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May 7, 2010

RE: STATE FY ‘11 BUDGET PROPOSAL REVIEW

Dear Mayor:

We deeply appreciate the size and the number of the problems that face the Governor and the Legislature, as they struggle to craft a balanced budget for New Jersey’s next fiscal year. We recognize the condition of New Jersey’s finances and the challenges posed by the over-all state of the economy. Further, we share the State’s commitment to good conservative management of scarce resources

There is no easy way out of an $11.2 billion budget hole. But the best way will inevitably involve broadly shared sacrifices. Municipal officials are braced to do their part, recognizing that their property taxpayers need to be insulated, as much as possible, from the impact of those sacrifices.

We are, therefore, grateful for the Administration’s interest in providing local governments with relief from some unfunded mandates and with management tools that might help limit local costs. We will continue to support the Governor and Lieutenant Governor during this economic crisis in addressing issues that result in high property taxes, and we will continue to work with Red Tape Review Group as it moves beyond its April 20 final recommendations, toward actual action on unfunded State mandates.

We are gratified that Governor Christie intends to provide local officials with meaningful tools to limit the impact of the cuts. And we salute Governor Christie for his leadership on this. Binding Arbitration reform, which requires arbitrators to recognize local caps and the impact of awards on property taxes, and Civil Service reform that allows local governments to opt out of the system, have long been sought by the League. Combined with the pension and benefit reforms already passed by the Legislature, they represent real progress. But frankly, it is unrealistic for anyone at the Statehouse to believe that the state can first cut municipalities, then, months later provide them with a first aid kit and not expect them to sustain a serious injury.

The magnitude of the proposed cuts is significant. And these $466 million reductions would follow two consecutive years of declining relief, which have already cost local officials and their property taxpaying citizens 10% of total funding.

This proposed budget would:

  • cut $271.4 million from combined CMPTRA/Energy Tax funding;
  • cut cumulative funding, from Special Municipal (Urban) Aid, Extraordinary Aid and Capital City Aid, by $71.9 million;
  • eliminate $7.6 million of Pinelands and Highlands Property Tax Stabilization funding;
  • reduce Open Space Payments in Lieu of Taxes by $3.53 million, as the first step in a phase out of this funding;
  • divert all Urban Enterprise Zone Sales Tax receipts, estimated at about $91 million, to the State’s General Fund; and
  • eliminate $6 million in REAP funding and $8 million from the Consolidation Fund.

And let the record be clear. The State is, once again, balancing its budget with municipal revenues. In order to avoid increasing taxes intended for State use, the Administration intends to continue the practice of using municipal property tax relief funding to bridge the gap. In fact, most of the Consolidated Municipal Property Tax Relief Act (CMPTRA) and all of the Energy Tax Property Tax Relief (Energy Tax) funding is revenue replacement funding. It is not intended for State use and is supposed to replace revenues that were originally collected by municipalities for local use. Those alternative revenues (like the Public Utility Gross Receipts and Franchise Tax, the Bank Stock Tax, the Business Personal Property Tax, the Financial Business Tax) delivered municipal property tax relief for a long time, before various ‘reforms’ took them away from our cities, towns, townships, boroughs and villages – always accompanied by the solemn, statutory vow that municipal budgets would be ‘held harmless.’ Further, pursuant to a ten year old State law, which has long been honored more in the breach than in the observance, CMPTRA and the Energy Tax are both supposed to be annually adjusted to account for the effects of inflation. Instead, they will be cut by $271 million, in the Governor’s proposal.

A 20% cut, instead of an increase that would offset inflation and increased costs, will present a serious challenge to local budget makers, struggling to provide essential municipal services, effectively and efficiently.  And a 2.5% cap is unthinkable, unless State government returns to local elected officials the ability to actively and aggressively manage their operations. 

Further, based on proposed language in the Governor’s proposed budget, the Division of Local Government Services (DLGS) has advised municipalities that “any amount of state formula aid reduction used as a levy cap exception …will result in an offsetting decrease to CMPTRA/ETR formula aid payments.”

We have asked Governor Christie to direct DLGS to rescind this directive, and to withdraw the operative language from his budget proposal. We have also asked the Senate and Assembly Budget Committees to remove this language from the proposed budget, as soon as possible.

This effort to penalize those municipalities who seek to utilize a legal levy cap exception is NOT based on current State law. It is based on a proposed provision in the Governor’s proposed State budget. DLGS has issued its operational guidance IN ANTICIPATION of Legislative acceptance of the proposed budget language. But beyond those procedural irregularities, it is, we believe, bad public policy.

Still, as we have stated many times, there are other ways, besides compliance with its own laws, for the State to help us deliver property tax relief. Chief among them is by providing immediate and significant mandates relief. And next in importance would be a “tool kit” of management reforms.

We thank Governor Christie for outlining such a set of proposals that might allow local officials to rein in some of the major cost drivers of local budgets. Many of these initiatives, such as pension, interest arbitration and civil service reforms, have long been championed by the League.  Coupled with actual action on unfunded mandates by Lieutenant Governor Guadagno’s Red Tape Review Group, these reforms could begin to allow local officials to craft more efficient, effective and economical programs and policies. 
 
The League, however, has concerns about the practical implications of the Governor’s proposed 2.5% cap.  This year, for example, municipalities have reported public employee health benefit cost increases ranging from 7% to 17%. Utility costs have climbed by 4% to 16%. Motor vehicle fuel costs have jumped, at 5% to 20% rates. And public employee pension costs rose by as much as 12%. Fitting such increases under an arbitrary and artificial 2.5% cap will force reductions in other areas. Unless the legislation accounts for the impact of such factors, beyond the control of any local officials, a tight, hard cap will cause headaches for all New Jersey citizens who depend on vital municipal programs and services. Deeper cuts and tighter caps are not the answers to our over-reliance on regressive property taxes.

We have been advised that the Administration intends to provide further information on the ‘toolkit’ early in May. We have urged the Legislature to act on binding arbitration reform, civil service reform and immediate and significant mandates relief BEFORE it adopts a budget containing such drastic property tax relief funding cuts.  Legislative action on the helpful items in the Governor’s ‘tool kit’ and on mandates relief cannot wait until after this budget is put to rest.

The Governor has promised to call for a Citizens Convention for Property Tax Reform, if the problem is not solved in his first two years in office. Cuts and caps alone will not solve the problem. A better understanding of the complexities of our property tax crisis and the importance of local government programs and services to the quality of life in New Jersey will demonstrate the need for a more thoughtful and thorough response.

Over the next few weeks, the Legislature will finalize the next State appropriations act. We urge you to contact your State Legislators regarding your concerns with the effects of the proposed spending plan on your constituents.

If you have any questions, contact Jon Moran at 609-695-3481, ext. 121.

Very truly yours,



William G. Dressel, Jr.
Executive Director

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