A bid to keep some Urban Enterprise Zone funds at local level

In 2008, Lawrence Hill bought $76,000 worth of equipment, a portion of the start-up cost to open his Rita's Water Ice shop in Camden, a state-designated Urban Enterprise Zone. The bill was paid with sales-tax revenue generated by other businesses in the zone.

Tax revenue from the $4 Blendinis that Hill sold at his waterfront shop went back into a fund designated for other UEZ businesses and municipal projects in the city.

The state UEZ program, established in 1983 to stimulate economic development in 37 struggling urban areas, was supposed to be the gift that kept on giving.

The reduced 3.5 percent sales tax on goods and services - half the usual rate - was intended to lure customers and to cycle directly back into the municipality. UEZs in Gloucester City and Mount Holly had a similiar arrangement.

In the fiscal year that ended in June 2010, Camden received just over $1 million in tax revenue from the city's roughly 200 UEZ businesses, which ranged from mom-and-pop stores to giants like Campbell Soup Co.

But an overhaul of the UEZ program proposed by the Christie administration would radically change the program's keep-it-local mandate. Legislators are scrambling to get an alternative plan to the governor before the June 30 budget-approval deadline.

Under Gov. Christie's proposal, sales tax collected in the zones would go into the state's general fund. That would formalize a change instituted last summer, when an independent report concluded that cities had not been held accountable for how they spent UEZ money funneled directly to them.

The investigation also found the program was costly to run. An online system would replace the current in-person application process.

The Assembly Commerce and Economic Development Committee has drafted a counterproposal that would send a third of the UEZ tax revenue to municipalities through 2022. Up to 10 percent of that could be used for administrative costs.

State Sen. Jeff Van Drew (D., Cape May) is drafting another bill that he believes will be "capable of making it to the finish line" and being signed by Christie.

Under the original arrangement, the discounted sales tax in UEZs went to a Zone Assistance Fund to aid businesses and for capital-improvement projects such as facade enhancements, streetscaping, and signs in the member municipalities.

But the state didn't have much to show for the $1.9 billion it granted in tax exemptions and reduced sales tax and paid toward administrative costs and projects between 2002 and 2008, according to the audit. Unemployment wasn't lower in the zones and there was no documentation of private investment, the report concluded.

It also found that $238 million in state money allocated to the zones had not been spent.

As of April, Camden had $6 million and Gloucester City and Mount Holly each had $900,000 remaining in the old fund's $150 million balance, which will be distributed as part of the municipalities' aid payments on Nov. 1.

The money has been put to good use, say Camden's UEZ coordinators. They point to surveillance cameras installed to deter crime and a team established to keep the city's commercial corridors clean. Camden recently received approval to use $1.2 million in leftover money for facade enhancements.

Some state legislators have questioned the use of UEZ money for public safety instead of funding projects that would create jobs in the manufacturing, finance, technology, and pharmaceutical fields.

Gloucester City's UEZ bought a police car and hired an officer dedicated to checking on the 48 UEZ businesses in the 2.5-square-mile city.

"It's a way to make [the city] more safe to walk around," Gloucester City UEZ coordinator Howard Clark said.

Under the Assembly committee's legislation, the use of UEZ money for police and fire services would be phased out.

Hill, a Middlesex County resident who used to work as a pharmacist, has 12 to 15 part-time employees at his Rita's franchise on Market Street. Half are relatives who live in Camden and the others are high school students whom he enjoys mentoring.

"It's not just working the register," Hill said. "They are learning every aspect of the business . . . marketing, payroll."

He now has a Rita's kiosk at Camden Riversharks ball games and he would love to open a store in the Broadway business corridor. But he would need assistance to buy a custard machine for a new shop, he said. And there are no assurances the city's leftover UEZ money will be available.

What's left in the fund will likely be used for projects in the pipeline. The state Department of Community Affairs, which oversees the state UEZ Authority, estimates the current balances should last into fiscal year 2013.

Camden finance director Glynn Jones said he could not speculate about whether there would be money in the city's 2012 budget to keep the local UEZ office running without state support.

Each of the state's 32 zones has at least one local coordinator, and some of the bigger offices have a few staff members. UEZ employees help businesses with certifications, license applications, and other daunting tasks of running an operation.

"To lose that would be the hardest part," Hill said of the guidance he received from the Camden UEZ office.

An online registration and reporting system is scheduled to go live July 1. The system is intended to "eliminate business bureaucracy, red tape, and be more business friendly," state DCA spokeswoman Lisa Ryan said.

Some worry it will replace the local offices. Some small businesses don't have computers, or their owners do not know English well enough to fill out the forms, Camden UEZ coordinator Vince Bassara said.

The state has said it will make instructions and information available in multiple languages and will have a bilingual help desk staff.

During the three-month transition, the state UEZ Authority will continue to process paper and will be flexible in retaining businesses as long as they pay their taxes, Ryan said.

UEZ zones would retain their reduced sales tax rates as an incentive to customers, and the UEZ businesses would still be eligible for state tax credits when buying certain equipment and for employing city residents. But advocates of retaining the UEZ program believe more should be done.

"Change it in a way that has an economic-development aspect to it and create standards all zones have to reach," Van Drew said. "We're saying amend it, don't end it."