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May 19, 2010

RE: Constitutional Cap Proposals (SCR-104/ACR-131 and SCR-103/ACR-130)

Dear Mayor:

On Monday, May 10, Governor Christie forwarded the 33 point ‘Toolkit” of reforms to Speaker Oliver and Senate President Sweeney.  We have begun our review and will keep you informed, as our analysis of the reform package progresses.

First and foremost in the package is the proposal allowing a simple majority of those who cast ballots at a general election to amend the State’s Constitution to impose a 2.5% cap on all property tax levies. The second proposal would allow a simple majority to amend the State’s Constitution to impose a 2.5% cap on some State spending. These initiatives will be formally introduced for legislative action as SCR-104/ACR-131 and SCR-103/ACR-130.

We appreciate the inclusion in these proposals of cap exceptions for the value of new ratables, for debt service and for capital expenditures. These are positive considerations, as are many other components of the ‘toolkit.’ A tighter cap is unworkable until the legislature advances proposals like arbitration reform. Without that, arbitration awards will continue to drive up local costs.

We believe, however, that further changes could immeasurably improve the proposals. Therefore, we have written to the Governor requesting the opportunity to meet to discuss the cap proposals as they would work in practice, as they relate to each other, and as they relate to other municipal property tax problems that could be rectified by State action.

Among the issues that we would like to discuss are the following.

In addition to a constitutional cap on property taxes, would the Administration support a constitutional dedication of municipal property tax relief funding?

State law requires the annual distribution of certain levels of CMPTRA and Energy Tax Receipts funding. Most of these are revenue replacement programs, replacing revenues formerly collected at the local level for local use. They were never intended for State use. Despite permanent State statutes, year after year, the State has diverted increasingly larger parts of these municipal revenues into its own General Fund, thus denying our property taxpayers the benefit of this funding. If the voters are to be asked to constitutionally bind future municipal budgets to the new cap, it would be fair to ask them to also constitutionally bind future State budgets to state property tax relief statutes.

Would the Administration support changes that would make the proposed local cap comparable to the proposed State cap?

The proposed State cap includes exceptions for pension payments and amounts required in response to natural and other disasters. Municipalities are also required to fund annual public employee pension and health benefit increases far in excess of the 2.5% limit. They should, similarly, be able to satisfy those obligations outside of the cap.  And they, too, incur excess costs in responding to blizzards, floods and other extraordinary events. In the interest of the public’s health and safety, municipalities need to have the flexibility to be able to respond to events, such as those which we have seen in the past year, and can occur at any time, in any place. It would, then, be fair to allow them the same flexibility the State intends to allow itself.

The proposed State cap can be exceeded by a 2/3 vote of each House of the Legislature. But the proposed local cap could only be exceeded by a referendum approved by 60 percent of the registered voters. We note that this cap would become a part of our State Constitution and applied to future budgets, if approved by a simple majority of those voting on the question. And we are unaware of any other provision of our Constitution that would require a vote by such a super majority. We believe it would be more reasonable and more fair to allow the local unit the same flexibility the State means to give itself, and to allow an exception to the cap to be approved by a 2/3 vote of the governing body. The proposal could allow the governing body to approve an exception that would increase the levy by up to 5%, and still require the voters to approve any increase over that level.

Would the Administration support a change to the proposed local cap that would allow cap banking?

You have already articulated the reasons for cap banking. The current proposal leaves the question of cap banking up to the Legislature (See paragraph 8.d. of the Proposed Amendment.), where it could be authorized or denied on a year-to-year basis. We think it fairer to include cap banking in the amendment.

Would the Administration support cap exceptions that would recognize the impact of increases over which local officials have no control?

In addition to pension and health benefit costs, which are driven by State policies and by market factors, a municipality also must account for sometimes dramatic increases in utility and commodity prices. 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 proposal accounts for the impact of such factors beyond the control of any local officials, a tight, hard cap will cause severe cutbacks to the quality of life programs and services that all New Jersey citizens depend on.

Would the Administration redefine the “debt service” exception as “capital improvement financing” to allow local units to meet capital needs through, for example, leasing or ‘pay-as-you-go’ options, as well as through debt service that redeem bonds?

Here again, the proposal allows the Legislature to define the ‘debt service’ and ‘capital expenditures’ exceptions. We think it better to clearly delineate these options in the proposed amendment.

We believe that these and other changes and additions to the new local cap proposal will help to make the ‘toolkit’ package an even more valuable asset for local officials, struggling to serve their fellow citizens effectively, efficiently, economically and ethically.

We look forward to working with the Governor on policies aimed toward economic recovery, and a better future for all the people of our Garden State.

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

Very truly yours,

Hon. Jim Anzaldi,                                                         William G. Dressel, Jr.
Mayor, Clifton and                                                       Executive Director
President, NJ League of Municipalities



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