Government & Regulatory Affairs Alert Blog

2019 Election Results Bring Little Change to State Legislature

Democrats billed the 2019 elections as a referendum on President Trump. Republicans dubbed the off-year contests as the “Murphy Mid-Term” and a chance to stall Democratic attempts to build on the “blue wave” of 2018. Who was right? It looks like both sides can declare victory. With the 80 seats of New Jersey General Assembly up for election, along with a Special Election for the Senate seat in the First Legislative District (Cumberland, Cape May and Atlantic Counties), the election returns produced mostly a status quo result. Democrats will continue to control both the General Assembly and State Senate, but with majorities slightly smaller than in the past session. All three Democratic incumbents in the First Legislative District lost to their respective Republican challengers. The race for the two Assembly seats in the Second Legislative District was extremely close, but it appears the Democratic incumbents will be victorious. Even with the loss in the First Legislative District, Democrats still retain a wide majority in the Assembly (52-28) and the Senate (25-15). Republican incumbents were able to hang onto victory in District 8 (Burlington County), District 21 (Morris, Somerset, and Union Counties), and District 25 (Morris and Somerset), where Democrats ran...

Budget Matters, Incentives, and Cannabis Will Be This Summer’s Hot Topics in Trenton

The Summer is here and the halls of the Legislature are quiet, but three topics that controlled much of the debate in Trenton this year are expected to drag into the Fall: the state budget, economic incentives, and cannabis. Fiscal Year 2020 Governor Murphy signed the Fiscal Year 2020 budget on June 30, avoiding a government shutdown, but not ending the debate on taxes and spending. After the Legislature sent the Governor a budget that did not include a millionaire’s tax, corporate responsibility fee, and tax on opioid manufacturers, the Governor line-item vetoed several appropriations and signed an Executive Order authorizing the State Treasury to place in reserve approximately $235 million in state appropriations. In 2016,Governor Christie took similar action when his Administration froze approximately $100 million in spending as the state health benefit plan design committees considered cost reductions. Prior to the July 4th holiday, the Murphy Administration announced the full list of spending items placed in reserve. The funds will only be released after the Treasurer certifies that certain revenue objectives are met, meaning this issue will linger for several months. Economic Incentives Also on June 30, the State’s two main economic incentive programs, the Grow NJ Assistance...

NJ Department of Health Issues Alternative Treatment Center Request for Applications

The New Jersey Department of Health issued a Request for Applications today that would license up to 108 Alternative Treatment Centers (ATCs) for the cultivation, manufacturing, and dispensing of medical marijuana. Unlike the currently licensed ATCs, this call for applications does not require a licensee to be vertically integrated. The Department will, instead, issue endorsements for the various functions: cultivation, manufacturing, and dispensary. In total, the Department will seek up to 24 cultivation endorsements, up to 30 manufacturing endorsements, and up to 54 dispensary endorsements. Licenses will still be issued regionally, with up to 38 licenses available in the northern and central region, and 32 licenses in the southern region. The number of endorsements by region is as follows: Northern Region Cultivation endorsements: 8 Manufacturing endorsements: 10 Dispensary endorsements: 20 Central Region Cultivation endorsements: 8 Manufacturing endorsements: 10 Dispensary endorsements: 20 Southern Region Cultivation endorsements: 8 Manufacturing endorsements: 10 Dispensary endorsements: 14 Applications will become available on July 1, 2019 and will be due on August 15, 2019. A pre-submission webinar will be hosted by the Department on July 16, 2019. Please contact us should you have any questions about the endorsement and application process. Michael D. DeLoreto, an Associate...

Opportunity Zone Update – IRS Releases Second Set of Proposed Regulations

On April 17, 2019, the Internal Revenue Service released the second set of Qualified Opportunity Zone (“QOZ”) proposed regulations (the “New Regulations”). The New Regulations address multiple issues relating to the structuring and operation of qualified opportunity zone funds (“QOFs”) and provide clarity on areas that include: Meeting the original use test for purchased tangible property Safe harbors for leased tangible property to qualify as QOZ business property Related party rules for leased tangible property and tangible personal property Investment vs. active business use of QOZ land Safe harbors to meet the 50% gross income test for the active conduct of a QOZ business Inclusion events for otherwise deferred capital gains Definitions for the term “substantially all” used in several statutory provisions Special elections when QOF partnerships and S corporations dispose of property after 10 years QOF reinvestment of the proceeds from the distribution, sale, or disposition of QOZ property Application of the 90% asset test to newly contributed QOF assets The New Regulations provide answers to many unresolved questions and present needed definitions where uncertainties were impeding investment into QOZs, particularly with respect to QOZ businesses. Our new article discusses many of the details. Peter J. Ulrich, a Director...

Four Things to Watch After Legislature Cancels Votes on Marijuana

To the dismay of advocates and the cheers of opponents, the New Jersey Legislature canceled its scheduled votes on a three-bill package to legalize marijuana for adult use, expand the State’s medical marijuana program, and expunge the records of certain marijuana offenders. For the time being, New Jersey will not become the eleventh state to legalize cannabis for recreational use. But with legislators still committed to moving the issue in the future, here are four things to watch in the coming months. Will the Governor Take Action to Expand the State’s Existing Medical Marijuana Program? Marijuana is legal for medical use in New Jersey, and the State’s medical program has seen a rapid expansion under the Murphy Administration. Under the current framework of the “Compassionate Use of Medical Marijuana Act,” the Governor has the authority to permit more alternative treatment centers (ATCs) in the State, and to continue to expand the list of qualifying medical conditions that marijuana can be prescribed for. Governor Murphy and his Department of Health did a call for applicants in August 2018, and issued permits for six new vertically-integrated ATCs. The Governor expressed his desire to expand the medical marijuana program aggressively if legislation did...

Governor Murphy Presents FY 2020 State Budget

Governor Murphy presented his proposed Fiscal Year (FY) 2020 Budget to a joint session of the New Jersey Legislature on March 5, 2019. His spending plan for the upcoming fiscal year totals $38.6 billion, which is a $1.3 billion increase from last year’s appropriations bill. The Governor’s budget message continued his theme of a “fairer and stronger economy” to make the middle class more secure. He highlighted the recent enactment of a $15 minimum wage, expansion of paid family leave, and the implementation of the state’s paid sick leave law. The Governor also continued his call for greater K-12 education funding and making community college tuition free. The Governor’s proposal for FY 2020, which he described as a “blueprint for the middle class,” is built upon four pillars: Realizing sustainable savings; Stabilizing revenues and increasing creditworthiness; Maintaining and growing investment in education, infrastructure, and innovation; and Addressing affordability. To accomplish these goals, the Governor proposed: Achieving $1.1 billion in savings from public employee health benefit reforms and other departmental savings identified by the Treasury; Increasing the State’s surplus to $1.2 billion; Funding the State’s pension system at $3.8 billion; Reducing the diversion of funds from dedicated sources like the Affordable...

Recap: IRS Convenes Public Hearing on Proposed Regulations for Opportunity Zones

Jason J. Redd, a Director in the Gibbons Government & Regulatory Affairs Department attended an overflowing public hearing on February 14 convened by the Internal Revenue Service for the purpose of obtaining input from stakeholders concerning the initial proposed regulations for Opportunity Zones (OZ) issued in October. The IRS is reviewing comments on the first round of proposed rules and is expected to issue the next round of proposed regulations in March, with the potential for final regulations to be issued in late spring. Witnesses at the packed hearing included state cabinet officials, as well as representatives from state economic development groups, small businesses, community reinvestment coalitions, investment funds, and technology and planning organizations, among others. Testimony focused on ensuring that program regulations maximize investment and economic growth by generating new development, capital, and jobs in the distressed communities where OZs are located. There was also a clear call, by all in attendance, for clarity and flexibility in the next round of rules. Suggestions included: (i) modifying the rules to provide more flexibility to investors when exiting Qualified Opportunity Fund (QOF) investments, which is currently limited to a sale of the QOF investment itself; (ii) minimizing sourcing and location rules...

Murphy Announces George Helmy as Chief of Staff

Governor Murphy announced this morning that George Helmy, current State Director for Senator Cory Booker, will become his new Chief of Staff effective February 4, 2019. Mr. Helmy takes over for Pete Cammarano, who served as Chief of Staff during Governor Murphy’s first year in office. The Gibbons Government & Regulatory Affairs Department congratulates Mr. Helmy and looks forward to continuing to work with him in his new position. George brings both public and private sector experience to the Governor’s Office and has been a great advocate for New Jersey while working on Senator Booker’s staff. You can read the Governor’s full announcement here.

Here for the Holidays – New Jersey’s Tax Amnesty Program

As a welcome end-of-year present for those with overdue taxes, New Jersey recently launched its tax amnesty program, which began on November 15, 2018 and will end on January 15, 2019. Tax amnesty is available only for State tax liabilities for tax returns due on or after February 1, 2009, and before September 1, 2017. The program offers a waiver of some penalties, Referral Cost Recovery Fees, or cost of collection fees and one-half of the balance of the interest that remains due as of November 1, 2018. My Gibbons colleagues Peter J. Ulrich and Todd M. Kellert wrote a great article on the Tax Amnesty Program, which you can find here. If you have any questions, please contact us since the program is quickly coming to a close. Michael D. DeLoreto is an Associate in the Gibbons Government & Regulatory Affairs Department.

Qualified Opportunity Funds – An Important Step Forward – IRS Issues Proposed Regulations

On October 19, 2018, the IRS issued highly-anticipated proposed regulations regarding qualified opportunity funds (“QOFs”). As hoped, the proposed regulations provide taxpayers with sufficient initial guidance to start taking advantage of the outstanding tax benefits available to taxpayers making investments in QOFs investing in qualified opportunity zones. Under the new provisions, QOFs allow qualifying taxpayers to invest capital gain proceeds and achieve two significant and distinct tax benefits, (i) a deferral (and 10-15% reduction) of taxation on the original gains and (ii) essentially unlimited tax-free treatment of appreciation while invested in the QOF. The proposed regulations address several key issues relating to the establishment and qualification of a QOF, as well as the initial investments by taxpayers into such funds. Key sections provide that: only capital gains are eligible for deferral, QOFs may be structured as corporations or partnerships (or LLCs taxed as such), and gain proceeds may be split into one or more QOF investments. The proposed regulations also clarify rules relating to partnerships and create a new working capital 31-month safe harbor with respect to meeting the definition of a qualified opportunity zone business. Our new article on the significance and implications of the proposed regulations discusses many...