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Efforts to promote commercial development has put New Jersey at high risk for misuse of tax revenue, and has created a growing trend in which cities borrow against future growth, according to a report released today by the New Jersey Public Interest Research Group.

The report finds the state's municipalities have strayed from the original purpose of tax-increment financing — to revitalize struggling neighborhoods — and now use the tool as an "all-purpose subsidy for developers," Gideon Weissman, NJPIRG program associate, said in a news release.

The state has "some of the biggest potential for abuse," because it has up to 19 sources of incremental local and state revenue that can be used financing deals, he said.

The news release points to the tax breaks that could be made available to Triple Five Group, the Canadian firm that plans to develop the former Xanadu site at the Meadowlands as American Dream. The company could be eligible for hundreds of millions of dollars in incentives through tax-increment financing, the report said, adding that the state’s redevelopment laws were expanded to specifically accommodate the project.
 
The state Economic Development Authority has yet to receive an application for American Dream, agency spokeswoman Erin Gold said.

"It's not hard to understand why municipal officials like a sudden infusion of cash and developers like the subsidies, but localities need to ensure that use of these tools is closely targeted to advance clear long-term needs rather than development in general," Weissman said in a prepared statement.

The report recommends stronger guidelines to ensure that tax-increment financing becomes "more targeted, transparent, accountable and democratically governed." The recommendations include using tax-increment financing deals as only a part of the redevelopment strategy, and in limited areas, as well as capping the percentage of a town's total land that can be placed under the financing agreements.

Correction: An earlier version of this story misstated the status of incentives available to Triple Five.