Could New Jersey’s Revamped UEZ Program Benefit Your Business?

New Jersey is relaunching its Urban Enterprise Zone (UEZ) Program, which aims to stimulate economic growth by providing tax and other financial incentives to participating businesses.

New Jersey is relaunching its Urban Enterprise Zone (UEZ) Program, which aims to stimulate economic growth by providing tax and other financial incentives to participating businesses. For New Jersey developers, the program can provide a number of key benefits.

Under legislation recently signed into law by Acting Governor Sheila Oliver, the UEZ Program will be fully operational for the first time in more than ten years, with $42.5 million in Zone Assistance Funds (ZAF) for FY22. “The UEZ Program helps support the local economy, particularly in our urban centers,” Oliver said in a press statement. “I am excited to sign this legislation today restoring UEZ funding, especially as many of these cities and businesses located in the designated communities continue to recover from the pandemic. Starting today, the UEZ Program will be an essential part of the state’s economic recovery strategy.”

History of the UEZ Program

New Jersey’s UEZ Program dates back to 1983. Currently, there are 32 zones, which are spread across 37 municipalities and home to approximately 7,267 UEZ-certified businesses. The first five municipalities joined the program in 1986, with the most recent joining in 2002.

As discussed in prior articles, UEZ designations expired in Bridgeton, Camden, Newark, Plainfield, and Trenton at the end of 2016. Under the state’s prior UEZ statute, the designations expired after 20 years and allowed for just one 16-year extension. In 2018, Gov. Phil Murphy signed legislation reinstating expired UEZs and extending them until December 31, 2023. It also extended, until December 31, 2023, the duration of each UEZ that was scheduled to expire prior to that date. 

The legislation also directed the New Jersey Department of Community Affairs (DCA) to study the UEZ Program and submit recommendations as to whether the program should be continued as is, be amended, or expire. The resulting 2019 New Jersey Urban Enterprise Zone Program Assessment, prepared by the John S. Watson Institute for Public Policy, PEL Analytics, and Anderson Economic Group, measured the net economic impact of the UEZ Program by analyzing employment counts, payroll expenditures, and gross receipts for participating and non-participating businesses located in UEZs across the state. The analysis of the qualitative and quantitative data compiled determined that the UEZ program is a valuable tool in New Jersey’s economic toolbox and should remain available to designated municipalities. 

New Reforms to UEZ Program

The Urban Enterprise Zone (UEZ) Reform Bill (A5580/S3600) signed into law by Acting Governor Oliver on August 16, 2021, implements additional reforms to the UEZ Program. Among other changes, the new law:

• Creates a new process for developing a zone development plan, which would have a five-year life and requires an updated preliminary zone development plan for municipalities with plans that are five years old or older.
• Requires each UEZ to consult with representatives of diverse statewide or regional business organizations that represent the interests of minority businesses when creating a zone development plan.
• Allows currently designated UEZs to retain UEZ designation for 10 years.
• Caps the business to business sales tax exemption at the first $100,000 of purchases.
• Establishes a 10-year limit on UEZ business certification. Businesses certified prior to effective date of the bill will lose certification at the end of the tenth state fiscal year following the effective date of the bill.
• Alters the current method for distributing sales tax revenues generated within UEZs by replacing the current system (which allows each zone access to a percentage of the sales tax revenue generated within that zone) with a new system (which would distribute a percentage of the total monies appropriated annually to the UEZ Fund, based upon a statutory formula).  The new formula would apply weight to: each UEZ municipality’s Municipal Revitalization Index Distress Score; the average number of unemployed persons in each UEZ municipality; and the number of commercial and industrial parcels located in each UEZ municipality.
• Provides the combined State tax expenditures in State Fiscal Year 2022 for the Urban Enterprise Zone Special Sales Tax Rate and Urban Enterprise Zone Exempt Business Purchases, as expressed in the Fiscal Year 2022 State of New Jersey Tax Expenditure Report, would be the “ZAF base fund amount.” 
• Imposes a 25% cap on Zone Assistance Fund (ZAF) use for public safety expenses.
• Imposes a 10% cap on ZAF Fund use to cover administrative expenses.
• Dedicates an initial $42.5 million ZAF appropriation from the General Fund.
• Caps the total ZAF funding at $82.5 million (increases annually in line with the CPI).
• Modifies a provision of law that governs the computation of “payments in lieu of taxes” during the period of a short-term property tax abatement, which may be awarded to incentivize residential development within a UEZ, in order to afford UEZ municipalities greater discretion over the amount of taxes abated during each year of a five-year abatement period. The new law removes the provision that requires 20 percent to be staggered in each year but retain the provision requiring the full amount of taxes owed to be paid in the sixth and each subsequent year. 

Under the new law, the UEZ Authority Board at DCA will assume following responsibilities:

• Conduct an annual review at the end of the state fiscal year of each local UEZ’s use of ZAF funds.
• Prepare an annual report that must include the number of participating businesses, unemployment rate, median household income, and number of jobs in each UEZ.
• Enter into an MOU with the New Jersey Department of Labor and Workforce Development to assist in data gathering and information sharing to further the UEZ Authority’s ability to evaluate UEZ performance, compliance, and initiate enforcement actions.
• Work with the Division of Local Government Services in DCA to prepare regulations, policies, or procedures to implement requirements for municipalities to place their Zone Assistance Fund allocations in segregated UEZ trusts.

Key Takeaway

The Urban Enterprise Zone (UEZ) Reform law is good news for New Jersey municipalities and businesses that rely on UEZ programs. It also helps ensure that additional businesses will be able to take advantage of its incentives going forward.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Don Pepe, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.