Urban Development Incentives Under Attack

by:  Katharine A. Muscalino

Revitalizing the downtowns of New Jersey’s poorest cities has always been an uphill battle, with cities struggling to find developers and businesses willing to invest in their most blighted areas.  Urban facelifts and retail opportunities are in danger of becoming even more scarce, as New Jersey considers eliminating or diluting its urban enterprise zone legislation.

Under the current urban enterprise zone law, blighted cities can attract developers and businesses with special tax incentives and grants, and get a return on some of the urban enterprise zone revenues.  Specifically, developers within the urban enterprise zone qualify for tax exemptions and abatements, and redevelopment bonding and grants.  Businesses are permitted to charge half of standard sales taxes, attracting both new retailers and new customers to the downtowns.  The result is a major overhaul for Main Street and an influx of new commerce.

Cities may be losing this tool for redevelopment as New Jersey state government considers reforms to the current legislation.  Following a study that recommended terminating the 28-year old program, Governor Christie’s budget calls for the state to retain more than $90 million of the urban enterprise zone revenues.  Anticipating that this retainage could undercut the urban enterprise zone program irretrievably, the New Jersey Assembly’s Commerce and Economic Development Committee is considering modifications to the urban enterprise zone statute as an alternative to the proposed budget provisions.  The Assembly’s plan would maintain incentives for developers and businesses, but curb the benefits to municipalities significantly, phasing out the use of urban enterprise zone funds for police and fire services, capping municipal collection of urban enterprise zone revenues to one third of all funds through 2022, and imposing a moratorium on future urban enterprise zone funding to cities following 2022.

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