NJ Spotlight

Tax Exemption Could Cut Manufacturers' Energy Bills by 10 Percent

Lawmakers craft tax-relief package, hoping to attract thousands of blue-collar jobs back to Garden State

NJ Spotlight — Monday, September 13, 2010

By Tom Johnson

With the aim of retaining and luring new jobs to New Jersey, legislators are looking at giving thousands of manufacturers a 10 percent tax break on their energy bill by exempting them from two taxes dating back to before the breakup of the state's electric and gas monopolies.

The bill (A-2977), expected to be considered today by the Assembly Commerce and Economic Development Committee, is part of a Democratic initiative to help New Jersey's hard-hit manufacturing sector, which has lost thousands of well-paying blue-collar jobs in the recession.

The bill is strongly backed by the business community. If approved, however, it would be another big blow to efforts to balance the state budget, costing by the sponsor's own estimate "a few hundred million dollars'' a year in revenue. Projections by the non-partisan Office of Legislative Services put the figure in the $80 million a year range.

Losses Offset by Gains

"This is a benefit that will more than pay for itself,'' argued Assemblyman Albert Coutinho (D-Essex), the bill's sponsor and chairman of the committee, saying by retaining and luring new jobs to the state, the loss in sales tax revenue and a tax known as the Transitional Energy Facility Assessment (TEFA) will be more than offset by a gain in income tax revenues. "At the end of there will be a net positive benefit for the state.''

The sales tax dates back to 1997 when the state was preparing to pass an energy deregulation law, eliminating the gross receipts tax and replacing it with the sales tax, although it and TEFA were supposed to be phased out. In the face of repeated budget deficits, however, lawmakers kept reauthorizing the taxes.

The measure would deal with an issue that has repeatedly been the focus of lawmakers and the Christie administration this year: New Jersey's high energy prices.

'Out of Whack'

"We've heard a lot from manufacturers about how electricity prices are out of whack when compared to neighboring states,'' said Sara Bluhm, an assistant vice president of the New Jersey Business and Industry Association. Bluhm cited a recent report by Rutgers Center for Energy, Economic and Environmental Policy which found that state policies drive up electric bills for residents by 26 percent. "It's more for the business community,'' Bluhm said, noting businesses pay another surcharge not paid by residential ratepayers.

Hal Bozarth, executive director of the Chemistry Council of New Jersey, also supports the bill. "We deserve a break,'' he said, adding the state has the fifth-highest energy rates in the country. "Anything they can do will help my guys.''

But Ev Liebman, program director for New Jersey Citizen Action, called the bill bad tax policy and wrong for New Jersey.

"Corporate giveaways that make our tax structure less fair are the wrong thing for New Jersey, especially at a time when we can't even afford to maintain our healthcare programs, are wiping out the clean energy fund, reducing school lunches for kids and increasing taxes on the lowest-income working families,'' Liebman said.

Too High All Around

New Jersey's utility rates are too high, Liebman said, but they are too high for everyone, not just manufacturers.

Coutinho, however, defended the bill, saying there has been a drastic decline in manufacturing, which in 2007 employed more than 300,000 people despite losing more than 100,000 jobs in the past seven years.

"It just makes sense,'' the lawmaker said. "It will be a major boost to small- and medium-sized businesses throughout New Jersey. We need to retain blue-collar jobs that are left.''

Although Coutinho estimated the bill would cost the state a "few hundred'' million dollars in revenue, previous projections were widely different. OLS projected it would cost the state $80 million back in 2007; the state Treasury Department said the cost was $301 million.

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