By Ivan J. Kaplan and Stephen J. Pagano, attorneys with Becker Meisel LLC

July 21, 2006 – A little-known New Jersey law gives those municipalities that have been determined by the State to be lacking in basic medical service providers (Health Enterprise Zones or HEZs) the opportunity to offer commercial property owners and redevelopers powerful new incentives – substantial property and income tax breaks – when marketing properties located in, or within five miles of, an HEZ to applicable tenants. Enacted in 2004, the law is sometimes called Chapter 139 or the Health Enterprise Zone Act (the Act).

First, the Act gives a primary care dental or medical practice located in or within 5 miles of an HEZ the ability to deduct from its taxable income an amount equal to payments received by the practice in Medicaid funds, provided that at least half of the income earned by the practice is paid in Medicaid funds. For most practices located in an HEZ, this should not prove to be a difficult threshold to reach.

The Act also grants to municipalities located in an HEZ the ability to authorize a property tax exemption for that portion of a building used to house a medical or dental primary care practice. Property owners must rebate to that tenant an amount equal to the exemption, either in a lump sum or through discounted rental payments. In other words, at no additional cost to the owner, the owner or redeveloper can offer substantial financial incentives to a prospective medical practice tenant, subject to the following caveat: Not a single municipality has enacted an ordinance to grant these property tax breaks since The Act took effect in June 2005.

Currently, Newark appears to be the only city government that even has such a proposed resolution before it. This is too potentially powerful an incentive to let go to waste. The benefits to the city, including medical services, and to the practitioner, such as significant financial breaks, would seem to call for a much more concerted effort to convince applicable municipalities to act.

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