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Even as the pandemic forced states to shift their policy priorities and grapple with the economic downturn during the 2020 legislative session, governments continued to enact major reforms to economic development tax incentives. And as more states across the country implement processes to regularly produce high-quality, rigorous evaluations of such programs, lawmakers increasingly use findings from these reports to inform policies that ensure that incentives are effective, accountable, and fiscally sound.
For example, New Jersey previously lacked a process to regularly evaluate its flagship economic development incentives. One-time incentive reviews published in 2018 and 2019 identified design, administration, and cost issues that guided several years of debate among policymakers and stakeholders. In December, lawmakers reached an agreement on how to replace these programs. The legislation creates and amends incentives for job creation and retention, real estate development, and other activities while addressing two weaknesses of the state’s old programs. First, it places an annual cost limit, or cap, on yearly award amounts for each program and limits their total costs for a six-year period. If the limit is not reached in the first six years, uncommitted credits may be authorized during a seventh year. Second, the largest programs are subject to biennial independent evaluations to study their effectiveness.