ML19311C713

Public Watchdogs - NRC 2.206 Petition Exhibits 1-38, Part 13

ML19311C713
Person / Time
Site:	San Onofre
Issue date:	09/23/2014
From:	Public Watchdogs
To:	Division of Decommissioning, Uranium Recovery and Waste Programs
Cruz Z
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Download: ML19311C713 (71)

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Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.102 Page 2 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor Governors Task Force on EDA Tax Incentives Established Pursuant to Executive Order No. 52 (Murphy)

First Published Report Ronald K. Chen Chairman Walden Macht & Haran LLP Quinones Law, PLLC Special Counsel June 17, 2019

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.103 Page 3 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor Table of Contents I. EXECUTIVE

SUMMARY

................................................................................................ 1 A. Special Interests, Which Prioritized Benefits to Private Parties Rather than the State, Had a Significant Impact on the Design of the Grow NJ Statutes and Regulations ....................................................................................................... 3 B. The EDA Did Not Have Adequate Procedures in Place to Ensure That It Discovered Relevant Information, Including Applicant Misstatements, That Would Have Led To Rejection of Some Applications or a Significant Reduction in the Amount of Certain Awards ......................................................... 3 II. INTRODUCTION TO THE PROGRAMS........................................................................ 6 III. INVESTIGATIVE PROCESS ........................................................................................... 7 A. First Work Stream: The Design of the Tax-Incentive Programs ............................ 7 B. Second Work Stream: EDAs Administration of the Tax-Incentive Programs

............................................................................................................................... 10

1. Background Meetings ............................................................................... 10

2. Definition of Scope and Document Preservation and Collection ............. 11 a) Document Preservation and Company Outreach .......................... 11 b) Refinement of Scope ..................................................................... 12 c) Company and Third-Party Production of Documents .................. 13

3. Witness Interviews .................................................................................... 13 IV. LEGISLATIVE FOCUS: THE DESIGN AND IMPLEMENTATION OF THE TAX-INCENTIVE PROGRAMS..................................................................................... 13 A. Initial Findings ...................................................................................................... 13

1. Influence by Special Interests in Grow NJs Legislative Design ............. 15 a) Tax Incentives for Grocery Stores in Camden .............................. 17 b) The Alternative Approach to Award Calculation for Incentivized Camden Projects....................................................... 19 c) Expansion of Capital Expenditures Eligible for Tax Credits........ 21 d) Phantom Taxes in the Net Benefit Test ........................................ 22 i

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.104 Page 4 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor e) The Material Factor Test Applicable to Camden Projects ............ 24

2. Influence by Special Interests in EDAs Implementing Regulations for Grow NJ .............................................................................................. 30

3. Inadequate Statutory Requirements to Ensure Job Requirements Are Consistently Met ....................................................................................... 31 V. EDA: THE ADMINISTRATION OF THE TAX-INCENTIVE PROGRAMS............... 32 A. Overview of the Application-Approval Process ................................................... 32

1. Pre-Approval Process: Application Review and Board Approval ............ 32

2. Post-Approval Process: Closing Services, Monitoring, and Certification .............................................................................................. 35 B. EDA-related Litigation ......................................................................................... 35 C. Initial Findings ...................................................................................................... 38

1. Lack of Written Policies and/or Procedures ............................................. 38

2. Failure to Comprehensively Train EDA Staff .......................................... 39 a) Inconsistent Understanding of Roles and Responsibilities ........... 41 b) Inconsistent Understanding of the Program Requirements Concerning Camden and Atlantic City ......................................... 42

3. Due Diligence Failures ............................................................................. 44

4. Deficiencies in Assessing Applicants Alternative Relocation Sites ........ 47 a) The Cooper Health System ........................................................... 49 b) Conner Strong & Buckelew, The Michaels Organization, and NFI ................................................................................................ 55 i) Background Context ......................................................... 55 ii) The Applications ............................................................... 58

5. Lack of Proper Reporting Channels .......................................................... 64 VI. THE ACCELERATED RECERTIFICATION PROGRAM (THE ARP) .................... 65 A. Introduction ........................................................................................................... 65 B. ARP Participant Companies ................................................................................. 65 ii

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.105 Page 5 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor C. ARP Process.......................................................................................................... 67 D. Initial Findings ...................................................................................................... 68 VII. RECAPTURE ................................................................................................................... 69 A. Statutory Recapture Process ................................................................................. 69 B. Task Force Recommendations for Recapture ....................................................... 70 VIII. RECOMMENDATIONS .................................................................................................. 71 IX. NEXT STEPS ................................................................................................................... 74 iii

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.106 Page 6 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor I. EXECUTIVE

SUMMARY

The Task Force on the Economic Development Authoritys Tax Incentives (the Task Force) is an advisory body and, pursuant to its mandate, submits this first report (the First Report) to advise the Governor of its initial findings and recommendations.

In January 2018, Governor Philip D. Murphy directed the Office of the State Comptroller to conduct a comprehensive performance audit of the Grow New Jersey Assistance Act (Grow NJ) and Economic Redevelopment and Growth (ERG) tax-incentive programs (each a Program and together, the Programs), and predecessor programs, from 2010 forward, to inform the public about the EDAs operations and assist lawmakers in their deliberations as to whether these programs should be reauthorized when they expire on July 1, 2019. On January 9, 2019, New Jersey State Comptroller Philip J. Degnan (the Comptroller) issued his audit report 1 of the States tax-incentive programs. The Comptrollers audit report revealed, among other things, that the New Jersey Economic Development Authority (the EDA) had failed to comply with the applicable statutes and regulations and to implement key internal controls for monitoring the performance of tax-incentive beneficiaries.

In response to the Comptrollers audit report, Governor Murphy issued Executive Order No.

52, which established this Task Force with the following objectives:

1. Conduct an in-depth examination of the deficiencies in the design, implementation, and oversight of Grow NJ and the ERG tax-incentive programs, including those identified in the Comptrollers audit report, to inform consideration regarding the planning, development and execution of any future structure of these or similar tax-incentive programs; and

2. Hold public hearings and request testimony from individuals who can provide insight into the design, implementation, and oversight of these programs.

The Task Force has been authorized to call upon any department, office, division or agency of the State to supply it with data and any other information or assistance available to such agency as the Task Force deems necessary to execute its duties. Each State agency also has been required to timely cooperate with the Task Force. In addition, Governor Murphy appointed Professor Ronald Chen, as the Chairman of the Task Force, to perform all of the functions of a duly authorized representative of the Governor pursuant to N.J. Stat. § 52:15-7, including the ability to subpoena 1

A Performance Audit of Selected State Tax Incentive Programs, Jan. 9, 2019.

1

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.107 Page 7 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor and enforce the attendance of witnesses. 2 The Task Force has generally sought, in the first instance, to obtain information through witnesses voluntary cooperation, but has also relied upon Professor Chens subpoena power where necessary.

As described in more detail below, to fulfill its mandate, the Task Force has collected and reviewed thousands of documentsobtained from the EDA and other agencies, from companies awarded benefits under the Programs, and from other partiesand conducted 28 interviews to date.

These interviews have included former and current EDA personnel and other government employees, as well as other parties with knowledge of or information about the design and administration of the Programs. 3 The Task Force has also interviewed several policy experts to provide insight on the structure and features of New Jerseys tax-incentive programs.

Although the Task Forces mandate encompasses both the Grow NJ and ERG programs, its investigation to date has focused primarily on Grow NJ. The Task Forces investigation is ongoing, and it intends to address ERG, as well as other aspects of Grow NJ, in later reports.

Given its mandate of examining the design, implementation, and oversight of the tax incentive programs, the Task Force began its analysis by dividing its efforts into two separate but related areas. In the first, it focused on the Programs legislative underpinnings, examining factors relating to the design of the Programs, including whether special interests played a role in the statutory provisions. In the second, the Task Force focused on the EDAs implementation of the statutes and on its administration of the Programs. This included focus on examining the EDAs review and diligence over program applications to determine whether the EDA was employing meaningful scrutiny of those applications.

Although there is necessarily crossover among the issues encountered in these separate investigative areas, this investigative structure has enabled the Task Force to most efficiently and comprehensively examine the Programs. The description of our findings below follows this general investigative structure. The Task Forces findings are based upon the information available to the Task Force as of this date and are subject to further revision as the Task Forces investigation proceeds and additional information becomes available. In sum, the Task Force has found as follows:

2 See March 22, 2019 Letter from Governor Murphy to Professor Chen.

3 We do not name EDA staff referenced herein, but we do name certain EDA senior managers.

2

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.108 Page 8 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor A. Special Interests, Which Prioritized Benefits to Private Parties Rather than the State, Had a Significant Impact on the Design of the Grow NJ Statutes and Regulations With respect to the design of the statute, special interestsin the form of a law and lobbying firm and the clients on whose behalf it apparently operatedappear to have had a significant impact on the design of the Grow NJ statute as amended by the Economic Opportunity Act of 2013 (or EOA 2013) and its implementing regulations. As a result of those special interests, EOA 2013 wasin several waysstructured to favor certain parties while disfavoring others in certain respects. For example, a statutory provision related to grocery stores in Camden appears to have been drafted to permit a particular grocery store to obtain tax incentives, while prohibiting a competitor grocery store from obtaining such benefits. Although neither grocery store ultimately opened in Camden, the drafts of this provision highlight the significant and, in the Task Forces view, inappropriate role special interests played in crafting the statute.

In addition, the Grow NJ program was dramatically expanded by EOA 2013 in numerous respects. Principal among these amendments were provisions that allowed projects in Camden where many of the law firms clients had business intereststo receive awards far in excess of what would have been possible in other parts of the State. Unlike the requirements applicable in other parts of the State that Grow NJ awards be anticipated to result in a net positive benefit to the State in terms of new tax revenue, these large awards for projects in Camden could be based on phantom taxes that would never actually accrue and thus might not result in a gain to the public fisc.

B. The EDA Did Not Have Adequate Procedures in Place to Ensure That It Discovered Relevant Information, Including Applicant Misstatements, That Would Have Led to Rejection of Some Applications or a Significant Reduction in the Amount of Certain Awards With respect to the administration of the Programs, the EDA had only a few formal written policies and procedures to provide guidance to the EDA employees tasked with reviewing companies applications for tax incentives. Even more troubling, the EDA lacked any formal training to ensure those same employees had a common understanding of Program requirements or clear rules for conducting due diligence on tax-incentive applications, which often involved awards of millions of dollars. This fundamental lack of controls led to important misunderstandings over threshold requirements for applications and inconsistency within the EDA in its evaluation and application of Program requirementsincluding confusion over even the basic level of scrutiny to be applied to applications, with some EDA employees viewing the vetting process as a box 3

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.109 Page 9 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor checking exercise, during which a companys factual assertions deserved deference, and other employees applying meaningful scrutiny.

Relatedly, the EDA did not have any protocol or written standards for conducting research in connection with companies applications for Program benefits. As a result, at least with respect to the applications the Task Force has investigated in detail thus far, some EDA employees conducted independent research to verify aspects of applicants factual assertions and others failed to do so, even when relevant information was readily available. For example:

x A simple internet search revealed that one company, Holtec International, had been debarred by the Tennessee Valley Authority, even though Holtec said it had never been debarred in its Grow NJ application. Although such a debarment would have been grounds for the EDA to deny Holtecs application for tax incentives, the Task Force found no evidence that the EDA discovered Holtecs debarment. Apparently unaware of the debarment, the EDA ultimately approved Holtec for a $260 million Grow NJ award.

x Another simple internet search revealed that three companiesConner Strong &

Buckelew Companies, LLC, The Michaels Organization, LLC, and NFI, L.P.

committed to move to Camden more than a year before submitting their applications for tax incentives, in which they claimed they were considering relocating to Pennsylvania as a potential alternative. Had the EDAs employees found this information, 4 the EDA may have found these applications materially misleading, and denied an award on that basis. At a minimum, armed with this information, the EDA should have calculated these awards based only on new jobs moving to Camden from outside the State, and the awards to these three entities combined would have been reduced by over $70 million.

4 As we discuss below in Section V(C)(4)(b)(i) of this First Report, we found evidence that the then-President and Chief Operating Officer of the EDA, Tim Lizura, should have reasonably known by September 24, 2015thirteen months before these three companies applied for tax incentives under the Grow NJ programthat these applicants had committed to the Camden project. This meant that their certifications in their applications that jobs were at risk of leaving New Jersey were, at best, dubious. We found no evidence that Mr. Lizura shared this information with either the Business Development Officer or Underwriter responsible for these applications. We continue to investigate this issue.

4

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.110 Page 10 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor To date, our investigation has uncovered no evidence that the EDA intentionally ignored this information, but the failure to have strict guidelines for such research made these lapses possible. Indeed, in another instance, the EDA failed to follow up on red flags (that is, concerns or cause to follow-up) in the actual application materials submitted by the applicant itself. The Cooper Health System acknowledged in its initial application materials that no jobs were at risk of leaving New Jersey and it was not considering any out-of-state locations. The EDA subsequently accepted, without any skepticism or further diligence, Cooper Healths later claim that it was considering an out-of-state relocation, and approved Cooper Health for nearly $40 million in tax incentives. The evidence shows otherwise. Had the EDA calculated Cooper Healths award based on its initial representation that no jobs were at risk of leaving the State, Cooper Healths award would have been approximately $7 millionmore than $32 million lower than what it was awarded.

Although the Task Forces investigation is ongoing, below we make a number of recommendations for future legislation, as well as for the EDAs procedures in administering the Programs, based on its findings to date. By way of summary, those include:

x Designing any future legislation to ensure as much as possible that the public policy goals are applied neutrally, without favoring specific business interests; x Assuring that persons or firms who represent tax-incentive applicants are properly registered as lobbyists under the New Jersey Legislative and Governmental Process Activities Disclosure Act; 5 x Refraining from providing draft EDA regulations to people or firms that represent tax-incentive applicants outside the public notice-and-comment procedure under the New Jersey Administrative Procedure Act; 6 x Taking steps to ensure that tax incentives are structured so that they result in a net gain to the State, or, if they do not, that fact is transparent; x Ensuring that the language of any new legislation and implementing regulations more clearly sets forth the standards to be applied in determining eligibility for tax incentives; x Strengthening the EDAs ability to withhold all or part of an award where a company has failed to meet its commitments, and ensuring that the EDA has sufficient data to fully evaluate a companys compliance with its incentive agreement; 5

N.J. Stat. § 52:13C-18 et seq.

6 N.J. Stat. § 52:14B-1 et seq.

5

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.111 Page 11 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor x Requiring the EDA to implement formal written policies and procedures governing all aspects of the Programs and their administration and to undertake to formally train its staff in how to review Program applications and monitor compliance; x Requiring the EDA to use an experienced professional services firm to conduct a background check on each applicant and its affiliates and senior executives; and x Strengthening the EDAs process for conducting diligence into an applicants claim that it intends to locate out of state absent the award of tax incentives from New Jersey.

In addition to examining the design and administration of the Programs, the Task Force has established an accelerated recertification program, or ARP, pursuant to which companies can voluntarily submit information to establish that they have been and remain in compliance with all Program requirements. We did this for two reasons: (1) we desired to streamline our work to focus on the most serious issues; and (2) if the EDA did an inadequate job vetting applications, but the applicant had business records to demonstrate its compliance with Program requirements, the EDAs oversight lapses for these applications would not have had a negative impact on the public fisc. Currently, 53 companies have pursued participation in the ARP. 7 Finally, although our focus has been and shall remain on the EDA, our investigation necessarily involves a review of companies tax-incentive applications to determine how the EDA administered the Grow NJ and ERG programs. As a corollary to our work, the Task Force has uncovered several instances where Program beneficiaries havewhether intentionally or not failed to comply with Program requirements, either by submitting inaccurate information in their applications or by subsequently falling out of compliance. The Task Force has obtained some voluntary terminations of awards, and has referred others to the State Treasury or either law enforcement agencies, the EDA, or both, which may result in, among other things, steps to suspend or terminate these awards. The aggregate value of the awards that were either voluntarily terminated or may be subject to such suspension/termination actions exceeds $500 million.

II. INTRODUCTION TO THE PROGRAMS New Jersey currently has two principal tax-incentive programs: Grow NJ and ERG. A brief summary of both programs follows.

7 Of these companies, the Task Force has identified several companies that present threshold issues, which must be resolved before the company can proceed with the ARP. The Task Force is working with these companies to obtain additional information before it makes a final decision regarding their participation in the ARP.

6

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.112 Page 12 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor Grow NJ is generally intended to incentivize the creation of new jobs in the State or the retention of existing jobs that, absent the provision of tax incentives, would be eliminated or relocated outside New Jersey. To qualify for tax incentives under Grow NJ, a company must agree to make a minimum capital investment in a business facilityfor example, the company may construct a new office building or rent new office spaceat which the company agrees to create a minimum number of new jobs or retain a minimum number of existing jobs that, absent the tax incentives, would be eliminated or relocated out of state. 8 The Grow NJ program is intended to incentivize a companys capital investment and job creation or retention, together often referred to as a project by the company To qualify for the tax incentives, the company is usually required to demonstrate that, unless the incentives are provided (in the language of the statute, but for the incentives), the companys jobs would be eliminated or located outside New Jersey. 9 ERG is generally intended to incentivize commercial and residential real estate development in qualifying locations in the State. To qualify for tax incentives under ERG, applicants are required to demonstrate a project financing gapthe costs that remain to be financed after accounting for all other sources of capital. 10 The Task Forces investigation to date has focused on the Grow NJ program.

III. INVESTIGATIVE PROCESS In this initial phase of its investigation, the Task Force sought to go beyond the scope of the Comptrollers audit as required by Executive Order No. 52. To that end, the Task Force sought to examine the design of the Programs and, further, to identify and investigate internal-control deficiencies in the EDAs administration and implementation of the Programs. To accomplish these aims, the Task Force established an investigative process for two separate, but related, work streams:

A. First Work Stream: The Design of the Tax-Incentive Programs To carry out its examination of the design of the Programs, the Task Force needed to examine the history of the statutes relevant to the Programs. These statutes included:

8 See N.J. Stat. § 34:1B-244(a).

9 See N.J. Stat. § 34:1B-244(d). The statute has different provisions that apply to projects in Camden and Atlantic City, which replace the but for test that is applicable in other parts of the State with an alternative material factor test. These provisions are discussed below.

10 See N.J. Stat. §§ 52:27D-489e, 52:27D-489c (project financing gap definition).

7

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.113 Page 13 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor x The New Jersey Economic Development Authority Act, which in 1974 created the EDA as a state governmental agency and defined its authority. 11 x The New Jersey Economic Stimulus Act of 2009 (the ERG Act), which created the ERG program in 2009, to be administered by the EDA. 12 x The Grow New Jersey Assistance Act (the Grow NJ Act), which created the Grow NJ program in 2012, also to be administered by the EDA. 13 x The New Jersey Economic Opportunity Act of 2013 (EOA 2013), which significantly revamped and expanded both the Grow NJ and ERG programs in 2013. 14 x Multiple subsequent statutory amendments that revised the Grow NJ and ERG programs in relatively more minor ways between 2013 and the present.

Since the Governors investigatory power is limited to the Executive Branch, 15 the Task Force did not affirmatively investigate the Legislature itself or its passage of these statutes, beyond what is available in the public domain. However, the statutes collectively create and define the Programs and, in addition, set out the parameters of the EDAs lawful discretion in its administration of them. As such, it is both within the Task Forces mandateand necessary to the Task Forces missionto analyze all pertinent aspects of the controlling statutory design, as embodied in the relevant statutes.

The Task Force began its analysis of the statutory design and history with publicly available documents, including the current versions of the statutes themselves and proposed and enacted bills and legislative statements. 16 The Task Force also reviewed and analyzed certain non-public evidence bearing upon the statutory design. During the investigation, the Task Force obtained draft 11 P.L. 1974, c. 80 (current version codified at N.J. Stat. § 34:1B-1 et seq.).

12 P.L. 2009, c. 90 (current version codified at N.J. Stat. § 52:27D-489e et seq.).

13 P.L. 2011, c. 149 (current version codified at N.J. Stat. § 34:1B-242 et seq.).

14 P.L. 2013, c. 161.

15 N.J. Const., art. V, § 4, ¶ 5 (The Governor may cause an investigation to be made of the conduct in office of any officer or employee who receives his compensation from the State of New Jersey, except a member, officer or employee of the Legislature or an officer elected by the Senate and General Assembly in joint meeting, or a judicial officer.).

16 These draft versions of the bill are attached as Exhibits 1 and 2. The current statutes, as well as proposed and enacted bills legislative statements, are available on the Legislatures website. See N.J. Legislature, https://www.njleg.state.nj.us.

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Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.114 Page 14 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor versions of the EOA 2013 bill dated June 21, 2013. 17 The draft reflected revisions made in track changes mode and included metadata showing the author of each respective revision. The Task Force also acquired and analyzed a substantial number of documents from governmental sources, including the EDA. In many cases, these documents provided further evidence concerning relevant context surrounding the statutory design and the parties who impacted it. 18 The Task Force also spoke to witnesses who provided context concerning the special interests that affected the statutory design in various respects.

Through review and analysis of these public and non-public materials, the Task Force acquired significant information concerning the design of the Programs and the limitations on the EDAs discretion in its administration of them. The Task Force received evidence demonstrating that the EDA opposed some of these statutory provisions and in certain instances advocated for alternative provisions. However, because they were enacted into law, the EDA was required to faithfully administer them, irrespective of whether they were justifiable as sound policy.

The Task Force also analyzed the design and history of the EDAs implementing regulations for the Programs. Like other governmental agencies tasked with the administration of government programs, the EDA is authorized by New Jersey law to promulgate regulations that interpret the statutes implemented by the agency, including the Grow NJ and ERG Acts. While agency regulations must be faithful to the laws they implement, they may provide additional rules beyond those expressly set out by the statutesin this way, agency regulations serve to effectively fill in the gaps in the statutes. The New Jersey Administrative Procedure Act (the APA) sets out certain procedures that New Jersey agencies, including the EDA, must follow when promulgating regulations. 19 The APA requires a so-called notice-and-comment process in which agencies, before issuing final regulations with the force of law, must first provide the public with notice of the regulations they are considering and receive and consider comments from interested members 17 One of these draft versions was in the EDAs files. In addition, the Task Force learned that a law firm likely had additional versions of the draft legislation. Although this firm initially promised full cooperation with the Task Force, it subsequently declined to produce these versions without a subpoena.

18 This investigation revealed that certain persons appeared to have engaged in unregistered lobbying in New Jersey, in apparent violation of the New Jersey Legislative and Governmental Process Activities Disclosure Act, N.J. Stat. § 52:13C-18 et seq. The Task Force referred this matter to appropriate law enforcement authorities, as previously disclosed.

19 See N.J. Stat. § 52:14B-1 et seq.

9

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.115 Page 15 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor of the public. The Task Force has investigated the EDAs processes in this respect, primarily through analysis of documents and information provided by the EDA.

B. Second Work Stream: EDAs Administration of the Tax-Incentive Programs To carry out its examination of the EDAs administration and implementation of the Programs, the Task Force established an Investigative Process to methodically identify, collect, review, and analyze pertinent information and data. The Task Force began by conducting a linear investigation of the Grow NJ and ERG application processes, from pre-application discussions through approval to annual certification and credit of the tax incentive awards. We examined these processes both by looking at the EDAs internal processes and files and by gathering information about, and from, the companies that were awarded incentives under the Programs. 20 At the onset of our investigation, we met with Friedman Kaplan Seiler and Adelman LLP (Friedman Kaplan),

counsel for the EDA to get an overview of the EDAs processes and procedures. We then deepened our understanding of the processes and applicantsand various issues with themthrough interviews of relevant personnel (both from within the EDA and outside the EDA) and review of relevant documents. As discussed below, the initial scope naturally expanded as the Task Force acquired, reviewed, and analyzed relevant evidence bearing on the EDAs processes and individual companies.

1. Background Meetings The Task Force requested to meet with the EDA, State Treasury, and the State Comptrollers Office immediately after its inception to better understand the interplay of various State agencies involved in the process. At the initial meeting referenced above, Friedman Kaplan provided a high-level overview of the application process from pre-application through certification of a tax-incentive grant. Friedman Kaplan has continued to work cooperatively with the Task Force to produce documents and information and to review and assess the internal processes and controls within the EDA as they relate to the tax-incentive programs.

The Task Force also met with members of the Treasury Departments Division of Taxation (the Treasury). The Treasury provided an overview of its role in the administration and implementation of the Programs. Beyond a general overview, Treasury explained the 20 Although we have begun our investigation of the certification and credit-award processes, our investigation thus far has largely been focused on the earlier stages of the approval process.

10

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.116 Page 16 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor documentation, memoranda, and certifications it reviews and approves before awarding a tax credit to a Program applicant.

The Task Force interviewed State Comptroller Philip Degnan and members of his audit team with the goal of obtaining a better understanding of the Comptrollers findings regarding the EDAs processes and procedures. Comptroller Degnan and his team provided an overview of their audit and findings and have continued to work collaboratively with the Task Force to provide information and offer consultation with respect to the Comptrollers audit.

The Task Force requested ongoing cooperation with the EDA and the State Comptrollers Office and for both entities to ensure that they were preserving relevant documents. The EDA, Treasury, and Comptrollers office have provided the Task Force with numerous documents in response to our requests. The bulk of the documents the Task Force has obtained have come from the EDA. Thus far, the Task Force has obtained over 1,069,789 pages of materials from the EDA and is continuing to conduct a strategic review of these materials.

2. Definition of Scope and Document Preservation and Collection The Task Force worked collaboratively with the EDA to compile a list of all companies that have been certified to receive a Program award and did in fact receive a tax credit. Based on these parameters, there were 106 projects in the Task Forces initial scope. The Task Force subsequently expanded the scope of its investigation to include certain additional companies that had been approved for a tax-incentive award but that had not yet received tax credits. Those companies are discussed in more detail below.

a) Document Preservation and Company Outreach The Task Force sent document preservation directive letters to companies that were identified as within its initial scope. The preservation notice informed the companies that the Task Force may seek information and documents relevant to the Programs and that the companies should take affirmative steps to ensure that all relevant documents would be preserved. To date, the Task Force has sent preservation letters to 116 companies. 21 In addition, the Task Force sent preservation notices to additional entities identified as related to Program applications and legislative design. In order to understand the EDAs review process for Program applications, the Task Force sought to identify what business records and documents existed, which would bear on company applications and certifications, even if the EDA chose not to request such documentation. The EDA has broad 21 This includes companies that did not fall within the Task Forces initial scope but were later added to the investigative work stream based on leads obtained during the investigation.

11

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.117 Page 17 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor authority to request additional information from applicants, 22 but did not use this express authority in every case.

The Task Force reached out to each company to confirm (a) that the company had received the preservation directive; and (b) that the company was taking requisite steps to comply with the directive. The Task Force made contact with a majority of the companies. However, there is still a small number of companies that have not been reached due to inaccurate contact information, dissolution of the company, or failure of the company to respond.

b) Refinement of Scope In order to methodically review the EDAs oversight of Program applications, as discussed below in detail, the Task Force created an accelerated recertification program (ARP). In the ARP, the Task Force is providing companies an opportunity to demonstrate that they (a) are in compliance with the Programs and (b) applied for tax incentives in good faith. For companies that successfully recertify through the ARP, the Task Force has agreed not to request further documents or information.

The Task Force segregated processes for companies enrolled in the ARP from the remaining companies (the Non-ARP Group). As of the date of this report, there are 63 companies in the Non-ARP Group. For these companies, the Task Force is conducting a thorough investigation of the EDAs oversight of these applicants. We also interviewed a number of witnesses, who provided information concerning relevant misconduct by individuals associated with Program applicants.

The Task Force initially focused on Program applications where a red flag had been raised through our initial document review and interviews. In this regard, a draft of EOA 2013 edited by Parker McCay, a law and lobbying firm that represented several clients whose interests, as discussed below, were impacted by EOA 2013 played an important role in our focus. Because those drafts were edited by a private law and lobbying firm, which seemed to be adding special provisions to the bill to benefit particular clients, the Task Force viewed this as a serious red flag for those clients who certified that their jobs were at risk of leaving the State. The Task Force was skeptical that a client, on the one hand, would consult with their lawyer aboutwhat amounted tospecial legislation for their benefit but, on the other hand, was seriously considering a move 22 See N.J. Admin. Code §§ 19:31-18:5 (Grow NJ) and 19:31-4.4 (ERG) (setting forth application submission requirements and providing that the EDA may request any other necessary and relevant information as determined by the [EDA] for a specific application).

12

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.118 Page 18 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor out of the State knowing it could receive very significant awards through the inclusion of those provisions.

c) Company and Third-Party Production of Documents The Task Force has also obtained relevant documents from companies in the Non-ARP Group, from consultants and lawyers retained by companies in connection with their Program applications, and from additional parties with relevant information. The Task Force sought voluntary cooperation from all companies, individuals, and related entities, but when necessary, the Task Force recommended that Professor Chen issue subpoenas to obtain relevant documents.

3. Witness Interviews In addition to the initial interviews described above, the Task Force has conducted numerous interviews of individuals relevant to is mandate. The Task Force has interviewed 12 current EDA employees. The employees interested were involved in the application pre-approval process at the officer, manager, and director levels as well as individuals in Human Resources, Operations and tax credit transfer positions. The Task Force has interviewed 2 former EDA employees who held senior leadership positions, Tim Lizura, the former President and Chief Operating Officer, and Maureen Hassett, 23 a former Senior Vice President of Finance and Development.

The Task Force also reached out to non-EDA individuals and potential witnesses identified as having information relevant to the Programs or to award recipients. Thus far, the Task Force has interviewed 14 non-EDA witnesses.

IV. LEGISLATIVE FOCUS: THE DESIGN AND IMPLEMENTATION OF THE TAX-INCENTIVE PROGRAMS A. Initial Findings As further discussed below, the draft versions of the EOA 2013 bill dated June 21, 2013, reviewed in conjunction with publicly available versions of the bill and other documents and information in the Task Forces possession, indicated that certain special interests played a key role in numerous provisions that were ultimately enacted into New Jersey law, and which, when administered by the EDA, would provide significant benefits to those special interests. Certain aspects of the Grow NJ programs design are difficult to justify from a rational policy perspective and can be understood only as the result of a process in which certain favored private parties were 23 Ms. Hassett is currently working with the Treasury Department, but is still employed by the EDA.

13

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.119 Page 19 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor permitted to shape the legislation to their benefitand further, in some cases, to disfavor potential competitors.

The Task Force has found that the same special interests who successfully impacted the legislative design of the Programs were also afforded privileged status with respect to the Programs implementing regulations. The EDA provided these special interests with early information about the regulations the agency was considering, prior to the notice provided to other members of the public, and permitted them to provide private feedbackwhich, in some instances, the EDA accepted and incorporated into the regulations. Moreover, the influence exerted by these special interests over this process was not disclosed to the public.

Thus, the Task Forces investigation to date has found that special interests succeeded in molding both the Programs legislation and implementing regulations in their favor. The result is that New Jerseys tax-incentive programs have not been neutral in their design but have rather been structured in respects both large and small to favor the business interests of favored parties, sometimes in ways of debatable merit from a public policy standpoint. This is troubling for many reasons, including that the New Jersey Constitution contains certain prohibitions on special legislation. 24 These constitutional prohibitions, the New Jersey Supreme Court has explained, were intended to combat the propensities of legislatures to indulge in favoritism. 25 Given the findings discussed below, there may be reasonable questions as to whether New Jerseys current tax-incentive laws are compatible with constitutional requirements.

Some will certainly note that the problematic examples described below center on projects located in the City of Camden. The Task Force should not be misunderstood as disagreeing in any way about the desirabilityindeed the necessityof the State finding ways to encourage substantial reinvestment and growth in Camden, and in helping it meet the substantial challenges that it faces. Reinvestment in Camden has rightly been a priority for governors from both major political parties for decades. But as laudable as that end is, it does not necessarily justify, without any question or limitation, every conceivable means to accomplish it. Shoehorning the priority of capital investment in Camden in the Grow NJ program, the priority of which is the equally desirable but very different goal of job growth, has led to confusion in eligibility criteria, mismatched metrics of accountability, and lack of enforcement of the program requirements by the very agency that is responsible for monitoring it. Allocation of scarce public resources must inevitably involve some inquiry into the relationship, and resulting efficiency, between ends and 24 N.J. Const., art. IV, § VII, ¶¶ 7-9.

25 Vreeland v. Byrne, 72 N.J. 292, 298 (1977).

14

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.120 Page 20 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor means, and the absence of that logical nexus has been painfully evident in the course of the Task Forces work.

1. Influence by Special Interests in Grow NJs Legislative Design The Grow NJ program was created in 2012 by the Grow NJ Act. 26 Compared to the version of Grow NJ that exists today, the original iteration of the program was relatively modest.

Individually, the maximum awards available to program beneficiaries were far smaller than the maximum awards now possible under the current version of Grow NJ. Collectively, the original Grow NJ program provided a programmatic cap of up to $200 million in tax credits that the EDA could approve. 27 The current version of Grow NJ, by contrast, has no such programmatic cap, which has allowed tax incentive approvals to balloon to the point that billions are now outstanding.

Indeed, under the current version of Grow NJ, multiple companies have been individually approved for awards in excess of $200 million in tax incentives, meaning that each of these companies by itself exceeded the maximum programmatic cap under the original iteration of the Grow NJ program.

The original version of Grow NJ existed for less than two years before it was significantly revamped and expanded by EOA 2013. The initial EOA 2013 bill was introduced in the New Jersey General Assembly on January 14, 2013 as Assembly Bill Number 3680. The Assembly passed the bill on May 20, 2013, and sent it to the Senate.

The Task Force has received evidence and information demonstrating that, during this period when EOA 2013 was before the Senate, certain special interests became involved in the drafting processnamely, the Parker McCay P.A. law and lobbying firm based in Mount Laurel, Hamilton, and Atlantic City, which drafted large swaths of the bill in various respects that appear to have been intended to benefit the firms clients. Based on evidence and information in possession of the Task Force, Philip A. Norcross, Parker McCays Managing Shareholder and Chief Executive Officer, and Kevin D. Sheehan, another partner of the firm, both worked on the drafting of the bill.

Among other apparent intended beneficiaries of Parker McCays drafting work was the Conner Strong & Buckelew insurance brokerage firm, headed by its Executive Chairman, George E.

Norcross, IIIthe brother of Philip A. Norcross. Several years after EOA 2013 was enacted, on March 24, 2017, Conner Strong & Buckelew was approved for an $86 million award to relocate its 26 P.L. 2011, c. 149.

27 The EDA was also statutorily permitted to raise the programmatic cap if it would determine that doing so was reasonable, justifiable, and appropriate.

15

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.121 Page 21 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor offices to Camden. An award of that size would have likely been impossible if not for statutory amendments that Parker McCay played a pivotal role in incorporating into the legislative design.

The Task Force has received two Microsoft Word draft versions of the bill, both dated June 21, 2013one draft dated several hours earlier than the other onewith revisions in track changes mode. The metadata in these documents appear to attribute many, but not all, of the revisions in the bill to Mr. Sheehan of Parker McCay. 28 In addition to this metadata, other documents and information in the Task Forces possession further corroborate that Mr. Sheehan, with the potential influence of Mr. Norcross, drafted these changes to the bill.

On June 24, 2013, the Senate Budget and Appropriations Committee favorably reported its amended version of the bill, which incorporated many of the bill revisions that were drafted in whole or in part by Parker McCay and reflected in the June 21, 2013 working drafts. As a result of these changes, the bill dramatically expanded in both lengththe version of the bill favorably reported by the Senate committee was double the length of the bill that had been passed by the Assemblyand substantive scope. Numerous provisions were added to the bill expanding the availability of tax incentives under the Grow NJ program.

On June 27, 2013, the Senate passed its version of the EOA 2013 bill, incorporating many of Mr. Sheehans revisions, and returned the bill to the Assembly. That same day, the Assembly concurred in the amended bill, with additional amendments, and returned it to the Senate. The Senate passed the amended bill on August 19, 2013, sending it to the Governor. Governor Chris Christie conditionally vetoed the bill on September 9, 2013, recommending limited revisions. The Assembly and the Senate both concurred in Governor Christies recommended revisions and returned the bill to him. The EOA 2013 was finally enacted into law on September 18, 2013. The provisions of the bill drafted in whole or in part by Parker McCay largely survived this iterative process and were included in the final bill enacted into law.

Several of the most important or otherwise notable aspects of Grow NJs amendments under the EOA 2013 are discussed below. These amendments, each of which Parker McCay appears to have had some role in drafting, are illustrative of some of the ways Grow NJs statutory design following the enactment of the EOA 2013 was structured to favor chosen special interests in ways both large and small, sometimes arguably to the detriment of the public interest. It is important to 28 These draft versions of the bill are attached as Exhibits 1 and 2. The authorship information in the metadata is not visible in these exhibits.

16

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.122 Page 22 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor note that the EOA 2013s changes to the Grow NJ program were innumerable and complex, and most will not be discussed in this First Report.

a) Tax Incentives for Grocery Stores in Camden Grow NJ, both in its original and current iterations, has generally precluded tax incentives for retail businesses. 29 The EOA 2013 included several provisions, however, drafted in part by Parker McCay, which expressly authorized the EDA, as an exception from the otherwise applicable exclusion for retail projects, to award tax incentives to companies that would build grocery stores in Camden. The policy basis to incentivize development of grocery stores in Camden is readily apparent, because Camden has for decades been described as a food desert in which there are insufficient grocery stores to serve the citys residents. 30 However, notwithstanding the indisputable need to increase food access in Camden, the EOA 2013 did not allow tax incentives for all or even most potential grocery stores that could be built in the city. Instead, the EOA 2013 amended the Grow NJ statute to allow tax incentives for a full-service supermarket or grocery store only if it would be at least 50 percent of a larger retail development of at least 150,000 square feet. 31 Therefore, the grocery store itself must be at least 75,000 square feet at a minimum to qualify for tax incentives. For reference, the average American grocery store size around this time was reported to be approximately 46,000 square feetfar below the minimum threshold size required to qualify for tax incentives under Grow NJ as amended by the EOA 2013. 32 If the goal was to alleviate the lack of local food access for Camden residents, an ostensible policy justification for limiting the incentives to supersized grocery stores, while 29 See N.J. Stat. § 34:1B-243 (generally excluding business[es] that [are] . . . engaged in final point of sale retail from the definition of the qualified business facilit[ies] that are eligible for tax incentives).

30 See Hrg Tr. (May 2, 2019) at 202:24-203:6 (testimony that Camden was considered a food desert in which the citys residents lacked convenient access to a grocery store).

31 See N.J. Stat. § 34:1B-243 (qualified business facility definition).

32 See Brad Tuttle, Your Grocery Store May Soon Be Cut in Half, MONEY, June 2, 2014, http://money.com/money/136330/why-your-grocery-store-may-soon-be-cut-in-half; Brad Tuttle, Fewer Choices, More Savings: The New Way to Buy Groceries, TIME, Jan. 25, 2011, http://business.time.com/2011/01/25/fewer-choices-more-savings-the-new-way-to-buy-groceries.

17

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.123 Page 23 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor excluding such incentives for grocery stores of average or even large sizes that would also provide Camden residents with increased food access, is not obvious. 33 The Task Forces investigation to date has found that the cause of this statutory limitation appears to have not likely been considerations of the public interest, but rather the private business interests of one of Parker McCays clients. In March of 2013, before the EOA 2013 was enacted, the owners of several grocery stores in New Jersey and a development firm announced that they had partnered in a joint venture to open a ShopRite grocery store in Camden, which would anchor a larger retail shopping center. 34 Mr. Sheehan and Mr. Norcross of Parker McCay represented the retail project, which, when completed, was planned to be over 150,000 square feet, with at least 50 percent occupied by the grocery store. Meanwhile, around this same time, another developer had separate plans to build a different retail development in Camden that would also be anchored by a grocery store. This competitor retail development was planned to be smaller, such that it would not qualify for tax-incentive subsidies under the EOA 2013 amendment, while the retail development that Parker McCay represented would.

It should be noted that both projects ultimately failed, and neither grocery store was built.

The Task Force has received evidence demonstrating that the project Parker McCay represented initiated efforts to receive tax incentives from the EDA, but the project collapsed before any award was approved. 35 The competitor project, which was necessarily disqualified for tax incentives as a result of this EOA 2013 amendment, also failed.

33 EDAs former President and Chief Operating Officer Tim Lizura testified at the Task Forces May 2, 2019 public hearing that [y]ou can make an argument for tax incentives for grocery stores of any size in Camden, but with respect to this limitation, it didnt offend us that that was the provision that was there. Hrg Tr. (May 2, 2019) at 236:16-238:9.

34 See Mayor Redd, The Goldenberg Group, and Ravitz Family ShopRites Announce Major Retail Project in Camden, CITY OF CAMDEN, March 19, 2013, https://www.ci.camden.nj.us/releases/

mayor-redd-the-goldenberg-group-and-ravitz-family-shoprites-announce-major-retail-project-in-camden.

35 See Allison Steele, Long-promised Camden supermarket isnt coming, PHILA. INQUIRER, Aug. 9, 2016, https://www.inquirer.com/philly/news/new_jersey/20160810_Long-promised_Camden_

supermarket_isn_ t_coming.html (Plans to build a ShopRite supermarket on the Admiral Wilson Boulevard in Camden, a project that officials had said would create permanent jobs and provide improved access to fresh, affordable food, have fallen apart, according to sources with knowledge of the situation. Instead, Actega North America Inc., a Delran-based company that makes coatings and sealants, on Tuesday was approved to receive $40 million in state tax incentives if it decides to 18

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.124 Page 24 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor b) The Alternative Approach to Award Calculation for Incentivized Camden Projects As a general rule, the Grow NJ Act provides that the size of a tax incentive award is determined by a relatively straightforward formula that is tied to the number of new jobs created by the company in New Jersey and/or the number of existing jobs retained by the company in New Jersey that, absent the tax incentive award, would be relocated out of state or eliminated. 36 First, a base amount per jobranging from between $500 to $5,000 annuallyis determined based on certain statutorily defined factors (primarily the location of the project). 37 Second, any applicable statutorily defined bonus amounts are applied to increase the total award per job. 38 For example, jobs in a targeted industry (the EDA is statutorily authorized to determine which industries are targeted) are eligible to receive an increase of $500 annually per job. 39 Under this statutory formula, the maximum possible award per job is $15,000 annually. 40 However, provisions of the EOA 2013, drafted in part by Parker McCay, amended the Grow NJ statute to set out an additional, alternative approach to award calculation exclusively for incentivized projects located in Camden. Under these provisions, the award calculation for Camden projects is effectively decoupled from the number of jobs created or retained by the company, and is instead tied toand, unless capped by an applicable statutory limitation, equal tothe size of the companys capital investment in the project. 41 These provisions have allowed companies that agreed to make large capital investments in projects located in Camden to qualify for awards far exceeding the amounts that would have otherwise been permitted.

For an illustration of the difference between the statutory formula approach under Grow NJ for award calculation and what is often referred to as the Camden alternative approach, consider a hypothetical project in which a company will invest $100 million to build a new office building in New Jersey at which the company plans to hire 250 new employees. Under the formula approach applicable to projects in most of the State, with a maximum annual per-job award of $15,000, as build a 130,000-square foot headquarters on the site. . . . No explanation has been provided for why the ShopRite project collapsed.).

36 See N.J. Stat. § 34:1B-246(a)-(d).

37 See N.J. Stat. § 34:1B-246(b).

38 See N.J. Stat. § 34:1B-246(c).

39 See N.J. Stat. §§ 34:1B-246(c), 34:1B-243 (targeted industry definition).

40 See N.J. Stat. § 34:1B-246(d).

41 See N.J. Stat. § 34:1B-246(d) (subsection beginning, Notwithstanding anything to the contrary set forth herein and in the provisions of subsections a. through f. of this section . . .).

19

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($15,000 x 250 jobs). Over the ten-year term for awards under Grow NJ, the maximum award would be $37.5 million ($3.75 million x 10 years). If the project were in Camden, however, and subject to the Camden alternative approach to award calculation, the company could receive an award of $100 million, equal to the size of the anticipated costs to build the new office building over twice the size of the maximum award available in other parts of the State.

Numerous Parker McCay clients have benefited from the Camden alternative approach to award calculation. As noted previously, Parker McCay client, the Conner Strong & Buckelew insurance brokerage firm, was approved by the EDA on March 24, 2017 for an $86 million award to relocate 268 jobs from the companys existing offices to a new office tower to be built on the Camden waterfront. Pursuant to the Camden alternative provisions of EOA 2013, this award was based on the claimed anticipated costs of the office towers construction. Under the formula approach to award calculation, the company could have potentially, in the best possible circumstances for it, qualified for a maximum award of $40.2 million ($15,000 x 268 jobs x 10 years).

The Task Force has not conducted an economic analysis of the approaches to award calculations under Grow NJ and therefore has made no finding concerning whether the increased size of Camden alternative awards is sensible as a matter of public policy. Indeed, given the enormous challenges facing Camden, one of New Jerseys poorest cities, an up-front decision by the State to appropriate substantial resourcesthrough the normal procedures for allocating State resourcesto invest in the capital infrastructure would have been completely understandable.

However, while there are certainly rational policy justifications for providing incentives for capital projects located in Camden, the Camden alternative approach in the EOA 2013, which do so in the context of an enhanced tax-incentive program ostensibly dedicated to job growth, has been criticized as excessive by a number of parties given the potentially large cost to the State, and even many of its defenders have said that it may need to be appropriately reconsidered in future legislation. For example, a July 2018 report (the Rutgers Report) by Will Irving, Michael L.

Lahr, and Ray Caprio of the Edward J. Bloustein School of Planning and Public Policy at Rutgers, the State University of New Jersey, which analyzed data concerning Grow NJ awards approved by the EDA to date, found that the average cost in tax incentives per job incentivized by the formula approach was $55,888, while the average cost per job under the Camden alternative approach was 20

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$340,000over six times more. 42 The Rutgers Report recommended that the Camden alternative approach be revised to tie awards more closely to the employment created by these firms. 43 Additionally, it should be noted that the capital investment definition in the statute, which, as described above, effectively operates to define the expenditures for which companies are eligible to receive recompense via tax credits, is extremely broad. The statute defines capital investment with respect to projects in Camden to include, among other things, any and all development, redevelopment, and relocation costs. 44 The result is that a broad range of expenditures in Camden by Grow NJ beneficiary companies may be effectively reimbursed via tax creditsnotably, including expenditures for which the public interest in state subsidization is debatable. For example, the new office tower on the Camden waterfront for which Conner Strong & Buckelew was approved for an $86 million award included a rooftop helipad, the construction of which is within the scope of the statutory capital investment definition. Whether Grow NJ was intended to enable the State to subsidize helipads for corporate executives can reasonably be questioned.

c) Expansion of Capital Expenditures Eligible for Tax Credits As discussed above, the capital investment definition in the Grow NJ statute effectively operates to define the expenditures for which companies with projects in Camden are eligible to receive recompense via tax credits. It appears that Kevin Sheehan of Parker McCay had a role in amending the statutes capital investment definition in two ways apparently intended to benefit the firms clients. 45 First, Mr. Sheehan appears to have amended the definition to include, as an eligible expenditure, pier, wharf, [or] bulkhead . . . construction or repair. 46 This amendment was likely intended to benefit several Parker McCay clients, including Conner Strong & Buckelew, that, as discussed in Section V(C)(4)(b) of this First Report, had plans to construct a new office tower on a pier on the Delaware River waterfront of Camden. As a result of this amendment, these clients would be allowed to receive tax credits for any such construction or repairs on the pier.

42 Rutgers Report at i-ii. The Rutgers Report is available on the EDAs website, at https://www.njeda.com/pdfs/NJEDA-Final-Incentives-Report_Governor.aspx.

43 Rutgers Report at iii.

44 See N.J. Stat. § 34:1B-243 (capital investment definition).

45 In addition, it is notable that the capital investment definition was expanded to include expenditures on professional services. However, the metadata does not reflect that Kevin Sheehan made that amendment.

46 See N.J. Stat. § 34:1B-243 (capital investment definition).

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Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.127 Page 27 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor Second, Mr. Sheehan appears to have also amended the capital investment definition to include site acquisition as an eligible expenditure if purchased within 24 months prior to the Grow NJ application, thereby allowing the firms clients with planned projects in Camden to potentially receive tax credits for real estate that the company purchased before even applying to the EDA for the tax incentives. 47 This amendment has a clear tension with the overarching purpose of tax-incentive programs, which are intended to incentivize companies to make decisions that they have not already made and would not make absent the incentive. This provision, by contrast, affords tax credits for company decisions already madethat is, real estate already purchased. Precisely because of this tension, the EDAs former President and Chief Operating Officer Tim Lizura testified at the Task Forces May 2, 2019 public hearing that this provision was always a challenge to administer and he never really understood the policy behind it. 48 d) Phantom Taxes in the Net Benefit Test Under the Grow NJ Act, every tax-incentive award must be anticipated to yield a net positive benefit to the State. 49 In this context, the benefit to the State means tax revenues collectible by the State as a result of the fruition of the project for which the tax incentives were awardedthat is, tax revenue that the State would not collect in the absence of the tax incentives.

For example, consider construction work in New Jersey that would not occur unless tax incentives are provided. If the incentives are awarded and the construction is commenced, any taxes collected by the State as a result of such incentivized construction, such as property taxes on the developed property and sales taxes on the building materials used in the construction, are benefits to the State. Because of this so-called net benefit requirement under the Grow NJ Act, tax incentives under the Program are sometimes said to effectively pay for themselves. That is, if the statute operates as intended, the State will collect tax revenue at least in the amount that the State spends on tax incentives, meaning that there is no loss to the public fisc.

47 Although the text of this provision has been revised by subsequent statutory amendments, Mr.

Sheehans amendment remains in substance in the current law. See N.J. Stat. § 34:1B-243 (defining capital investment in pertinent part: In addition to the foregoing, in a Garden State Growth Zone

[including Camden], the following qualify as capital investment: . . . site acquisition if made within 24 months of application to the [EDA]).

48 Hrg Tr. (May 2, 2019) at 228:11-230:19. As for why the provision would allow tax credits for site acquisition up to two years prior to the Grow NJ application but not earlier periods, Mr. Lizura said that he did not know of a policy reason for the distinction. Id. at 233:6-14.

49 N.J. Stat. § 34:1B-244(a)(3).

22

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.128 Page 28 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor However, the EOA 2013s amendments to the Grow NJ program included certain provisions that significantly undermined the net benefit requirement for projects in Camden. Pursuant to these provisions, the net benefit calculation may utilize the value of certain taxes that would otherwise accrue but were exempted from payment by operation of other provisions of law. 50 In other words, the Grow NJ Act was amended to provide that the net benefit calculation for projects in Camden may include phantom taxes as ostensible benefits to the State even if the State will never collect those taxes. As a result of these provisions, the net positive benefit to the State that is purportedly required by the law may be rendered illusory. 51 The bill drafts in Microsoft Word format in the Task Forces possession, both dated June 21, 2013, do not contain these provisions, which were apparently not yet incorporated into the bill as of this date. 52 Therefore, the Task Force does not have a document with metadata that indicates the author of these provisions. However, the Task Force is in possession of email correspondence between government officials who were involved in the EOA 2013s drafting that refers to the phantom tax notion for NBT that Phil and Kevin laid out in [the] original bill draft. 53 Because Parker McCay represented numerous clients with project plans in Camden, these provisions would have allowed these companies to potentially receive large Grow NJ awardspursuant to the Camden alternative approach provisions discussed abovewithout the State receiving a corresponding net positive benefit. 54 50 N.J. Stat. § 34:1B-244(a)(3)(b).

51 At the Task Forces May 2, 2019 public hearing, the EDAs former President and Chief Operating Officer Tim Lizura was asked whether these provisions allowed projects to get through even though they werent paying for themselves. Mr. Lizura responded, I would say thats a pretty accurate statement. Hrg Tr. (May 2, 2019) at 257:9-15.

52 We have been advised that a law firm has additional versions of drafts of EOA 2013 from this time period. The Task Force has attempted to obtain these drafts through voluntary cooperation from that firm. To date, we have not been successful.

53 Exhibit 3. The EDAs Tim Lizura, who received this email, testified concerning the emails reference to Phil: I assume thats Phil Norcross. Hrg Tr. (May 2, 2019) at 251:3-19.

54 Mr. Lizura testified that he recalled the following companies with approved Grow NJ awards as having benefited from the phantom tax provisions: Holtec International, Philadelphia 76ers, L.P.,

American Water (American Water Works Company, Inc., American Water Works Service Company, Inc., and American Water Enterprises, Inc.), Subaru of America, Inc., Conner Strong &

Buckelew Companies, LLC, The Michaels Organization, LLC, NFI, L.P. When asked whether Parker McCay represented all of those companies, Mr. Lizura responded, I recall they represent[ed] some, some role in most of those. Hrg Tr. (May 2, 2019) at 257:16-258:14.

23

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.129 Page 29 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor e) The Material Factor Test Applicable to Camden Projects For incentivized projects in most parts of New Jersey, it is indisputable that, for a company to receive Grow NJ tax incentives for existing jobs in New Jersey, those jobs must be at risk of leaving the State or being eliminated. This is clearly set out in the statutory text, which requires companies to establish that but for the provision of tax incentives, the jobs would be relocated out of state or eliminated:

[T]he businesss chief executive officer, or equivalent officer, shall submit a certification to the [EDA] indicating: (1) that any existing full-time jobs are at risk of leaving the State or being eliminated; (2) that any projected creation or retention, as applicable, of new full-time jobs would not occur but for the provision of tax credits under the program; and (3) that the businesss chief executive officer, or equivalent officer, has reviewed the information submitted to the [EDA] and that the representations contained therein are accurate . . . . 55 As discussed above, the Task Force reviewed the June 21, 2013 EOA 2013 bill drafts. 56 The metadata in these documents appear to show that Kevin Sheehan of Parker McCay amended the above-quoted language to add a provision expressly stating that the risk of an out-of-state relocation shall not be required with respect to projects in [Camden]. Mr. Sheehan proposed to amend the provision as follows:

[T]he businesss chief executive officer, or equivalent officer, shall submit a certification to the [EDA] indicating that: (i) any existing full-time jobs are at risk of leaving the State or being eliminated; (ii) that any projected creation, or retention as applicable, of new full-time jobs would not occur but for the provision of tax credits under the program; and, (iii) that the businesss chief executive officer, or equivalent officer, has reviewed the information submitted to the [EDA] and that the representations contained therein are accurate, provided however, item (i) shall not be required with respect to projects in [Camden]. . . . 57 55 N.J. Stat. § 34:1B-244(d).

56 Exhibits 1 and 2.

57 Additionally, in the current version of the statute, there is also language that makes this provision apply to projects in Atlantic City as well as to projects in Camden. The Atlantic City language was 24

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.130 Page 30 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor (Emphasis added).

On Friday, June 21, 2013, at 8:12 PM, an aide to then-Governor Chris Christie, Colin Newman, who was involved in EOA 2013s drafting, sent an email to several senior EDA officialsTim Lizura, Maureen Hassett, and Michele Brownattaching a working draft of the bill containing the above-quoted amendment by Mr. Sheehan of Parker McCay. 58 Mr. Newman noted in the email that the bill draft presented certain issues that needed to be discussed over the weekend. 59 On Sunday, June 23, 2013, at 10:31 PM, Mr. Newman sent an email to Mr. Lizura and Ms. Hassett, stating that they needed to prepare compromise language with respect to the above-quoted provision. 60 Mr. Newman proposed language that would have restored the requirement that, for projects in Camden, there be a risk of out-of-state relocation to receive tax incentives for retaining jobs. 61 Throughout the morning and afternoon of Monday, June 24, 2013, Mr. Newman, Mr. Lizura, and Ms. Hassett proceeded to iteratively draft additional versions of proposed compromise language, while appearing to complain that the other side of the negotiations continued to produce unsatisfactory counterproposals. 62 By the afternoon of June 24, 2013, the negotiating parties appear to have agreed to compromise language that rejected the shall-not-be-required language that Mr. Sheehan had drafted and replaced it with a material factor test that was ultimately enacted into law, and is still embodied in the version of the statute in force now. That material factor test is as follows:

[T]he businesss chief executive officer, or equivalent officer, shall submit a certification to the [EDA] indicating: (1) that any existing full-time jobs are at risk of leaving the State or being eliminated; (2) that any projected creation or retention, as applicable, of new full-time jobs would not occur but for the provision of tax credits under the program; and (3) that the businesss chief executive officer, or equivalent officer, has reviewed the information submitted to the [EDA] and that the representations contained therein are accurate, provided however, that in satisfaction of the provisions of paragraphs (1) and (2) of this subsection, the certification added in 2014 statutory amendments. Because the current discussion concerns EOA 2013s amendments, which did not yet apply to Atlantic City, we omit that language here.

58 Exhibit 4.

59 Exhibit 4.

60 Exhibit 5.

61 Exhibit 5.

62 See Exhibits 6, 7, and 8.

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Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.131 Page 31 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor with respect to a project in [Camden 63] . . . shall indicate that the provision of tax credits under the program is a material factor in the business decision to make a capital investment and locate in [Camden]

(Emphasis added). 64 Thus, the statute provides that, for projects in Camden to be eligible for tax incentives, the company must be facing a business decision concerning where to locate. One option must be Camden, and the provision of tax incentives must be a material factor in the companys decision to locate there. However, the statutory text does not specify one way or the other whether the business decision concerning the companys location (a) must be between Camden versus an out-of-state location or (b) may be between Camden versus another New Jersey location. No court has yet had occasion to interpret this clause and resolve this statutory ambiguity concerning whether tax incentives are available for intra-state relocations to Camden when no potential out-of-state relocation is considered. From the Task Forces perspective, the former interpretationthat is, that tax incentives for projects relocating to Camden, like tax incentives for projects relocating elsewhere, are available only if the company is considering a potential out-of-state locationis likely the better interpretation. This is so for at least two reasons. First, the New Jersey Supreme Court has repeatedly taught that the furtherance of legislative purpose is the key to the interpretation of any statute, 65 and here, the Grow NJ statute expressly states that a purpose of the program is to preserve jobs that currently exist in New Jersey but which are in danger of being relocated outside of the State. 66 The statute does not say that its purpose is to incentivize the relocation of jobs to Camden from elsewhere in New Jersey, even if those jobs are not at risk of 63 The statutory text that is replaced here with the bracketed Camden notation for ease of readability is the following: a Garden State Growth Zone that qualifies under the Municipal Rehabilitation and Economic Recovery Act, P.L.2002, c. 43 (C.52:27BBB-1 et al.). Camden is the only municipality that fits that definition, as it is the only municipality affected by the provisions of the [Municipal Rehabilitation and Economic Recovery Act]. Fiscal Impact Statement for Assembly Bill No. 4375 (Jan. 4, 2010), https://www.njleg.state.nj.us/2008/

Bills/A4500/4375_S1.HTM.

64 N.J. Stat. § 34:1B-244(d).

65 GE Solid State, Inc. v. Dir., Div. of Taxation, 132 N.J. 298, 308 (1993). See also, e.g., In re Young, 202 N.J. 50, 64 (2010) (explaining that statutory interpretation must be intended to effectuate the fundamental purpose for which the legislation was enacted).

66 N.J. Stat. § 34:1B-244(a).

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Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.132 Page 32 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor leaving the State. It would further the statutes express purpose, therefore, to construe the out-of-state requirement that is applicable to projects in the rest of the State to also apply to Camden. 67 Second, if the statute were to be interpreted as intended to incentivize the relocation of jobs to Camden from other parts of New Jersey, a question would arise as to whether the statute would be unconstitutional because it would favor Camden over other parts of the State and, as such, arguably be an impermissible private, special or local law. 68 Statutory interpretations that avoid such serious constitutional questions are typically favored. 69 For these reasons, 70 if a New Jersey court 67 Cf. Murray v. Plainfield Rescue Squad, 210 N.J. 581, 592 (2012) (We do not view the statutory words in isolation but in context with related provisions so as to give sense to the legislation as a whole.).

68 See N.J. Const., art. IV, § VII, ¶ 7 (No general law shall embrace any provision of a private, special or local character.) and ¶ 9(6) (The Legislature shall not pass any private, special or local laws . . . [r]elating to taxation or exemption therefrom.); Mooney v. Bd. of Chosen Freeholders of Atl. Cty., 122 N.J. Super. 151, 154 (Law. Div.), affd, 125 N.J. Super. 271 (App. Div. 1973)

([L]ocal and special laws rest on a false or deficient classification in that . . . they create preference and establish inequalities; they apply to persons, things or places possessed of certain qualities or situations, and exclude from their effect other persons, things or places which are not dissimilar in these respects.) (internal quotation marks and citation omitted). While the Legislature may in some cases adopt special laws if there is prior public notice (¶ 8), the prohibition in ¶ 9(6) against special laws [r]elating to taxation or exemption therefrom is absolute.

69 See, e.g., Silverman v. Berkson, 141 N.J. 412, 417 (1995) (Unless compelled to do otherwise, courts seek to avoid a statutory interpretation that might give rise to serious constitutional questions.).

70 Additionally, it is also notable that, whether the EDA is applying the material factor test that is applicable to Camden or the but for test that is applicable to the rest of the State, in both cases the statute directs the EDA to consider the same evidence concerning the companys potential relocation sites: When considering an application involving intra-State job transfers, the [EDA]

shall require the business to submit the following information as part of its application: a full economic analysis of all locations under consideration by the business; all lease agreements, ownership documents, or substantially similar documentation for the businesss current in-State locations; and all lease agreements, ownership documents, or substantially similar documentation for the potential out-of-State location alternatives, to the extent they exist. Based on this information, and any other information deemed relevant by the [EDA], the [EDA] shall independently verify and confirm, by way of making a factual finding by separate vote of the

[EDA]s board, the businesss assertion that the jobs are actually at risk of leaving the State, and as to the date or dates at which the [EDA] expects that those jobs would actually leave the State, or, with respect to projects located in [Camden] . . ., the businesss assertion that the provision of tax 27

Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.133 Page 33 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor were to construe this material factor provision, the Task Force believes the court would more likely than not conclude that an out-of-state location is required for projects in Camden. 71 Putting our view aside, whatever the Legislature intended, any representations Grow NJ applicants made to the EDA concerning their potential out-of-state relocation were required to be truthful, so falsely stating that jobs were at risk of leaving the State and, accordingly, that an out-of-state alternative was under consideration would be highly problematic. 72 In any event, whether or not a risk of an out-of-state relocation is strictly required under the statute for projects in Camden, it is indisputable, based on provisions of the Grow NJ Act and EOA 2013 separate and apart from those discussed here, that whether or not such an out-of-state relocation is contemplated is a critical factor bearing upon the potential size of any award. This is because of Grow NJs net benefits requirement, which mandates that every Grow NJ award be anticipated to result in a net benefit to the State in terms of new tax revenue. 73 For companies relocating existing jobs from somewhere within New Jersey to Camden, those jobs create no new benefit to the State, since the benefits test is state wide and those jobs would yield no new tax credits under the program is a material factor in the businesss decision to make a capital investment and locate in [Camden] . . . before a business may be awarded any tax credits under this section.

N.J. Stat. § 34:1B-244(d) (emphasis added). If a potential out-of-state alternative location were not required for projects in Camden, it is difficult to understand why the statute directs the EDA to consider evidence of the companys potential out-of-state location alternatives (to the extent they exist) in the same manner as if EDA were considering a project outside Camden, where there is no question that an out-of-state location alternative is required.

71 The material factor provision applicable to Camden, in the Task Forces view, is likely best understood as intended to reduce the required showing for the at-risk nature of the jobs: outside Camden, the CEO has to certify that but for the tax incentives jobs would leave the State (that is, the tax incentives are a determinative factor in the companys decision); by contrast, in Camden, the CEO has to certify that the tax incentives are a material factor in locating the jobs in Camden rather than in another state (that is, the tax incentives are an important factor in the companys decision but are not necessarily determinative).

72 See N.J. Stat. § 34:1B-244(d) (requiring an applicants CEO or other equivalent officer to certify that he or she has reviewed the information submitted to the [EDA] and that the representations contained therein are accurate). For criminal penalties under New Jersey law potentially applicable to misrepresentations in connection with Grow NJ applications, see N.J. Stat. §§ 41:3-1 (perjury), 2C:28-2 (false swearing), 2C:28-3 (unsworn falsification), 2C:21-3(b) (fraud relating to public records), 2C:20-4 (theft by deception), 2C:21-7(h) (deceptive business practices).

73 See N.J. Stat. § 34:1B-244(a)(3) (requiring Grow NJ awards to yield a net positive benefit to the State).

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Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.134 Page 34 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor revenue. 74 Put another way, New Jersey accrues tax revenue from those jobs whether or not they are relocated, since in either case they are in the State. Based on this principle, when in-state jobs are relocated to Camden and no potential out-of-state alternative is contemplated, the benefit calculation is minimal, and the potential tax incentive award must be reduced as a result. 75 Thus, if a company falsely certified that its jobs were at risk of leaving the Statewhen they were not at risksuch a representation would likely affect the size of the companys potential award, and, as such, would surely be material. 76 We hasten to note that the above discussion relates to the Grow NJ statute itselfnot to the EDAs administration of the law, which is covered later in this First Report. Here, the Task Force notes that with respect to the material factor provision of the statute, there is a notable ambiguity, which, as shown by the evidence above, may have been by designas a compromise between, on the one hand, those parties who advocated for the statute to expressly provide that a risk of out-of-state relocation shall not be required for projects in Camden, and, on the other hand, those parties who advocated for the statute to require a showing that jobs were at risk of out-of-state relocation. 77 74 This principle, which is inherent in the notion of a state-wide benefits test, is expressly set out in EDAs regulations for Grow NJ, which provide in pertinent part: Retained employees in a project in [Camden] . . . shall not be included [in the benefits calculation] unless the business demonstrates that the award of tax credits will be a material factor to retain the employees in the State . . . . N.J. Admin. Code § 19:31-18.7(c) (emphasis added).

75 This issue is discussed further below, in Section V(C)(2)(b) of this First Report.

76 As EDAs former President and Chief Operating Officer Tim Lizura explained at the Task Forces May 2, 2019 public hearing, the net benefit test was a statewide test, and that would suggest, or would then require that the jobs would be at risk of leaving New Jersey in order to include [the] economic impact of those jobs under the net benefit test. If there was not a risk of leaving the state, we would include all the other drivers of the net benefit test except the economic activity from the employees, which is the largest driver of the economic output. Hrg Tr. (May 2, 2019) at 262:8-18).

77 In 2014, this provision of the Grow NJ Act was again amended to provide that Atlantic City would be treated in the same manner as Camden. Therefore, under the current version of the statute, companies may be eligible for Grow NJ benefits when the tax incentives are a material factor in the companys decision to locate in either Camden or Atlantic City. The statutory ambiguity discussed in this section with respect to Camden applies likewise with respect to Atlantic City.

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Case 3:19-cv-01635-JM-MSB Document 1-3 Filed 08/29/19 PageID.135 Page 35 of 80 State of New Jersey OFFICE OF THE GOVERNOR PO BOX 001 TRENTON, NJ 08625-0001 P HILIP D . M URPHY Governor

2. Influence by Special Interests in EDAs Implementing Regulations for Grow NJ After EOA 2013 was enacted in September of 2013, it fell to the EDA to promulgate regulations to implement the laws amendments to the Grow NJ program. As described previously, New Jersey law required the EDA to use a notice-and-comment process in connection with its issuance of such regulationsthat is, to provide public notice of the regulations it was considering and to receive and consider comments from interested members of the public in response to such proposals. However, the Task Force has received information and documents that appear to show thatbefore the EDA publicly announced any proposed regulationsKevin Sheehan of Parker McCay privately lobbied the agency to adopt provisions favorable to the firms clients. At least one of these requests was incorporated in the EDAs first publicly proposed regulations, which the agency announced on January 6, 2014.

Grow NJ, as previously noted, generally excludes retail businesses from eligibility for tax incentives. 78 Parker McCay represented The Cooper Health Systemthe parent of Cooper University Hospital in Camdenin connection with its Grow NJ application. If the hospital were to be deemed a retail business, it would be ineligible for tax incentives under the statute. (From a policy perspective this exclusion is sensible, since a retail businessespecially a hospital dedicated to serving a local communityis unlikely to make a business decision to move out of state absent tax incentives.) On December 10, 2013, Mr. Sheehan sent an email to the EDAs then President and Chief Operating Officer Tim Lizura: [I]n reviewing the qualified business facility definition in the [regulations] that we discussed, my suggestion would be to add a sentence at the end of the definition to say: a university research hospital shall not be considered final point of sale retail.

Thanks. 79 The EDA incorporated the request into its initial January 6, 2014 regulatory proposal as well as its final regulations adopted on December 15, 2014, and the provision remains in effect in the regulations in force now. 80 The Cooper Health Systemdeemed eligible for tax incentives pursuant to this regulationwould later be approved by the EDA for an approximately $40 million award. Meanwhile, the EDA does not appear to have disclosed that, outside of the public notice-78 See N.J. Stat. § 34:1B-243 (generally excluding business[es] that [are] . . . engaged in final point of sale retail from the definition of the qualified business facilit[ies] that are eligible for tax incentives).

79 Exhibit 9.

80 See N.J. Admin. Code § 19:31-18.2 (in the qualified business facility definition, carving out university research hospital[s] from the scope of ineligible business[es] . . . engaged in final point of sale retail business).

30