OPINION: Cap on Aspire tax credits threatens NJ development

The basics:

• Author says a cap on Aspire tax credits could stall NJ projects
• Developers say program is key to financing housing and redevelopment
• Rising construction costs and interest rates widen project gaps
• Writer urges Legislature to expand or remove Aspire cap

For the first time since the Legislature created the Aspire Tax Credit Program in 2020, New Jersey’s development community can finally model, finance, and close Aspire supported projects with real confidence. It has taken years for the market to understand the mechanics of the program. It has taken years for lenders and investors to become comfortable with the tax credits. It has taken years for the New Jersey Economic Development Authority (NJEDA) to refine its processes. But today, Aspire is doing exactly what it was intended to do. It is making complex, high-cost projects financially feasible in both urban and suburban markets.

And just as the program becomes workable, the state is limiting it in a way that threatens the entire development pipeline.

The Legislature recently increased the amount of credits permitted under Aspire. That increase was necessary, but it was not sufficient. Aspire is not subject to annual appropriations. It is a tax credit program, not a budget line item. The problem is not a lack of state dollars. The problem is the artificial ceiling the Legislature has placed on the total amount of credits that can be awarded. Previous state tax credit programs operated without a cap and were allowed to meet market demand. Aspire, in contrast, is being constrained at the exact moment when the market needs it most.

The costs of development

The economics of development across New Jersey are unforgiving. Construction costs have reached historic levels. Interest rates have dramatically increased the carrying costs of projects. Municipalities continue to impose affordability requirements that further compress returns. Environmental, infrastructure, and regulatory burdens grow heavier each year. The result is simple. Without Aspire, many projects will not move forward.

This is not ideology. It is arithmetic. Anyone who is actually building in Newark, Paterson, New Brunswick, East Orange, Jersey City, or any other urban center understands this reality. The same is true in suburban communities where Aspire is now one of the only tools capable of supporting mixed income and affordable housing development. These projects face the same cost pressures and the same financing gaps and Aspire is often the only mechanism that can close those gaps.

Aspire was created to fill the space between what a project costs and what it can support. After years of uncertainty, the program is finally functioning. Developers can model it. Lenders can underwrite it. Investors can monetize it. Municipalities can plan around it. For the first time, there is predictability, which is the single most important ingredient in any development ecosystem.

But predictability means nothing if the program is capped at a level that bears no relationship to market conditions.

Potential consequences

If the state does not either remove the cap entirely or authorize a significantly larger amount of credits, the consequences will be immediate and severe. Projects in design will be shelved. Lenders will walk away. Capital will move to other states where construction and labor costs are lower, and incentives are not artificially constrained. Municipalities that have been counting on new ratables will be left with vacant lots and stalled visions. Housing production, including desperately needed affordable housing in both urban and suburban communities, will slow to a crawl.

New Jersey cannot claim to be serious about economic development while simultaneously restricting the only tool capable of making development feasible.

This is especially troubling because Aspire directly advances the state’s own policy goals. Every Aspire project must include at least 20% on-site affordable housing. Every Aspire project must pay prevailing wages during construction and for ongoing building services. Every Aspire project must incorporate green building design standards. These requirements ensure that Aspire delivers not only economic development, but also affordability, labor protections, and environmental responsibility. It is a win for residents, a win for workers, a win for municipalities, and a win for the state.

New Jersey cannot claim to be serious about economic development while simultaneously restricting the only tool capable of making development feasible. Urban revitalization and suburban housing production require more than speeches, press releases, and ceremonial groundbreakings. They require a program that is allowed to operate at the scale the market demands. At the moment, the state is offering the opposite.

Legislative options

The Legislature has two responsible options. It can remove the cap altogether, or it can authorize a significantly larger amount of credits that reflects the true cost of development in this market. Anything less is political theater. Aspire is not a luxury. It is not a giveaway. It is the backbone of development in New Jersey. Without it, the State’s communities will stagnate while other regions surge ahead.

New Jersey has the talent, the demand, the developers, and the municipalities ready to build. What it lacks is the political will to allow Aspire to operate at the level required to make that possible. If the State wants any chance of attracting private capital to its communities, it must stop restricting the program that makes investment feasible. The market has done its part. Now Trenton needs to do the same.

Chris J. Murphy is a founding partner of Murphy Schiller and Wilkes LLP and a member of the firm’s Executive Committee. He chairs both the Tax Credits and Incentives Practice and the Land Use, Zoning and Redevelopment Practice, overseeing two of the firm’s core statewide platforms. In these roles, he has helped clients secure approvals for more than one billion dollars in tax credits and incentives administered by the New Jersey Economic Development Authority and thousands of multifamily residential units throughout New Jersey.