November 22, 2010
RE: RESOLUTION SEEKS COMPLIANCE WITH STATE FUNDING STATUTES
Last week, delegates assembled at the League’s Annual Business Meeting voted in favor of 25 Resolutions. These adopted Resolutions will set the major priorities for the League’s Legislative Action Program for the coming year. We will soon be reporting to you on all of these resolutions. All 25 resolutions will be posted in their entirety later this week.
But we ask that you give careful consideration today to our “RESOLUTION TO END STATE DIVERSION OF MUNICIPAL REVENUES AND DEMAND COMPLIANCE WITH STATE LAWS.” (WORD or PDF)
As most veteran municipal officials know, New Jersey’s two main formula-driven general municipal property tax relief programs, though often referred to as “State Aid” programs, are actually revenue replacement programs, intended to replace property tax relief funding that was, formerly, generated through taxes assessed and collected locally.
Pursuant to this Resolution, the League will demand an immediate end to the State’s reliance on the municipal property tax relief revenues to balance its budget and address other priorities. Accordingly, the League will call on the Governor to introduce and the Legislature to adopt an FY 2012 State Budget that provides for the full statutory distribution of Energy Tax and CMPTRA revenue replacement funding, and to continue to honor the letter and spirit of the applicable State statutes, in all years, thereafter.
The Energy Tax Receipts Property Tax Relief program is the direct descendant of the Public Utility Gross Receipts and Franchise Tax, which was a tax on regulated public utilities originally assessed and collected at the municipal level. In the early 1980s, at the request and for the convenience of the tax paying utilities, the State became the collection agent for this assessment, and the law that effected this change promised that the proceeds would be distributed back to the municipalities. As the Resolution states, the State of New Jersey never honored that commitment, immediately and annually diverting large and growing portions of the proceeds to its own general fund. Modernization and deregulation led to a major reform of utility taxes in the mid-nineties, which validated and, supposedly, capped the State’s annual portion of the tax proceeds.
Around the same time, for its own convenience, the State decided to ‘consolidate’ a number of previously discrete municipal property tax relief programs. Among its many components, CMPTRA includes the Financial Business Tax, the Business Personal Property Tax Replacement, the Railroad Class II Property Tax, the Insurance Franchise Tax, the Corporation Business Tax on Banking Corporations and State PILOT payments, that had been under-funded for many years, prior to being folded into CMPTRA. These were all municipal revenue replacement programs - not, properly speaking, State aid, in that they were not meant to make things better for municipal property taxpayers; they were only intended to keep things from getting worse.
In the late-nineties, a law was passed that required both the Energy Tax and CMPTRA distributions to be annually increased by the rate of inflation. Thereafter, State policy makers skirted the law by annually reducing the CPMTRA distribution by the same amount that it increased the Energy Tax distribution. The State, then, strayed even farther from original legislative intent, when, in 2008, CMPTRA was reduced by about $62 million more than the Energy Tax was increased, and in 2009, the net loss equaled about $32 million. Meanwhile, the State’s Energy Tax skim, which had totaled $403 million in 1998, more than doubled to $829 million in 2008.
Obviously, this diversion of municipal property tax relief funding to other State priorities has poked gaping holes in local budgets and had a major impact on local purposes tax levies, throughout the State for longer, now, than the past decade.
Your property taxpayers will see real property tax relief if the State can be convinced to comply with its own revenue replacement funding statutes.
Please contact your Legislators and the Governor’s Office. Urge them to end the State’s diversion of municipal revenues. If you have any questions, contact Jon Moran at 609-695-3481, ext. 121 or email@example.com.
Very truly yours,
William G. Dressel, Jr.