LOCAL PROPERTY TAXES AND
NEW JERSEY STATE GOVERNMENT

(Copy of the 2011 brochure as a PDF)

As you know, the level of public services in your community and the amount of property taxes that you pay are dependent on many factors. For example, the amount of property tax relief funding that municipalities get from the State directly affects your bill. When your property tax bill goes up and municipal services don't meet your needs, ask your State Legislators and the Governor if the State is providing your home town with adequate financial aid. Municipal property tax relief funding can help to pay for the local services you need and can keep your property taxes from going up—again.

Are property taxes a big problem for the people of New Jersey?
Much has been written about New Jersey’s chronic over-reliance on property taxes. When we look at the statistics, the scope of the problem can be intimidating.

According to the Census Bureau, in 2008, property taxes in New Jersey totaled $23 billion, and represented 42% of all state and local tax revenue. Nationally, property taxes equaled 30% of State and local tax revenue. Sales taxes in our State composed 24% of those revenues; and income taxes also equaled 24%. Nationally, sales taxes were 33% of the total; while income taxes were 23%. New Jersey's rank among the fifty states, per capita, was #1 in property taxes. In 2008, the New Jersey per capita property tax bill was $2,625. And in 2009, according to the Tax Foundation, our median residential property tax was $6,579— tops in the Nation. In the Census Bureau's 2008 charts, in New Jersey, property taxes account for about 98% of all locally collected revenues. The National average is about 72%.

As the Washington-based Center on Budget and Policy Priorities notes, "New Jersey does have one of the nation's highest property taxes as a percent of residents' personal income,ranking 3rd highest in 2006-2007… This reflects New Jersey's choice to rely almost exclusively on property taxes to support local services. "Local government revenue tells only part of the story. If one looks at total state and local revenue from their own sources as a percent of residents' personal income, New Jersey ranks 31st in the country — i.e., in the lower half of states. "New Jersey's income tax revenue ranks 20th in the country as a share of residents' personal income,while its sales tax revenue ranks 38th and its excise taxes rank 45th. In addition, New Jersey and its localities impose few fees or charges for services, ranking 48th in the country."

But what about all the money that the State gives to municipalities?
For the several years now, the New Jersey Legislature has adopted Appropriations Acts that under-fund key municipal property tax relief programs (CMPTRA and Energy Taxes). State statutes require annual inflationary adjustments in those programs. As the following chart demonstrates, for several years, funding remained virtually flat. Over the past three years, however, the funding (which is supposed to increase, according to State laws) has actually been reduced by almost 25%. By adopting these budgets, our local property taxpayers have been denied over $300 million of relief, over the past years. That money went to fund other State priorities—priorities other than property tax relief. This amounts to a significant 'reverse State aid' program.

Further, such under-funding of municipal property tax relief is nothing new to us. It goes back at least as far as the 1980's, when Public Utility Gross Receipts and Franchise Taxes were regularly 'skimmed' to fund other State priorities. The under-funding of municipal programs has been, and continues to be, a major factor contributing to the property tax crisis

. I suppose that means that we are now "celebrating" at least 25 years of reverse "State aid." The State of New Jersey uses municipal property tax relief funding to balance its budget.

Why do New Jersey local governments need funding from the State?
Because the State established tax policy for all levels of government in New Jersey, and because the State has made itself the collection agent for many taxes that used to be locally assessed and collected. Municipalities, counties and school districts need enough money to pay for the many essential services that they provide. Paying for and providing many of these services (including, for example, public safety, education, transportation and environmental protection) is a joint responsibility of state government and local governments. But New Jersey local governments are not only responsible for delivering most of these services; they also bear the primary responsibility for financing them. In the area of education, for example, local property taxpayers pay most of the costs, even though the State has a Constitutional obligation to ensure a thorough and efficient education for all of our children. Historically, the State's share of K-12 public school expenditures is around 40%. State lawlimits how local governments can raise money. Other than State and Federal funding, New Jersey local governments have only property taxes and limited user fees (charges imposed upon residents and businesses that use or receive a specific service).

Furthermore, over the last century, many taxes that had been collected by local governments were either abolished or became State taxes. In most cases, when these changes were made the State promised to reimburse municipalities either the amount they had been collecting or the amount that the State would collect. But that commitment has not always been scrupulously honored.

In the 1990's, Legislators in both parties and in both Houses recognized the fact that increases in population, prices, wages and employee benefits—increases over which mayors and governing bodies have little, if any, control— erode the ability of local officials to keep a lid on property taxes with "level funding." Appreciating that fact, they put laws on the books that were supposed to preserve the property tax relief benefits of at least these two programs, into the future.

Further, the State Constitution and State Statutes exempt many properties from local property taxes. These include State owned properties. In recognition of the local services provided to these properties, in 1977 the State enacted a "Payment in lieu of taxes' (PILOT) program. The PILOT was never fully funded, with most municipalities receiving, at best, 30% of their entitlement. In 1994, PILOT was folded, with numerous other revenue replacement programs, into the Consolidated Municipal Property Tax Relief Act (CMPTRA) program, which has rarely kept pace with inflation.

Given the need for effective local programs and services, and given the effects of inflation of property tax relief programs, and given the imposition of unfunded mandates and, finally, given the lack of other options, local officials have been forced into a growing over-reliance on regressive property taxes.

Why do you call it “municipal property tax relief” and not “State aid”?
We call it municipal property tax relief funding, and not "State aid," for this reason. The lion's share of the money that municipalities receive from the State is a replacement for funds that were originally direct sources of municipal revenue. From Public Utility Gross Receipts and Franchise Taxes, now distributed as Energy Tax funding, to Business Personal Property Taxes, Financial Business Taxes and Class II Railroad Property Taxes, all of which have been folded into CMPTRA, these revenues were intended for municipal use from their beginnings. When the State, at the request andfor the convenience of the taxpaying businesses, became the collection agent for these taxes, it pledged to redistribute the funds back to local governments. So, from our perspective, these do not constitute new "aid" from the Treasurer of New Jersey. Instead, we see them as local revenues, temporarily displaced.

And, when the people of New Jersey approved the Income Tax amendment to our State Constitution in 1976, they also approved a provision that dedicates "the entire net receipts" to property tax relief and that requires the Legislature to appropriate the proceeds to "the several counties, municipalities and school districts of this State." So, while the Legislature can establish the formulas by which these moneys are apportioned, they have no choice but to make certain that they
all get back to New Jersey property taxpayers and local governments.

Can local governments hold down the costs of public services?
Yes. And they are doing so. No municipal official wants to raise taxes. In addition to their commitment to their constituents, they are also motivated by an enlightened selfinterest (They pay property taxes, too.) and by a desire to remain in the public's service beyond the next election. Local budgets are subject to intense public scrutiny. Inflation alone forces municipalities to spend more, just to maintain current service levels. But aside from inflation, local expenditures are driven by demographics. Public school enrollments are on the rise. And service demands related to the aging of the "baby boom" generation will also increase on into the future.

How can the State provide needed relief to local governments and, more importantly, to property taxpayers?
APolicy makers in Trenton need to recognize the fact that there is a connection between property tax relief funding and property tax relief. New Jersey local governments need significant, dependable, sustainable sources of revenue, other than property taxes. We need to move away from our over-reliance on excessive, regressive property taxes. And only action at the State level, by either the Legislature or the people who elect State Legislators, can make that a reality.