Office of Legislative Services
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P.O. Box 068
Trenton, New Jersey 08625
Legislative Budget and Finance Office
Phone (609) 847-3105
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www.njleg.state.nj.us
LEGISLATIVE FISCAL ESTIMATE
SENATE, No. 3432
STATE OF NEW JERSEY
221st LEGISLATURE
DATED: JULY 10, 2024
SUMMARY
Synopsis: Establishes Next New Jersey Program for artificial intelligence
investments.
Type of Impact: Indeterminate fiscal net impact on State General Fund; potential
revenue increase to local governments.
Agencies Affected: New Jersey Economic Development Authority.
Office of Legislative Services Estimate
Fiscal Impact Multi-Year Lifespan of Incentive Awards
Direct State Revenue Loss Indeterminate
Indirect State Revenue Gain Indeterminate
State Opportunity Cost Indeterminate
Indirect Local Revenue Gain Indeterminate
The Office of Legislative Services (OLS) is unable to ascertain whether the bill will have a
positive or negative fiscal net impact on the State due to imperfect information on the number
and attributes of projects that will receive incentives as a result of the bill’s enactment.
The State fiscal net impact is calculated by adding the indeterminate direct revenue loss from
awarding additional incentive amounts and their opportunity costs (the fiscal benefits the State
foregoes as spending is redirected from one economic activity to another) and subtracting from
that sum the indirect revenue gain that will accrue from additional economic activity that the
additional incentive amounts will catalyze.
The direct State revenue loss to the State from Next New Jersey Program tax credits awarded
as a result of the bill cannot be quantified. The bill authorizes the Economic Development
Authority to issue up to $500 million in tax credits through the program. The bill also allows
the authority to reallocate uncommitted tax credits from the New Jersey Aspire and Emerge
programs to the Next New Jersey Program. FE to S3432
2
The bill might accrue an indeterminate revenue gain to certain local governments if the bill
results in the authority extending financial assistance to projects that would not be undertaken
absent the assistance and if the projects involved value-increasing improvements to taxable
real estate.
BILL DESCRIPTION
The bill establishes the Next New Jersey Program in the authority to attract new investment in
the artificial intelligence industry and artificial intelligence-related industry, and amends certain
provisions of the New Jersey Economic Recovery Act to authorize the authority to award tax
credits to eligible artificial intelligence businesses for capital investments in qualified business
facilities.
Under the bill, an eligible artificial intelligence business includes a business or division of a
business that is primarily engaged in the artificial intelligence industry or large-scale artificial
intelligence data center industry. A business is considered primarily engaged in these industries if
at least 50 percent of the business’s employees are engaged in artificial intelligence-related
activities, or at least 50 percent of the business’s revenue is generated from artificial intelligence-
related activities. A business must satisfy several criteria to be eligible for a tax credit. Notably,
a business is required to invest a minimum of $100 million at the qualified business facility and
create a minimum of 100 new full-time jobs in New Jersey. The tax credit applications must be
submitted prior to March 1, 2029.
The bill reallocates $500 million in tax credits originally allotted to the New Jersey Aspire
Program and the Emerge Program to the Next New Jersey Program. The bill also amends current
law to provide that if the authority awards less than the annual limitation of tax credits under the
New Jersey Aspire and Emerge programs, then the uncommitted tax credits would be made
available for the Next New Jersey Program. The bill also provides that the value of all tax credits
approved by the authority through the Next New Jersey Program are subject to the limitation on
the issuance of tax credits applicable to all programs established by the New Jersey Economic
Recovery Act of 2020.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVIC ES
The OLS is unable to ascertain whether the bill will have a positive or negative fiscal net impact
on the State due to imperfect information on the number and attributes of projects that will receive
incentives as a result of the bill’s enactment. Conceptually, the State fiscal net impact is calculated
by adding the direct revenue loss from awarding additional incentive amounts and their
opportunity costs (the fiscal benefits the State forgoes as spending is redirected from one economic
activity to another) and subtracting from that sum the indirect revenue gain that will accrue from
additional economic activity that the additional incentive amounts will catalyze. FE to S3432
3
The bill is likely to produce a revenue gain for certain local governments if the bill results in
authority extending financial assistance to projects that would not be undertaken absent the
assistance and if the projects involve value-increasing improvements to taxable real estate.
Direct State Revenue Loss: The OLS cannot quantify the precise direct revenue loss the bill will
impose on the State, but notes that the bill reallocates $500 million in tax credits originally allotted
to the New Jersey Aspire Program and the Emerge Program to the Next New Jersey Program, and
allows the authority to redirect the uncommitted balance of tax credits currently authorized to be
awarded through the New Jersey Aspire and Emerge programs. Information available through the
authority indicates that there were approximately $2.5 billion in uncommitted tax credits available
for award through the New Jersey Aspire and Emerge programs tax credits as of April 10, 2024.
Under the bill, tax credit awards are subject to the $11.5 billion cap on all tax credits issued through
programs originally established by the New Jersey Economic Recovery Act and related initiatives.
Any tax credit awards would add to the total amount of incentives that the authority has already
approved and are subject to the statutory limit.
Although the bill requires the submission of tax credit applications prior to March 1, 2029, the
revenue reduction from any financial assistance may extend past the years allocated for the
program, however, as carry forward provisions and tax credit transfer certificates may be
redeemable outside that timeframe. The OLS further notes that the bill allows the authority to
recapture or rescind incentive awards under certain circumstances. Those provisions may offset,
at least in part, future revenue losses.
The bill establishes a formula for calculating the amount of a tax credit allowed under the
program to an eligible business. The tax is to be the lesser of: (1) the product of 0.1 percent of the
eligible business’s total capital investment multiplied by the number of full-time jobs; (2) 25
percent of the eligible business’s total capital investment; or (3) $250 million. Using these criteria,
the OLS estimates that that the tax credit for a project that meets the minimum capital investment
and new full-time jobs thresholds would be $10 million.
Indirect State and Local Revenue Gain: Imperfect information on the number of attributes of
projects that, under the bill, might newly qualify for tax credit awards precludes the OLS from
quantifying the bill’s indirect revenue gain to the State and local governments. For the reasons
laid out below, the OLS cannot project whether the bill’s indirect fiscal State benefits will exceed
its direct State revenue loss.
Analytical Framework: Like any government expenditure, economic development incentive
awards inject new spending into the economy. Once businesses and individuals receive payments
that would otherwise not be received absent the incentive awards, at least a portion of these
payments will newly circulate in New Jersey’s economy and produce so-called “multiplier
effects.” As the additional financial resources flow through the economy they generate, as a
byproduct, additional State and local revenue collections – the indirect revenue gain discussed in
this section. Examples are enhanced local property tax collections accruing when an incentive
recipient invests the incentive amount in business facility improvements, which then appreciate
the property’s value; or additional State sales and use tax collections from construction workers
employed in a qualified business facility spending their resultant income on taxable goods and
services.
Indirect fiscal effects offset the State’s direct revenue loss from awarding incentives in part or
potentially even in whole. Fiscal “multiplier effects” tend to be maximized whenever an incentive
award serves as the indispensable impetus for additional spending by the incentive recipient that
would otherwise not occur. In this case, the incentive recipient magnifies the positive economic
and fiscal impacts of the State’s outlay. Depending on project and incentive attributes, the induced FE to S3432
4
project may even yield fiscal State benefits exceeding the subsidy amount. The larger the
proportion of the public assistance relative to the financial outlay by the subsidized party, however,
the lower the probability that the subsidized activity will generate positive net returns to the State.
In contrast, the State’s return on investment is negative whenever the State subsidizes a project
that a taxpayer will undertake with or without the public assistance. Because the financial
inducement has not caused the project’s realization, none of its economic and fiscal feedback
effects are attributable to the incentive, and therefore must be excluded from the tabulation of the
incentive’s indirect fiscal benefits.
Nevertheless, even if the State provides financial assistance to a project that would be realized
anyway, some, albeit comparatively small, indirect fiscal benefits may still accrue to the State.
These would occur whenever the subsidy beneficiary spends the incentive award in New Jersey
on goods and services that the beneficiary would otherwise not have procured. In that event the
incentive award still represents an injection of additional cash into New Jersey’s economy whose
ripple effects include the accumulation of indirect fiscal State benefits.
Lastly, given the high degree of integration of New Jersey’s economy with the national and
global economies, an addition of spending in New Jersey will eventually leak into other
jurisdictions and cease to circulate within the State. Consequently, any tabulation of a subsidy
payment’s New Jersey feedback effects must disregard feedback effects that other jurisdictions
will absorb. For example, a Pennsylvania resident who works as a carpenter on a subsidized
project in New Jersey will pay Pennsylvania, not New Jersey, income tax on the compensation
earned in accordance with the State of New Jersey and the Commonwealth of Pennsylvania
Reciprocal Personal Income Tax Agreement.
Bill’s State Indirect Fiscal Effects: It is unclear whether the bill’s indirect fiscal State benefits
will exceed its direct State revenue loss.
The OLS expect this bill to result in the issuance of tax credits awards under the Next New
Jersey Program. It is uncertain, however, whether the additional incentive awards will generate
indirect fiscal benefits to the State that will exceed the direct State revenue loss resulting from
those incentive awards. For two reasons, however, the OLS expects that the indirect fiscal benefits
may be less than the direct State revenue loss. First, the bill does not subject credit-receiving
projects to a net benefit test calculation. The net benefit test is intended to ensure that the authority
will award incentives only to projects that are estimated to generate indirect State revenue in excess
of a tax incentive’s direct State cost. For example, under the New Jersey Aspire Program, the
authority requires each applicant to demonstrate a net positive benefit to the State of at least 160
percent of the tax credit amount. As a result, the bill allows for projects to receive financial
assistance for capital investments that will happen irrespective of the State assistance. Whenever
that occurs, none of a project’s indirect fiscal benefits can be causally attributed to the assistance.
The OLS notes that it is possible that credit-receiving projects that will not have been induced
by the Next New Jersey Program may generate some indirect State fiscal benefits. This would
occur whenever recipients of such incentives spend their incentive awards in New Jersey on goods
and services that they would not have procured absent the incentive award.
Irrespective of the magnitude of the bill’s indirect fiscal benefits, the analysis of its full impact
on State finances is incomplete without considering the bill’s opportunity costs.
State Opportunity Costs: Given the State’s finite resources and its balanced budget requirement,
the decision to pursue new incentive programs as well as enhance existing incentive programs will
invariably divert resources from policy alternatives to which they would have been applied absent
the inducements. These policy alternatives also produce direct State costs and indirect State
revenue collections. The concept of opportunity costs captures the value of these fiscal benefits
the State forgoes as it redirects cash flows. Once opportunity costs are factored into the analysis, FE to S3432
5
it is therefore possible for a bill to produce a net fiscal loss even if its indirect fiscal benefits exceed
its direct cost.
For example, if, instead of the bill, the State invested in road construction, the bill would
produce a net fiscal effect equal to the difference between the total fiscal impact of the additional
incentive awards – or the direct State revenue loss from awarding the additional incentives minus
the additional incentives’ indirect State fiscal effects – and that of the foregone road construction
investment.
Section: Revenue, Finance & Appropriations
Analyst: Scott A. Brodsky
Staff Fiscal & Budget Analyst
Approved: Thomas Koenig
Legislative Budget and Finance Officer
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the
failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).