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Posted on: June 8, 2018

NJLM Discusses ETR Shift with State Treasurer Muio

On Thursday, League staff met with State Treasurer Elizabeth Maher Muoio, members of her Senior Staff and Governor Murphy’s Chief Counsel Matt Platkin. Among other things, we discussed the Administration’s proposed Energy Tax (ETR) shift.

As we have previously written, this change is not meant to, and will not, decrease the amount of property tax relief funding that the State will provide to any municipality, neither this year nor next. As Treasurer Muoio has consistently stated, the Administration means “to ensure that the municipal aid that Energy Tax Receipts have historically funded remains constant …” and that this change “will have NO impact on municipal revenue and towns will see NO change in the amount of money they receive.”

Specifically, the Governor’s proposal would open the ETR ‘lock box,’ which has always been funded through taxes (Sales and Corporate) levied on energy suppling utilities. Instead, the upcoming budget would deliver level funding with Income Tax dollars. To be clear, this does not mean a reduction in funding for what the State calls municipal aid. The funding would generally be the same as it was last year (and the eight previous years) but would be allocated from a different fund at the State level.

This would be accomplished through specific budget language, not a statutory change and thus would only apply, we are told, to the upcoming State Appropriations Act for FY 2019. In other words, the Administration is taking the position that the amount of funding would remain the same for FY 2019 and that in order to accomplish this again in the future, it would require annual budget language.

A little background on New Jersey State finance will help to explain the State’s reason for the proposed shift.

The vast majority of the money that the State collects (and spends) every year goes into one of four main funds. (A fifth fund, the Gubernatorial Election Fund, exists only to provide State funding for those elections.) Three of the four funds can only be used for specific purposes.

The Casino Control Fund (with revenues derived from casino-related licensing fees, which must be used to fund the Casino Control Commission and the Division of Gaming Enforcement) and the Casino Revenue Fund (with resources derived from a gross revenue tax on the casinos, and which must be used for the benefit of senior and disabled citizens) are not involved in the matter at hand. Monies collected through the State Income Tax are deposited into the Property Tax Relief Fund (PTRF) and are constitutionally dedicated and must be spent on a purpose that can reduce or offset property taxes.

The General Fund receives most other State taxes, fees, fines and Federal funding. The two largest sources of General Funds are the State Sales Tax and the Corporation Business Tax. (Portions of Sales and Corporate Taxes are, like the ETR, dedicated for specified purposes. But the lion’s share of all sales and corporate taxes goes into the General Fund.) General Fund revenues can be used for any number of purposes, and the General Fund supports State government operations.

In recent years, Income Tax collections (and the PTRF) have grown more rapidly and more consistently than Sales and Corporate Taxes (and the State’s General Fund). The Administration’s proposal would treat the Sales and Corporate Taxes derived from energy supplying utilities that same as most other Sales and Corporate Taxes. Without the proposed shift, the General Fund could run out of cash.

While we remain very concerned with the long-term implications of this shift, and expressed that concern directly to the State Treasurer, we do appreciate the Treasurer’s position and her willingness to consider further discussions on this problem. We will continue to advise you of developments.

Contact: Jon Moran, Senior Legislative Analyst, jmoran@njslom.org, 609-695-3481, Ext. 121.

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