New Jersey vs. New York City in economic race

Gov. Chris Christie is staging raids across the Hudson, but Mayor Michael Bloomberg may have the better strategy.

By Daniel Massey
Crain's New York Business

When a battle erupted in 1987 between officials in New York and New Jersey over repositioning the Statue of Liberty, Mayor Ed Koch said the landmark would “stand exactly where she has stood for 100 years ... facing us and showing another side of her personality to New Jersey.''

It wasn't the first fight between New York and its neighbor, nor was it the last. Battles over commuter taxes date back to the 1960s. More recently, a standoff between the Pataki and Whitman administrations virtually paralyzed the Port Authority of New York & New Jersey, and former Gov. Jon Corzine called Mayor Michael Bloomberg's congestion-pricing plan an “outrageous action.”

Now, as the New York area struggles to recover following the Great Recession, tensions are again mounting between the neighbors. New Jersey, which was less-prepared for the downturn, was hit harder than New York City. Its recovery has also been more tepid than its cross-river rival.

Desperate to revive the Garden State's economy, Gov. Chris Christie has launched what many say is an unprecedented attempt to lure businesses—some of them based in New York—and to keep others from leaving. Meanwhile, he killed the ARC train tunnel, claiming that New York wasn't paying its fair share, and then grabbed Port Authority funds previously earmarked for the project to fix New Jersey roads instead.

“The typical economic-development contests between the states are playing out in a situation where the overall economy, particularly in New Jersey, desperately needs new jobs and new investment, given the severity of the recession,” said Joseph Seneca, an economics professor at Rutgers University. “The competition between the states will only continue to intensify.”

Mr. Christie kept the city from poaching Panasonic's North American headquarters from New Jersey by offering $102 million in subsidies. He is reportedly dangling some $200 million to entice the Hunts Point produce market—double what the city and New York state have offered to keep it in the Bronx, though officials here are working to sweeten the package.

Corporate subsidies hit $1B mark
Faced with a 9.3% unemployment rate and an economy that has netted only 4,000 additional jobs since employment bottomed out in February 2010, Mr. Christie has wielded tax incentives at a dizzying pace in an effort to create and retain jobs.

He recently agreed to revive the beleaguered Xanadu shopping mall project with a $200 million subsidy, dish out $261 million to an unfinished Atlantic City casino, award $16 million to keep Bayer in the state and fork over $12.3 million to Citigroup to expand its offices in Jersey City. In the 16 months since he took office, Mr. Christie has approved $1 billion in subsidies.

“Christie is a believer in ... corporate subsidies at the expense of teachers, fire and police,” said Jeff Tittel, director of the New Jersey Sierra Club, and one of Trenton's most dogged lobbyists. “He's using the recession as cover to take care of special interests.”

Mr. Christie is doling out incentives at a time when officials in New York City are largely shunning the outright corporate giveaways that were popular under Mayor Rudy Giuliani.

In 2001, Mayor Michael Bloomberg told The New York Times, “Any company that makes a decision as to where they are going to be based on the tax rate is a company that won't be around very long.” And, while handing out subsidies for development, the mayor has generally not played the relocation-subsidy game. He has chosen to focus his economic development strategy on diversifying the city's job pool, fostering entrepreneurship and improving quality of life.

“Rather than competing dollar for dollar with other cities' incentives, we're confident that our strategy of investing taxpayer monies in maintaining the city as a place that businesses want to locate will ensure the greatest return in the long term,” said a spokesman for the city's Economic Development Corp.

It's a policy that good-government groups of all political stripes typically approve of. New Jersey's tactics, on the other hand, are under fire.

“If all this largesse is working, where are the jobs?” asked Deborah Howlett, president of New Jersey Policy Perspective. “Compare New Jersey's recovery to the nation's. When Christie took charge, we were roughly even, and now we're lagging behind.”

Caren Franzini, chief executive of the New Jersey Economic Development Authority, said that Mr. Christie has succeeded in overhauling the state's economy. Subsidies are only a piece of Mr. Christie's strategy. The plan has also included changing the state's corporate sales tax structure, allowing small businesses to transfer losses between companies, capping property taxes, freezing business and income taxes, and cutting red tape.

“What Chris Christie is all about and very focused on is growing jobs in New Jersey,” Ms. Franzini said. “We don't start out with incentives. That's when you're going into the end of negotiations. No. 1 was creating a friendly tax environment for businesses to do business.”

Ms. Franzini said that “not a dime” of the promised incentives has been given out, since the projects have to be built, jobs have to be created and taxes have to be collected before tax breaks kick in. The subsidies offered since 2010 would create an estimated 11,800 jobs.

Subsidies aren't the only thing causing tensions between New York and New Jersey. Mr. Christie has made controversial moves regarding transportation to help plug gaping budget gaps and pay for projects that New Jersey would otherwise be unable to afford.

Tunnel vision
Most notably, he killed ARC, incensing New York elected officials such as Sen. Charles Schumer, and advocates who view the project as vital to the region's economic growth. He upset them further by getting the Port Authority to agree to channel $1.8 billion that it had planned to spend on the tunnel to four state road-repair projects.

A month before axing the tunnel, Mr. Christie held the World Trade Center redevelopment hos-tage by tying a $1 billion financing agreement to the approval of $1 billion in funding to raise the deck of the Bayonne Bridge. And before 2010 ended, he rejected a proposal to spend Port Authority money to fix the Tappan Zee Bridge, which needs $16 billion in repairs, telling New York to “stop screwing with us.”

“The whole concept of the Port Authority as a bistate agency is nonexistent right now,” said one insider.

The time-honored practice of interstate warfare, however, is alive and well.

A version of this article appeared in the May 16, 2011 print issue of Crain's New York Business.