(Published in The Press of Atlantic City on Thursday, May 14, 2009.)
The state government has reclaimed $40 million in sales tax money mistakenly sent to 37 New Jersey towns that have Urban Enterprise Zones.
Eight towns in Cumberland, Atlantic and Cape May counties appear to have lost a combined $10 million from their UEZs, which are tax incentive zones that provide revenue to urban communities for small-business loans, police and economic development.
Vineland was hit the hardest, losing $5.1 million that had been set to go to businesses seeking loans. Millville, Pleasantville, Brid-geton, Wildwood, West Wildwood, Wildwood Crest and North Wild-wood lost about $5 million collectively.
The state Department of Treasury reclaimed the money after learning of a mistake dating back to 2006, when the state sales tax was increased from 6 percent to 7 percent. UEZs obtain their funding by taking a percentage of sales taxes collected within the zones. When the sales tax increased, half of the increase was supposed to go to the state, and half was supposed to go to property tax relief, Treasury spokesman Tom Vincz said Wednesday. Instead, state officials mistakenly directed half to tax relief and half to the UEZs for two years, Vincz said.
The UEZ Authority informed communities in letters that some received Tuesday. Lou Ferrara, who oversees the four Wildwood-area UEZs, called the state’s move “deplorable.”
“This money is already being given to 37 municipalities in New Jersey that are in the most desperate need of tax relief,” said Ferrara, whose communities lost about $700,000 combined. “By taking that money back, you’re only making the situation worse for those 37 municipalities.”
The timing and the fact that the state reclaimed it all in one lump sum angered Vineland officials, who had been set Tuesday night to approve a $6 million UEZ loan to the redeveloper of the vacant Newcomb Hospital. Vineland was forced to pull money from repaid UEZ loans to complete the hospital loan, and the UEZ also had to tap a line of credit with Sun National Bank to cover other shortfalls, Vineland Redevelopment Director Sandy Forosisky said.
Vineland Mayor Bob Romano characterized the state’s approach as, “‘Yo, heads up. You don’t have the money no more. We took it from you.'”
Romano said he felt the move was made to bolster Gov. Jon S. Corzine’s re-election prospects this year.
“I think the governor is looking for a way to offset his deficit and this budget and came up with this explanation,” Romano said.
The state Legislature is scheduled to vote on the state budget next month.
According to Vincz, the State Auditor’s Office reported the mistake in a report about a year ago. He did not know why the money was not recouped earlier or why it was taken back in one lump sum.
State Sen. Jeff Van Drew, whose legislative district includes six of the affected communities, said he hopes to recoup the money.
“We’re fighting it out,” said Van Drew, D-Cape May, Cumberland, Atlantic. “We know that they’ve taken the money. Unfortunately, the DCA (Department of Community Affairs) — the state — is trying to take the money back, and whether it was an overpayment or not, it’s not the point anymore. It is that it was given to the cities, and plans were made contingent on this money. This is really unfair to the communities.”
Pleasantville and Millville each lost about $2.1 million, while Bridgeton saw the state take back about $240,000.
Roger Tees, head of Pleasantville’s UEZ, said the losses could jeopardize advertising, road work, or the acquisition and redevelopment of a block near Washington Avenue and Main Street. The UEZ also pays $1.1 million for the salaries of 16 city police officers.
UEZ funding is such a routine part of development in these areas, parts of which suffer from urban blight, that developers routinely ask about loans when considering opening shop there. Some prospective developers asked him about loan opportunities during a meeting Wednesday morning, Tees said.
In Vineland, an estimated $65 million is currently circulating among businesses through its UEZ revolving loan pool. Less than 5 percent of borrowers default, on average, so when loans are paid back, they can be loaned out again. The money Vineland lost was new money that would have been added to that pool.
“That’s a half year of (sales tax) revenues that were wiped out,” Forosisky said. “We’ve got to cut back on loans. Whereas before we were a little more liberal with our loans, now we just don’t have the money.”
Staff writers Eric Scott Campbell, Mike Miller and John Martins contributed to this report.
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Amount of money to be returned: $2 million
Amount of money to be returned: $7 million
Amount of money to be returned: $700,000
Amount of money to be returned: $240,000
What is a UEZ?
Created in 1983, Urban Enterprise Zones allow businesses in designated areas, usually urban, to charge half the standard sales tax on certain purchases. The revenue generated by the sales tax also goes back into the zones to fund development projects. Officials say the UEZ program supports more than 139,000 full-time jobs and has attracted $26.4 billion in private investment.
How did this happen?
In 2006, the state sales tax was increased from 6 percent to 7 percent. UEZs obtain their funding by taking a percentage of sales taxes collected in urban areas designated as UEZs. When the sales tax increased, half the increase was supposed to go to property tax relief and half was due to the state. The state mistakenly sent the second half to the municipalities, state officials said. That mistake has now been corrected, with the money being reclaimed.
Source: DCA Web site