Bradley attorneys Chris Grissom and Matt Hinshaw were quoted in Law360 on the importance of transparency and evaluation in tax incentive programs for corporations. A recent New Jersey audit found the state failed to police itself in overseeing $11 billion in tax incentives. The audit fueled controversy surrounding corporate tax breaks but won’t limit the practice of investigating public dollars for promised economic growth.
Hinshaw said he was surprised to see the oversight gaps in the state's audit because "New Jersey has some of the most thorough applications" for incentives of any state.
Still, Hinshaw said that as the public has increasingly clamored for more transparency of the programs upon learning about them, states and businesses should be willing to publicize data about the deals. At the end of the day, he said, all parties involved need to keep in mind that taxpayers are underwriting the programs.
"If you're taking public dollars, you have to be accountable and transparent about that. It's important for companies to disclose information so they can defend the deal," he explained. "The deal should be a win-win for the company and the community, and both sides should be willing to defend that publicly."
Grissom said that increased oversight of the programs has mainly occurred behind the scenes. Alabama, for one example, has created a more robust annual evaluation of its programs in recent years, he explained, but its invention occurred absent all the attention that New Jersey's programs are now garnering.
Grissom said New Jersey's audit may spur more rigorous examinations of incentive programs nationwide, but added that the tax breaks are so firmly entrenched in states' economies that they are unlikely to be dissolved, especially since the states have to compete on a worldwide scale.
"From one point of view, some would say that the community does not want to grant any incentives, but states have to be competitive. And now, it's not just a 50-state playing field; you're routinely dealing with different countries" to attract businesses, he said. "As long as the economy continues to allow them, I think everyone will continue to avail themselves of the benefits. You are at a competitive disadvantage if you don't."
Hinshaw chalked up the increased oversight to a natural evolution of the industry. In years past, there were fewer laws and rules that companies had to abide by when accepting public dollars to invest in a local community. Now, he said, corporations should just accept the ratcheted-up supervision, which is driven by the fact that the public is subsidizing the deals.
To be sure, tax incentive programs are here to stay. The increased scrutiny has just become an intangible cost of doing business when companies and governments enter into an agreement.
"The practice of economic development has grown. In the past, you didn't have a lot of reporting requirements and regulations," Hinshaw said. "But now more states are imposing greater regulations on the incentives. Evaluating these things has become part and parcel of the package."
The complete article, “NJ’s Action on Tax Incentives Won’t Chill Corporate Breaks,” first appeared in Law360 on February 1, 2019.