A Huge Tax Break Went to a Politically Connected Company in New Jersey Despite Red Flags

By , | Published Jun 26, 2019 | WNYC
A Huge Tax Break Went to a Politically Connected Company in New Jersey Despite Red Flags

This article was produced in partnership with the ProPublica Local Reporting Network.

By Jeff Pillets; Nancy Solomon, WNYC; and Alex Mierjeski, ProPublica

In January 2014, as Holtec International explored sites for a new national headquarters and high-tech manufacturing center, the New Jersey company told state officials that the Garden State had stiff competition.

A number of other states, including Ohio and South Carolina, had offered “robust proposals” to persuade the nuclear technology firm to relocate, said Holtec CEO Kris Singh in his sworn application to the New Jersey Economic Development Authority.

Generous tax breaks from New Jersey’s new economic development program, he argued, could place Camden “on a level playing field” with Holtec’s other suitors. In return, the firm pledged the retention of 160 jobs and the creation of an additional 235 positions. Six months later, the EDA awarded the company $260 million in taxpayer assistance — the second-largest tax break in state history.

What Holtec didn’t reveal, though, was that just weeks before filing its application in New Jersey, Ohio had stripped the company of tax credits there for failing to create the jobs it had promised as part of a similar program. According to records obtained by WNYC and ProPublica, none of the 200 positions it had pledged in 2009 to bring to Orrville, a small town about 20 miles outside Akron, ever materialized.

Holtec, in a letter to Ohio regulators, blamed its problems on the failure of new manufacturing equipment that led to a “major setback.” The company also said it was suffering an overall “decline in orders” caused by “lower quality overseas competitors.”

In the same letter, Holtec asked Ohio to consider applying the old credits to its new plan to build a high-tech manufacturing center. But there is no record that the state ever granted that request.

In fact, local elected officials and economic development staffers in Ohio, as well as South Carolina, said in interviews that they knew of no approved package of incentives their states had offered Holtec.

“We keep pretty close tabs on all our companies here, and we never heard anything about that,” said Orrville Mayor David Handwerk, who visited Holtec’s plant on Dairy Lane only a few weeks ago.

Holtec did not respond to multiple requests for comment.

The previously unreported Ohio deal provides a new window into New Jersey’s embattled tax break program and how state regulators missed key facts as companies maneuvered to qualify for controversial incentives that are now under scrutiny by a state task force and the state attorney general.

Holtec, in particular, has become Exhibit A in a program that critics have blasted for what they say is fraud and mismanagement. In May, WNYC and ProPublica discovered that the company had given a misleading sworn statement; it falsely answered “no” about once being barred from working with a federal agency, a situation that could have jeopardized its application. After the story, state officials put Holtec’s tax break on hold and announced an investigation into the firm. Holtec has said that it made an “inadvertent mistake” that it would like to correct.

In a blistering interim report last week, a state task force appointed by New Jersey Gov. Phil Murphy identified the EDA’s lack of due diligence as a major failing for an $11 billion program intended to boost the state’s sluggish economy, especially in hard-hit cities like Camden. On multiple occasions, EDA staffers failed to flag problems in multimillion-dollar tax break applications because the agency had “no formal training” and a “fundamental lack of controls,” the task force said.

EDA officials confirmed that Holtec did not disclose its Ohio troubles. “This was not reported in Holtec’s application or legal questionnaire,” said Virginia Pellerin, a spokeswoman for the authority. “It is not apparent … that Holtec informed the EDA of this.”

On Wednesday, after publication of this story, the EDA announced that it has asked six companies, including Holtec, for additional information “to afford the companies the opportunity to respond in writing to a range of recent developments,” including the task force report. Potential actions, subject to a board vote, could include reductions in awards, suspensions of tax breaks or terminations of incentives.

“We have no higher obligation than to serve as stewards of taxpayer dollars, and the process we are initiating today will enable our team to make a determination of appropriate next steps with regard to these specific companies,” said Tim Sullivan, the authority’s CEO. “Transparency and accountability should be the hallmark of any public investment program, and we take any allegations of wrongdoing very seriously.”

Holtec is part of a constellation of companies tied to the South Jersey Democratic boss George E. Norcross III, who is an unpaid member of Holtec’s board, and his brother Philip, who is a lawyer and lobbyist whose firm wrote part of the tax break law and represented Holtec’s application. All told, companies connected to the two power brokers received at least $1.1 billion in tax breaks.

The governor’s task force found that New Jersey’s politically connected insiders steered tax breaks to favored businesses and nonprofits, which, in turn, won millions in incentives through questionable claims on their tax break applications. The Norcross brothers have denied any wrongdoing.

The fallout has riven New Jersey politics. Last week, state lawmakers approved a bill extending the life of the controversial incentive program through 2020 — a move Murphy promptly attacked, promising to veto the measure if it did not include significant changes.

Under the program, firms that are at risk of moving outside New Jersey are eligible for higher tax incentives, and investigators cited efforts by several Norcross-connected firms to obtain competing real estate offers from other jurisdictions, even though they had already committed to staying in state.

Cooper Health System, for instance, where George Norcross is chairman, provided the state with lease information about an alternative site in Philadelphia even though it had no intention of moving there, the task force found. The hospital system has denied any wrongdoing.

In another email revealed by state investigators, a representative of a firm called NFI discussed whether his company and another business, The Michaels Organization, could use the same building in Philadelphia to convince New Jersey officials they intended to move out of state.

“I think it would be a little suspicious to ask for a duplicate. Any thoughts?” wrote Steven Grabell, chief financial officer for NFI.

George Norcross has joined with those two firms, as well as Cooper Health and his brother’s law firm, Parker McCay, in a lawsuit challenging Murphy’s panel, which he says is an illegal attempt by the governor to single out him and his business partners.

The groups argue that they have “made an enormous investment in the revitalization of Camden, one of America’s poorest cities, have been falsely and publicly accused of misconduct regarding the tax incentives that lawfully attend such investment and have been denied a fair opportunity to refute those defamatory accusations.”

In the case of Holtec, the company told New Jersey that sites in Ohio, South Carolina and Pennsylvania would cost $5 million to $7 million a year less in rent and labor costs. “In comparison to other states that are successfully wooing manufacturing investment to their territories, New Jersey has high site acquisition and construction costs, high labor cost, relatively high cost of living and high property taxes,” Singh, the CEO, wrote.

But nowhere in Holtec’s 49-page application did the company provide details on the tax incentives from those other states. Emails released by the EDA show that staffers at the agency did, in fact, ask Holtec to supply specifics.

“What evidence can you provide to demonstrate incentive offers of competing states including the abatement of real estate taxes?” staffers Kevin McCullough and Justin Kenyon asked Holtec in April 2014, four months after the company lost its Ohio tax break.

Nick Abraczinskas, Holtec’s vice president of contracts, offered no details though. “The discussions with South Carolina have been focused on tax abatement on the potential facility, which we are not allowed to provide the details of that offer due to confidentiality,” he wrote.

Contacted by WNYC and ProPublica, a spokeswoman for the South Carolina Department of Commerce said there was no record of an application by Holtec for tax incentives there. And a regional development group said that while Holtec was one of several nuclear technology firms looking to locate at a federal site on the Savannah River, talks were preliminary and no offer was made.

In Ohio, state economic development officials said they could neither confirm nor deny the existence of discussions with Holtec at that time, citing state policy prohibiting them from talking about any negotiations with firms over potential tax breaks. But records show that the company ran into trouble with state authorities in late 2013 over previous tax awards there.

The issue involved a Holtec subsidiary called Orrvilon Inc., which had expanded a vacant factory in 2009 after consolidating workers from other Ohio plants. It received tax credits worth about $475,000 for the move because it promised to hire 200 more employees. But those plans collapsed, records show, when demand fell for the high-tech aluminum parts manufactured at the plant.

In December 2013, the Ohio Tax Credit Authority stripped Holtec of its tax breaks on the recommendation of state economic development officials. At the time, records show, Holtec had actually reduced the number of employees there, from 102 to 98.

WNYC and ProPublica reached out to the Pennsylvania Department of Revenue with questions about Holtec’s application for tax incentives in the state, but the information is considered confidential under Pennsylvania’s Right-to-Know Law.

This year, every company that received a New Jersey tax break has been asked to go through recertification.

Pellerin said the EDA has the right to disqualify any firm from getting tax breaks if it provides false information to the state. The task force reported that more than $500 million in incentives have either been voluntarily terminated or may be subject to termination.

This report was produced with support from the McGraw Fellowship for Business Journalism at the Craig Newmark School of Journalism, City University of New York.

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