You asked us to:

1. summarize Massachusetts and New Jersey’s employment incentive programs and compare them with a similar program that was proposed in Connecticut,

2. determine how much it costs to run the Massachusetts and New Jersey programs, and

3. determine whether other New England states run similar programs.

This report answers the first and third questions; we will answer the second question in a separate report.

SUMMARY

Massachusetts and New Jersey offer grants for creating new jobs based on a portion of the income taxes businesses withhold from the wages paid to employees holding these jobs. But the range of businesses eligible for these grants is much narrower in Massachusetts. The states also differ in other respects. For example, the grant term is three years in Massachusetts and 10 years in New Jersey. The former’s grant equals 50% of the withheld taxes while the latter’s ranges from 10% to 80%. Both states use similar procedures to process grant applications and payments.

During the 2005 session, the Connecticut General Assembly considered but did not enact a bill creating a grant incentive program that was similar to New Jersey’s. The original version of sSB 620 (File 668) offered the grants to any type of business that relocated or expanded in the state, but based the number of jobs a business had to create on its location. Subsequent amendments removed the locational criteria but limited the grants to businesses in the state’s nine industry clusters.

Maine is the only other New England state that offers job creation grants based on a portion of the income taxes withheld from new employees. But it differs from Massachusetts and New Jersey by basing the portion on the unemployment rate of the county where the business is located. Attachment 1 is a table comparing the Maine, Massachusetts, and New Jersey programs and the proposed Connecticut program.

ELIGIBLE BUSINESSES

The range of eligible businesses differs in each state. Most businesses qualify for grants in Maine and New Jersey, but only biotechnology and medical device manufacturing firms qualify in Massachusetts. Businesses receiving other forms of state assistance do not qualify for Maine and New Jersey’s grants.

All businesses initially qualified for grants under sSB 620 if they relocated or expanded in Connecticut. Subsequent amendments limited eligibility to businesses in the nine state-designated industry clusters.

JOB CRITERIA

Number of Jobs

Businesses qualify for grants in the three states only if they increase and maintain job levels for a specified period. A Maine business must create at least five new jobs above its base employment level within any two-year period. The base level is the business’ (1) total employment as of December 31 in the year that immediately preceded the year it applied for the grant or (2) employment in the three years prior to the application year, whichever is greater.

Massachusetts also awards grants to businesses that increase employment levels, but its standard gauges the amount of time a new employee spends working at a Massachusetts job site. Besides creating at least 10 jobs, a business must increase its annual weighted average employment over the prior year’s average.

New Jersey differs from Maine and Massachusetts in that a business can create new jobs without increasing its overall employment level. A business must create at least 10 high technology jobs or 25 other types of jobs in the first two years after the state approves the grant. Since the grants go to businesses that relocate or expand in the state, a business must agree to continue operating there for at least 15 years.

Businesses qualify for grants under sSB 620 if they create the required number of jobs, which do not have to be net new jobs. The number depends on a business’ location. Originally, those located in the 25 state-designated distressed municipalities had to create at least new 10 jobs while those in the other municipalities, 25. Subsequent amendments applied the 10-job threshold to all locations but limited the grants to businesses in the state’s nine industry clusters.

Types of Jobs

The states also differ on the types of jobs a business must create to qualify for a grant. Massachusetts limits grants to biotechnology and medical device manufacturing jobs while Maine and New Jersey extend the grants for all types of job.

Maine and New Jersey impose additional criteria. Maine businesses must pay wages that at least equal the county’s average per capita income, provide the new employees group health insurance, and give them access to an ERISA qualified retirement program. New Jersey businesses must provide new employees group health insurance during the first two years after receiving the grant. Those that create new jobs paying at least 1. 5 times the minimum hourly wage get preference for grants.

Like Maine and New Jersey’s laws, sSB 620 originally extended the grants to any type of business creating any type of job. Subsequent amendments limited the grants to businesses within the industry clusters, but did not limit the types of jobs they had to create.

GRANT AMOUNTS

The states base the grant amount on a portion of the personal income taxes businesses withhold from the employees filling the eligible new jobs.

• The portion ranges from 30% to 75% in Maine, depending on the unemployment rate of the county where the business is located. But it is 80% if the business is located in one of the eight Pine Tree Development Zones, designated development areas comparable to Connecticut’s Enterprise Zones.

• The portion is 50% in Massachusetts.

• It ranges from 10% to 80% in New Jersey, depending on a business’ corporate form, the number of jobs it creates, and whether the relocation or expansion furthers land use policy goals.

The grant amount under sSB 620 ranges from 10% to 50% of the amount withheld from the employees filling the eligible new jobs. The economic and community development commissioner determines the actual portion. Subsequent amendments expanded the range to 80%.

ADMINISTRATION

Application

The states administer the grants through a two- or three-step process. A business must first have the state certify whether it is eligible for a grant, which it does by applying to a state agency. If the agency certifies the business’ eligibility, the business must then apply for the grant payment each year during the grant term. In doing so, it must submit data showing that it created the required number of jobs.

New Jersey’s process includes an intervening step. If the agency approves the application, the business must sign an agreement that stipulates the grant’s terms and conditions. These include maintaining operations and the number of eligible jobs at its current site for at least 15 years.

sSB 620’s administrative structure is similar to Maine and Massachusetts’. Businesses must apply to the economic and community development commissioner for a certificate entitling them to annual grants. Once certified, they must annually apply for the grant payment.

Annual Certification

Since the states provide multi year grants, businesses must annually certify their continued eligibility. Maine businesses must report to the state tax assessor on the number of employees and the taxes withheld from them. Massachusetts businesses must the revenue commissioner their prior year’s weighted employment. New Jersey businesses must submit payroll reports to the state’s development authority on the new jobs they create.

sSB 620 allows businesses to claim grants if they retained the minimum number of new employees without laying off other employees. A business meets this criterion if its total layoffs during the year were less than 10% of the total number of new, full-time employees. If it fails to meet this criterion, the economic and community development commissioner can revoke the business’ eligibility for future grants.

Subsequent amendments require the business to certify that it:

1. hired the minimum number of new, full-time employees and retained them during the 12-month grant period, and

2. withheld from their wages an amount that substantially equals their estimated state income tax for the period and paid that amount to the revenue services commissioner.

Attachment 1: Maine, Massachusetts, New Jersey, and Connecticut Job Incentive Legislation

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