Trenton, N.J. (October 17, 2005) – Nearly $350 million in additional state tax revenue is generated each year and $8.4 billion is brought to New Jersey’s gross state product as a result of the Business Employment Incentive Program (BEIP), according to a study released today by the New Jersey Economic Development Authority (EDA). Conducted by the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, the study was commissioned by the EDA to estimate the impact of BEIP on New Jersey’s economy.
“We knew the program had been effective in directly supporting job creation, and now we have comprehensive data that reflects how immense an impact the program has on state tax revenue, and job creation,” said Caren S. Franzini, Chief Executive Officer of the EDA, the state agency that administers BEIP. “This report further supports the effectiveness of BEIP as a tool to attract businesses to New Jersey, encourage business expansion, and grow our economy.”
The study, presented by Rutgers researchers Dr. Joseph J. Seneca, Dr. James W. Hughes, and Will Irving, concludes that:
- Businesses assisted by BEIP generate nearly $350 million in additional state tax revenue annually, representing over a 3.7 to 1 return on investment
- To date, the 183 businesses that have received BEIP assistance have created nearly 52,000 new, permanent jobs. Economic activity generated by BEIP businesses also has led indirectly to the creation of another 58,000 jobs.
- Operations of the BEIP assisted businesses add approximately $8.4 billion to New Jersey’s gross state product. For every dollar spent on BEIP, New Jersey’s gross state product increases by $88.
State Treasurer John E. McCormac noted that the study further documents how the BEIP program strengthens the New Jersey economy and the State budget.
“The BEIP program is clearly keeping New Jersey’s economy on track and fueling a tax revenue base that sustains the State’s finances. With tools like BEIP, we are creating jobs, bolstering our tax base and making it possible to fund vital programs in our State budget,” he said. McCormac noted that while New Jersey returns a portion of tax revenue from newly created jobs back to businesses in the form of BEIP grants, those revenues are kept in their entirety and become permanent after the end of the BEIP 10-year contract period.
“Despite contentions to the contrary, BEIP works. There are literally thousands of New Jerseyans holding jobs today that otherwise would have migrated to other states and countries and we are proud to have been able to make that happen,” McCormac said.
Under the BEIP program, businesses that execute agreements with EDA and create jobs receive annual cash grants based on the number of new jobs they have created in the State. BEIP grants may be offered for up to 10 years and can equal 10% to 80% of the total amount of state income taxes generated by the grantees’ newly created jobs during the calendar year. To qualify, a business must demonstrate that the BEIP grant is a “material” factor for expanding or relocating jobs in New Jersey, that it is financially viable, and that it will create a minimum number of 25 new jobs, or 10 new jobs if the business is within the high tech or biotechnology industries.
“The BEIP grants are supporting exactly the high-paying, high productivity industries New Jersey needs to attract and retain in order to keep its economy growing in an ever more competitive global environment. Moreover, the BEIP awards, paid only when jobs are created, ensure that the use of state resources is both prudent and beneficial,” said Joseph J. Seneca and James W. Hughes.
“The report indicates what we’ve known for some time — that the BEIP program is a highly successful tool in terms of jobs creation and capital investment,” said Commerce Secretary Virginia Bauer. “The fact that BEIP generates a 3.7 to 1 return on investment demonstrates the effectiveness of the program.”
In addition to long-term economic benefits of the program generated by ongoing operation of the assisted business, BEIP also results in a number of one-time impacts generated by capital expenditures on construction, equipment and other items that accrue over the duration of the project, according to the study. One-time impacts include an additional 111,041 “job-years” (or one job lasting for one year); $6.6 billion in gross state product, and $233 million in state tax revenue.
Attached is a summary of the study’s findings. For a complete copy of the study, click here, or visit www.policy.rutgers.edu/beipbenefits.pdf
The Characteristics and Economic Benefits of the Business Employment Incentive Program
This report is intended to serve as a comprehensive source of information about the awards that have been made since the inception of the Business Employment Incentive Program (BEIP) and to estimate the impact of the BEIP awards on New Jersey’s economy. The report finds that the BEIP program is of significant benefit to the state in terms of employment, economic activity (gross state product) and fiscal flows (state tax revenues).
The report focuses primarily on 183 BEIP awards made between June 1997 and February 2005, which created 51,665 jobs. It also examines potential impacts of the 88 BEIP awards approved in fiscal year 2005, and the effects of the inclusion of smart growth criteria in the BEIP award formula. The BEIP award characteristics and economic impacts addressed by the report include:
- Annual Economic Impact. Each year, the operations of the BEIP projects add approximately $8.4 billion to New Jersey’s gross state product. This equates to an annual increase of approximately $88 for each tax dollar spent to fund the program.
- Annual Fiscal Impact. The 183 BEIP projects generate approximately $349 million in additional state tax revenue each year. In other words, for each tax dollar spent on the BEIP program, the state receives approximately $3.70 in revenues.
- Annual Employment Impact. The 183 BEIP projects have created approximately 51,665 permanent jobs. In addition, the economic activity generated by the BEIP projects leads indirectly to the creation of another 58,089 jobs, for a total of 109,754 jobs.
- Tax Expenditures. The annual tax expenditures made on the BEIP program are approximately $95.1 million, or about $1,841 per job created by the BEIP projects. The financial activities sector had the highest tax expenditure per job created ($3,119), followed by the professional and business services sector ($1,661) and the manufacturing sector ($1,422).
- One-Time Impacts. In addition to the annual impacts generated by the ongoing operations of the BEIP projects, each project’s capital expenditures on construction, equipment and other items leads to significant one-time impacts that accrue over the duration of the project. The total capital investment leads to the creation of an additional 111,041 job-years (one job lasting for one year), $6.6 billion in gross state product, and $233 million in state tax revenue. If these latter two figures are annualized and added to the annual impacts noted above, the annual ratio of gross state product to tax expenditures rises from 88-to-1 to almost 95-to-1, and the ratio of state tax revenues to tax expenditures rises from 3.7-to-1 to 3.9-to-1.
- Characteristics of Fiscal Year 2005 Awards. The 88 BEIP projects approved in fiscal year 2005 are estimated to create approximately 12,318 jobs. Like the 183 approved and executed projects, the majority of the 88 projects are in the manufacturing (40.9%), professional and business services (20.5%), and financial activities (15.9%) sectors. The approved FY 2005 awards have gone primarily to projects creating fewer than 200 jobs (84%), while a large share of the estimated jobs to be created (42.7%) are expected to come from projects creating 500 jobs or more. Forty-eight of the FY 2005 projects are expansions and 40 are relocations, with both types estimated to create about the same number of jobs. The annual tax expenditures for the FY 2005 projects are estimated at $18 million, or $1,461 per job.
- Annual Impacts of Fiscal Year 2005 Awards. The BEIP projects approved in fiscal 2005 are estimated to generate an increase of $1.7 billion in gross state product on an annual basis, or approximately $96.80 for each tax dollar spent on the awards. They are also expected to generate state tax revenues of $84 million, or $4.70 for each dollar in tax expenditures. In addition to the 12,318 estimated jobs to be created by the projects, the economic activity they generate is estimated to result in the creation of an additional 10,391 jobs, for a total of 22,709 jobs.
- One-Time Impacts of Fiscal Year 2005 Awards. Over the period of the awards, the capital investments of the projects approved in fiscal year 2005 are estimated to result in the creation of an additional 13,008 job-years, and add $781.5 million in gross state product and $27.1 million in state tax revenues. If these figures are annualized and added to the projects’ estimated annual impacts, the ratio of gross state product to tax expenditures rises to 101.2 and the ratio of state tax revenue to tax expenditures rises to 4.8.
- Distribution by Business Sector. The BEIP awards and the jobs created by the 183 BEIP projects studied are distributed across a broad range of business sectors, but are most highly concentrated in the key manufacturing, financial activities, and professional and business services sectors.
- Distribution by Employment Size. The majority of BEIP awards examined (55.7%) have been extended to small to mid-sized projects creating fewer than 200 jobs each, while 49.3% of the jobs directly generated by the BEIP projects have come from those that created 500 jobs or more.
- Distribution by Project Type. Over 50% of the BEIP awards analyzed (100 out of 183) have been made to companies relocating their facilities from other states, with 42% (77 awards) going to companies expanding their existing operations in New Jersey and very few (6 awards) going to new businesses. The majority of the relocations (69%) have come from New York.
- Distribution by County. BEIP grants have been made to companies in almost every county in the state. The largest shares of the awards have gone to companies in Hudson (25.1%), Middlesex (12%) and Morris (9.8%) counties. The largest percentages of the total jobs created by BEIP projects have been in Hudson (34.7%), Somerset (11.6%) and Middlesex (7.6%) counties.
- Smart Growth Protocols. Analysis of the characteristics of BEIP awards before and after institution of the smart growth protocols demonstrates that the inclusion of these factors in the BEIP award formula has not influenced the spatial distribution of the awards or increased the average award level, but that it has had the effect of shifting the relative importance away from the economic development factors in determining the award level. Several recommendations are made to link the economic development criteria of the BEIP awards more directly with the smart growth function.