By Joseph De Avila 

New Jersey's Economic Development Authority said it plans to tweak how the agency makes money after a state task force raised concerns about a potential conflict of interest.

The EDA's lax oversight of the state's $11 billion corporate tax-incentive program resulted in improperly awarded tax breaks, according to a report released this month by a task force appointed by Gov. Phil Murphy.

Businesses paid fees to the EDA for the tax credits, and the greater the credit, the greater the fee.

"The EDA thus has a financial interest in the approval and award of tax credits," the report said. "This presents the risk that the EDA may have a natural incentive to administer the tax-incentives programs in a manner that results in more, rather than fewer, approved awards."

EDA staff told the task force that the fees didn't affect how they determined awards, according to the report, and the task force didn't find evidence to contradict that. But nevertheless the task force said the fees presented "questions of the EDA's operations at the systemic level."

New Jersey's EDA doesn't receive any funds from the state budget unlike many other state economic-development agencies, including those in New York and Connecticut. Instead, the EDA is entirely self-funded through fees, rent from real-estate holdings and interest earned from lending money to businesses.

In 2013, the EDA changed how it calculated fees, and they became a larger component of funding for the authority. Fees for the tax credits accounted for 36% of the EDA's revenue in 2017 and 29% in 2018, said Tim Sullivan, chief executive of the EDA.

That figure is expected to drop to about 10% and 12% for 2019, he said.

"In a normal year, we should seek to break even, not make a profit," Mr. Sullivan said in an interview. "We aren't here to optimize the financial performance of the EDA."

New Jersey's tax-credit program expired in June, and the EDA is no longer taking applications. Mr. Murphy, a Democrat, has called for capping the amount of tax credits that can be awarded annually to $340 million. The expired program had no cap.

Mr. Sullivan said Mr. Murphy's proposed cap would mitigate the conflict of interest concerns raised by the task force because it would also limit the amount of money the authority could collect from fees.

The governor, however, hasn't reached an agreement with lawmakers on how to move forward. Senate President Steve Sweeney, a Democrat, has opposed a cap and said it puts the state at a competitive disadvantage.

Mr. Sullivan said that whenever the governor and the legislature reach an agreement, his team will make changes to the fees.

"We'll take a look at the fees side of it to make sure it's calibrated the right way, balancing our need to support our operations but also balancing the considerations outlined in the task-force report," Mr. Sullivan said.

Write to Joseph De Avila at joseph.deavila@wsj.com

(END) Dow Jones Newswires

January 27, 2020 10:23 ET (15:23 GMT)