The current recession has been bad medicine for New Jersey municipalities. As the foreclosure and unemployment rates rise, the tax collection rate falls. As the economy stalls, new construction slows with it. As interest rates fall, the rate of return on our reserves falls with them.

  Though we understand the budgetary pressures that the state faces, we are disappointed that the Legislature may again this year
ask municipalities to absorb diminished municipal revenue replacement funding. Particularly troubling are the cuts in individual Energy Tax funding. When that tax replaced the old franchise and gross receipts tax, at our request, the Legislature included a
“poison pill.” That provision states that the state must meet annual municipal funding requirements or it would forfeit its right to collect the levy.

This year’s proposal would cut Consolidated Municipal Property Tax Relief Act (CMPTRA) funding by $94 million and divert $62 million of that to the Energy Tax, to avoid the ‘poison pill.’ That leaves the state with the $32 million that would have given us level funding.

Though the lessening of individual Energy Tax apportionments seems to meet the letter of the law, with regards to the “poison pill,” it certainly strays from the spirit. In accepting our request for the “poison pill,” it was clearly the intent of the Legislature to protect the taxpayers in all municipalities from the state “skims,” which were routine throughout the 1980s and the 1990s.

With the enactment of Chapter 168 of the Public Laws of 1999, requiring annual inflationary adjustments of the distributions of both the Energy Tax and CMPTRA, we believed that the property taxpayers in all municipalities had been promised real relief, which would be sustained, in good times and in bad, for many years to come.

Since CMPTRA was not ‘poison pill’ protected, however, those with the power to do so, at that time, soon abandoned the spirit of Chapter 168 by diverting moneys from CMPTRA, in order to appear to meet the inflation adjustment requirements of the Energy Tax. So, for the next several years, municipalities received flat funding, and local taxpayers were denied the benefits of inflation adjusted relief.

Editorial from New Jersey Municipalities, Volume 86, Number 4, April 2009