The future of the state's Urban Enterprise Zone program is uncertain amid a disagreement between Gov. Chris Christie and Democratic leaders.
TRENTON -- Starting Jan. 1, shoppers across New Jersey began enjoying a slight cut to the state's sales tax thanks to a deal brokered by Gov. Chris Christie and top Democratic lawmakers.
But in a coincidence, five cities in the Garden State actually braced for the opposite that day. The reduced sales-tax rate that customers were used to getting at some business in Bridgeton, Camden, Newark, Plainfield, and Trenton nearly doubled as a longtime break expired.
And more cities could see the same in coming years if Christie and lawmakers don't come to a compromise regarding the future of a three-decades-old program on the brink of extinction.
For years, businesses in dozens of municipalities have been allowed to levy only half the state's sales tax on their products thanks to the Urban Enterprise Zone program, which aims to boost the economy in urban areas by granting numerous tax incentives to specific business districts, or zones.
But the program expired at the beginning of the year for the first five cities who took part when the program debuted in 1986. The state informed businesses in the zones that they were no longer allowed to offer a 3.5 percent reduced sales tax and we're now required to levy the state's full 6.875 percent sales tax. The latter is the new state rate, down from 7 percent, which took effect Jan. 1.
The issue? Last year, Christie conditionally vetoed a proposed 10-year expansion of the program, saying the UEZ is a "failed 30-year experiment" that has cost the state revenue. Instead, the Republican governor called for a study to find an alternative way to help cities.
Democrats responded by passing a bill last month that would authorize such a study but also extend the program for those five cities for two years.
Christie, though, has not taken action on the measure, leading the UEZ program to run out in those cities as 2017 arrived. It's still unclear whether he will eventually sign or veto the bill.
"Our general policy is not to discuss pending legislation until we have received a final bill and have had all the necessary time to properly review it," Brian Murray, a spokesman for the governor's office, said when asked about the measure.
State Assemblyman Reed Guscoria (D-Mercer), a co-sponsor of the legislation, said the loss of the program could cause some businesses to move out of state or shutter altogether, taking many jobs with them.
"It's going to be a big blow," Guscoria said.
The UEZ started in the 1980s in an effort to help New Jersey's cities compete with suburban shopping malls and other retailers. Today, there are 32 zones in 37 municipalities -- a swath that includes nearly 7,000 businesses across the state.
That includes the Jersey Gardens shopping mall and Ikea complex off the Turnpike in Elizabeth -- popular retail destinations for customers seeking to benefit from the reduced tax.
The program was slated to sunset after 20 years, but the state Legislature voted in 2001 to extend it for another 16 years. That period ceased at the end of Dec. 31.
Unless Christie and lawmakers reach a deal to save them, the remaining zones across New Jersey will run out between 2019 and 2026, according to the state Department of Community Affairs.
When he conditionally vetoed the 10-year expansion last year, Christie argued that the program was always designed to be temporary.
"State resources to help financially distressed municipalities should be temporary in nature and designed to provide these municipalities with tools to ultimately succeed on their own," Christie wrote in his veto message. "The UEZ program was initially intended to function in this way but has morphed into a permanent subsidy from all state taxpayers."
State Sen. Jeff Van Drew (D-Cape May), another co-sponsor, said the idea of the two-year extension plan (S2670/A4189) is to comply with Christie's call for an alternative program but without cutting off the sales-tax lifeline to cities in the meantime.
Van Drew admits that some UEZ may be poorly run, plagued by patronage, but he argued that they have made a difference.
"Let's set up the commission and really check it out," he said. "You can find out there's a lot more good to this than you realize."
The nonpartisan state Office of Legislative Services said in a fiscal estimate that the state could lose between $35 million and $39 million in sales-tax revenue over that period by keeping the break in place.
Brent Johnson may be reached at bjohnson@njadvancemedia.com. Follow him on Twitter @johnsb01. Find NJ.com Politics on Facebook.