|April 8, 2008
Property Tax Relief Funding Cut Update
In recent weeks, first the Governor, and then the Assembly Speaker have called for a new distribution formula for municipal property tax relief funding. The Administration, it seems, finds “no rhyme or reason” to the current formulas. The Speaker wants all relief funding to be distributed on the basis of efficiency. But the effectiveness of any formula can only be determined if the formula is actually used.
There are two main formula-driven general municipal property tax relief programs currently on the books in our Garden State. The simplest is the Energy Tax Receipts Property Tax Relief program. It is the direct descendant of the Public Utility Gross Receipts and Franchise Tax (PU-GRAFT). That was a tax on regulated public utilities originally assessed and collected at the municipal level. In the early 1980’s, at the request and for the convenience of the tax paying utilities, the State became the collection agent for this assessment. The law that effected this change promised that the proceeds would be distributed back to the municipalities, which provide services to utility facilities and from whence come utility profits. The State of New Jersey never honored that commitment, immediately diverting large and growing portions of the proceeds to its own general fund. Modernization and deregulation led to a major reform of utility taxes in the mid-Nineties. That reform law validated and, supposedly, capped the State’s annual skim. And it included a ‘poison pill,’ which required the State to annually increase the municipal distribution of Energy Tax proceeds. Failure to honor that pledge was supposed to result in the forfeiture of the State’s authority to collect the tax.
Around the same time, for its own convenience, the State decided to ‘consolidate’ a number of previously discrete municipal property tax relief programs. And, while the current administration may see ‘no rhyme or reason’ to the distribution of Consolidated Municipal Property Tax Receipts Aid (CMPTRA), each of its component parts was distributed according to state established formulas. And many of those parts were, like Energy Taxes, the lineal descendants of taxes that had once been assessed and collected at the municipal level. Among its many components, CMPTRA includes the Financial Business Tax, the Business Personal Property Tax Replacement, the Railroad Class II Property Tax, the Insurance Franchise Tax, the Corporation Business Tax on Banking Corporations and a big chunk of State PILOT payments, that had been under-funded for many years, prior to being folded into the Consolidation. These are, or were, all municipal revenue replacement programs. They were not, properly speaking, State aid. They were not meant to make things better for municipal property taxpayers. They were only intended to keep things from getting worse.
In the late-Nineties, a law was passed that required both the Energy Tax and CMPTRA distributions to be annually increased by the rate of inflation. That law posed a special problem for future State budget makers. But, as those budget makers viewed the matter, the problem was not how to comply with the requirement. The problem was how to evade compliance without invoking the Energy Tax ‘poison pill.’ And how did the State increase Energy Tax distributions by the rate of inflation for five straight years without providing municipalities with one new dollar in property tax relief? It reduced the CPMTRA distribution by the same amount that it increased the Energy Tax distribution. This year, it proposes to do even more. This year, CMPTRA is to be reduced by about $62 million more than the Energy Tax will be increased.
Though they may be ignored, formulas matter, if for no other reason then they give us a standard by which to judge an official’s commitment to property tax reform. Accordingly, we stand ready to work with the Speaker and the Corzine Administration on changes. If there needs to be a discussion about a new formula for phasing in property tax relief funding cuts to address the State’s budget problems, if there is to be a serious discussion about the way municipal property tax relief funding is distributed, or if anyone in Trenton wants to discuss the continued need for meaningful and sustainable property tax relief and reform, we stand ready to assist.
In the meanwhile, without any ‘efficiency measures’ that can be computed in time to allow municipalities to rationally plan and budget this year, we continue to call for full restitution of property tax relief funding in this year’s budget. We, however, would welcome the opportunity to work with anyone on the fairest way to deal with municipal property tax relief funding in future years.
If you have any questions on this, please contact Jon Moran at 609-695-3481, ext. 121.
Very truly yours,
William G. Dressel, Jr.