open for business.

NJBIZ: Is BEIP no longer endangered? Zangari: Under the governor's proposal, BEIP would still be funded by the state's general fund. EDA would be empowered to float bonds to fund the program in any year in which there is insufficient money in the state budget to fund BEEP. Of course, the funding proposal and some of the commission's recommendations still require legislative approval. So BEIP is not yet out of danger. Our report recommended that, in the short term, the state utilize a capital-markets solution to the current funding crisis. Longer term, the commission recommended the use of tradable tax certificates for future BEIP grant recipients. That would take BEIP funding completely out of the budget process.

NJBIZ: How does BEIP compare with programs in neighboring states?

Zangari: Our commission worked in two sub-groups. One group critically examined the existing BEIP program. The other group performed a comparative analysis of similar incentive programs in neighboring states and other competitive states. Funding issues aside, our BEIP is still the model program other states seek to emulate. In fact, North Carolina recently enacted an employment incentive program quite similar to BEIP.

NJBIZ: Some critics argue that companies choose locations without regard to incentive programs.

Zangari: Academics often argue that incentives are a zero-sum game. They're right, but only if you're up at 30,000 feet looking down on the playing field. In other words, if one looks at companies moving about within the United States, an argument can be made that incentives simply result in a wash. But, at the state level, you're either at the table offering incentives or you're on the menu of endangered states. The competition may be Pennsylvania or New York, but with high-speed global communications and delivery systems, many times the competition can just as easily be California, Dublin, Ireland or New Delhi, India. So those of us on the ground and not in ivory towers don't see incentives as a zero-sum game. For us, it's $15 in capital investment for every dollar invested, and more in overall economic stimulus.

The material-factor requirement of BEIP is also important. It's also known as the "but for" test, meaning a BEIP applicant must satisfy the EDA that, but for the awarding of a BEIP grant, the company would not relocate to or expand within the state. The commission looked at other states' accountability measures and determined that BEIP's material-factor test, albeit a subjective one, has adequately prevented companies that would have moved or expanded in New Jersey anyway from taking advantage of BEIP.

NJBIZ: What's left on the commission's agenda? What else could be done to improve BEIP?

Zangari: We completed our report in six weeks' time. There was no time to get deeper into the technical aspects of BEIP. For example, multi-phase projects, either at a single facility or at multiple facilities, should be able to receive a single up-front approval, but with separate start dates and terms for each phase. Another example: what constitutes a "full-time employee" in the new economy? PEOs [professional employer organizations] are on the rise. Shouldn't those employees, even though paid by a vendor operating under contract with the BEIP applicant, be included in the jobs total? And look at all the companies now outsourcing their photocopying departments and, especially after the anthrax scare, their mailrooms? Shouldn't those jobs count? Then there's our long-term recommendation for a tradable tax credit.

The governor has asked me to serve not only as co-chair of the BEIP commission but also as a member of a broader competitiveness commission, with the obvious goal of bridging the two groups.