Robbing Peter to Pay Paul?

Cities, towns, and states are always interested in what’s loosely referred to as “economic development.” Technically, that consists of activities that do one of two things – and ideally, both: they bring new jobs or they put new properties and enterprises on the tax rolls (the latter of which are often called “ratables,” as in “tax ratables”).

From a practical perspective, creating new jobs out of whole cloth is pretty hard. Outside of special places like Silicon Valley, that happens mostly these days around research universities, where entrepreneurial professors and small businesses that want to be around some serious brain power develop new products and, if they succeed, they launch early production nearby so they can oversee it. If a given venture succeeds it usually leaves town in favor of a destination where costs are lower. That’s unfortunate, but if the product development cycle is strong, the lost jobs will be replaced by new jobs associated with new products.

For the most part, that leaves those interested in economic development with attracting businesses that are already established elsewhere. Cities and towns and states do this through a combination of tools like tax breaks or tax credits, free or cheap land, subsidized loans, subsidized job training, infrastructure improvements, and other things that might make a difference in where a business decides to locate.

This approach is pretty much a zero-sum game: if a city lures a 200-employee business into relocating it does so at the expense of another city. For this reason, most attempts to lure businesses involve trying to steal them away from another state. Sure, there are always instances in which suburbs lure businesses away from a city, but for the most part, it’s hands off your neighbor’s businesses unless they specifically come knocking.

That’s what makes what’s going on in New Jersey these days so strange: with the enthusiastic support of the state – and, it seems, with the state itself doing most of the heavy lifting – one city is systematically raiding the towns around it with the help of a huge bounty of state tax credits.

Why? That’s a good question. The Curmudgeon has a few theories.

In case you haven’t noticed, The Curmudgeon has a lot of theories.

First, though, the back story.

In 2013, the New Jersey state legislature passed an economic development law that included the “Grow New Jersey” program. The champion of that bill was a state legislator named Donald Norcross. Remember that name: you’ll be seeing it again. Since the bill passed, this program has been used to lure a number of businesses to – of all places – Camden.

camdenCamden is a city that needs every little bit of help it can get. It has the second highest murder rate of all cities in the U.S. and the highest rate of violent crime. Crime is so bad, in fact, that the state took over Camden’s police department, fired everyone, and launched an entirely new police department. The city’s infant mortality rate of 13.8 deaths per 100,000 live births is among the worst in the country (Detroit is the worst, at 14.1). Nearly 40 percent of Camden’s residents live below the federal poverty level, in part because only 7.62 percent of them have bachelor’s degrees, compared to the national average for cities of 21.84 percent.

One of the early economic development deals under the new law that benefited Camden came when the state gave the Philadelphia 76ers basketball team $82 million in tax credits to build a practice facility in Camden – not an arena but a practice facility (we’re talking about practice – practice). As economic development goes, it doesn’t seem like a very good use of money, considering that it won’t create many jobs and the team is still playing its games in Philadelphia, not in Camden, but it’s classic economic development: steal a company from another city. Representing the 76ers in this transaction was a New Jersey lawyer named Philip Norcross. There’s that name again – but it won’t be the last time you see it.

But then the craziness started.

The state gave a company called Holtec, which designs and builds nuclear power plants and equipment, $200 million in tax credits to move from Marlton to Camden.   It’s less than a fifteen-minute drive from Marlton to Camden. (The Curmudgeon has written about Holtec before; find it here.)

Then came $107 million in tax credits to Lockheed Martin to move from Cherry Hill to Camden. Cherry Hill’s even closer to Camden than Marlton: you pass through it on the way from Marlton to Camden. Parts of Cherry Hill are less than five minutes from Camden.

Next up was Subaru: $118 million in tax credits to move to Camden, also from Cherry Hill.

Then Volunteers of America, $6 million in tax credits to move from Collingswood to Camden; Collingswood is adjacent to Camden.

Next in line was American Water Works, which received $164 million in tax credits to move from Voorhees to Camden – a drive of about fifteen minutes.

And Contemporary Graphics Solutions, recipient of $34 million in tax credits to move from Pennsauken, which, like Collingswood, is adjacent to Camden.

Last but not least came $40 million in tax credits to Cooper University Hospital, which is already located in Camden, to move 350 office jobs from Cherry Hill (poor Cherry Hill!) to Camden. The chairman of Cooper University Hospital is George Norcross. There’s that name again. You haven’t seen the last of it, either.

So add it all up and you get more than $700 million in tax credits to rearrange the deck chairs on the Titanic and move a handful of privileged businesses just a few miles. Until passage of the law making this largesse possible, businesses had to guarantee the state that the benefits of their move would add up to 110 percent of the subsidy; now all they have to do is break even – and they have thirty-five years to do it.

That seems like an awfully sweet deal for the companies getting this money and an awfully raw deal for the taxpayers whose money the companies are getting.

So what’s the deal here?

As he said, The Curmudgeon has a number of theories.

The first involves New Jersey’s governor, Chris Christie. To be fair to Christie, he has spent a great deal of time, effort, and money – not including this money – even beyond this program, and starting as soon as he was elected, to try to improve Camden. The Curmudgeon hasn’t approved of all of the things Christie’s done, but the effort has clearly been there. Christie’s dedication to addressing Camden’s dire straits has been dogged and admirable, and The Curmudgeon would like at least to consider the possibility that the governor’s doing it because he thinks it needs to be done.

Of course, Christie also could have been doing it because he had his eyes on the White House all along and thought this would play well with independent voters in a general election campaign. Yes, that might be cynical, but doing things in elected office because you think people will approve of what you’re doing and be more inclined to support you in the future isn’t always the worst motive in the world.

Governor Christie and George Norcross

Governor Christie and George Norcross

Another theory involves that name you’ve now seen three times: Norcross. Of the three brothers mentioned, George is the one who matters. Even though he doesn’t hold elected office, he’s the most powerful politician in southern New Jersey and possibly the most powerful Democrat in the entire state; in fact, he placed one of his aforementioned brothers, Donald, into Congress last year. (The Curmudgeon wrote about Norcross before, although without naming him: he’s the party boss who “persuaded” the mayor and council of Marlton, the town in which The Curmudgeon lives, to permit him to build a helipad outside his office, which is also practically in The Curmudgeon’s back yard, so he could beat the traffic by flying over it.)

Maybe Norcross has the influence to do all this on his own and maybe Christie is doing all of this, or allowing all of this to be done, to buy peace with Norcross so he can do other things in the state. George Norcross is chairman of the biggest hospital in Camden, though, and there’s no question that his hospital benefits from all of this robbing-Peter-to-pay-Paul activity. He recently got another gift, too: the state gave his hospital exclusive rights to provide emergency medical services in all of Camden County even though another health system has been providing that service for the county for years, already brings two-thirds of the people it transports for emergency care to Norcross’s hospital, and no one – no one – has even suggested it’s not doing a good job. So why do it, other than because you can?

It all just doesn’t make sense. Stealing businesses from other states? Sure. It’s stupid, because it all tends to even out, but if that’s the game you want to play, fine. But stealing businesses from nearby towns in your own state? What’s the point? Providing a subsidy of $300,000 for each job moved? What’s the point? More than $700 million in tax credits given away, gone forever, with no net gain in jobs or tax ratables for the state? Again, what’s the point?

The bench is in Camden and the scene across the water is Philadelphia.  The cities are so close that when Pope Francis visited Philadelphia in September, people parked in Camden and walked across the bridge to participate in the papal visit.

The bench is in Camden and the scene across the water is Philadelphia. The cities are so close that when Pope Francis visited Philadelphia in September, people parked in Camden and walked across the bridge to participate in the papal visit.

The Curmudgeon has encountered more than a few people in his life who were born or lived in Camden. His father was born in Camden and worked there at various times during his career. Camden is closer to the heart of Philadelphia than most places in Philadelphia themselves, including the area where The Curmudgeon lived for the first forty-six years of his life. Camden is just across the Delaware River from Philadelphia, and despite how down and out it is today and has been for years now, its proximity to the city means its revitalization is inevitable – maybe not even in The Curmudgeon’s lifetime, but inevitable nonetheless – but it’s hard to see how this approach is going to help.

On one hand, maybe the strategy of lavishing credits only on nearby companies is intentional, a decision made with the belief that the towns losing those businesses ultimately can afford to lose them and that Camden just needs them more. Maybe pirating companies from nearby towns also is intentional because while employees will be working elsewhere, that elsewhere isn’t far enough away that they need to move. But unless people need to move because their place of business has moved too far away to commute, no one affected by all of these business relocations is going to think “Hey, now that I work in Camden, I think I’ll buy a house there and make it my home” – although it’s certainly affordable, with realtor.com at the time The Curmudgeon wrote this piece showing listings for 201 houses under the price of $50,000, although mostly located in areas you wouldn’t enter on a dare. Absent that, though, it’s hard to see how this robbing of Peter to pay Paul is going to benefit anyone but Paul – and that’s not nearly reason enough to do all of this and spend all of this public money.

 

 

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