A-1 – Property tax levy cap and credit/rebate program
The League of Municipalities opposes A-1, the centerpiece of the Special Session’s effort to deliver meaningful property tax relief. This bill would establish homestead credits to reduce property taxes; impose a 4% cap on local tax levies; permit local units participating in the State Health Benefits Plan to negotiate cost sharing and require an arbitrator to consider the new 4% tax levy cap, when resolving contract disputes between a local unit and a public safety union.
It appears that this bill represents an honest effort to make the new caps more workable for local budget makers and to insure us of the State’s commitment to provide 100% reimbursement for the reduction in property taxes for those residents who choose to receive the relief in the form of credits. Unfortunately, it fails to do either.
Further, this bill does not identify the funding source or sources for the new credits. The source or sources need to be sufficient and have guaranteed growth, in order to ensure the sustainability of this program
The bill’s preamble (Section 1) includes a number of questionable assertions.
For example, the bill states that “the levy cap should protect taxpayers from large annual increases of recent years that have resulted in widespread dissatisfaction with prevailing tax burdens ….” In fact, dissatisfaction with this tax goes back a lot further. That dissatisfaction goes back at least as far as the Cahill Administration and has been the subject of study and discontent ever since.
Another section states that “A property tax levy cap is crucial to controlling various areas of government spending, especially those areas which have outpaced the growth in spending in the private sector.” In fact, neither this cap, nor anything else that has been considered by the legislature since comprehensive pension and benefit reform was taken off the table, will do anything to control local spending on public employee wages, salaries, pensions and benefits. That spending will continue to rise, because those costs will continue to escalate. In fact, this cap will force us to cut in all other areas – areas most in need of greater investment, because those are the only areas over which local budget makers can exercise direct control.
Another section states that the cap “will force government to live within their means (and) encourage public officials to elevate the public interest over special interests.” In fact, local governments have always “lived within their means.” In fact, by denying us statutorily mandated inflation adjustments to local property tax relief payments, and diverting those funds to other State priorities – priorities other than property tax relief – State budget makers have found a way for them to live within OUR means, as well. And the Legislature’s assertion that it needs to encourage US “to elevate the public interest over special interests” amounts to the same sort of finger-pointing that has allowed the property tax crisis to continue unabated for decades.
Finally, the preamble suggests that the levy cap “will compel all governmental units to prioritize spending decisions and to aggressively search for structural changes that will bring down long term costs.” In fact, local budget makers have consistently done the aforementioned prioritization. It is the Legislature that has seen other priorities as more important that property tax relief and reform. And, as to the search for structural reforms, we thought that was what this special session was for.
Sections 2 through 8 deal with school district caps and finances.
With regards to those sections of the bill dealing with the new caps (Sections 9 through 13 and 16 through 18), we appreciate a number of provisions that will help to make the requirement more workable. We are especially grateful for the exceptions for new ratables, debt service and existent leases with county improvement authorities, the reserve for uncollected taxes, and all or a portion of excessive increases of health care costs.
A section of the bill allows us to petition the Local Finance Board for additional exceptions, and we appreciate that provision. Such exceptions could, according to language in the bill, include an exception for the loss of non-recurring revenues or surplus. These should be automatic exceptions, not subject to the cost, effort and uncertainty of a petition to the Board.
Further, the exception to account for reductions in State formula aid should be amended. It should, also, allow an exception to account for the State’s failure to adjust that aid, based on the rate of inflation, as required by State statute.
And there are provisions for exceeding the cap, by voter approval.
Section 15 requires the newly created New Jersey Tax and Fiscal Policy Commission to study the new caps and to report back to the Legislature, prior to the levy caps’ ‘sunset’ in 2012.
With regards to those parts of the bill dealing with the new credit (Sections 19 through 41) or rebate, we are concerned about the State’s continuing commitment to provide municipalities with 100% reimbursement on the credits. Though we have full confidence in this Administration’s and this Legislature’s sincere good will, we have learned from experience that other exigencies can, at times, come between statutorily dedicated municipal property tax relief funding and the people who it is meant to benefit.
Accordingly, we will urge the Legislature to provide us with some greater reassurance of the long term dependability of this funding. Ideally, this can be accomplished by an amendment to the State Constitution, which would prevent future Legislatures and future Administrations from diverting the funds to any other purpose.
Further, the bill needs to specify that the Treasurer will make the quarterly transfer payments to the local tax collector by the same date on which local taxpayers must remit their payments.
With regards to other provisions in the bill, we regret that the Legislature will not seize this opportunity to require interest arbitrators to conform their awards to the 4% cap. But …
The League of Municipalities strongly supports two key provisions of A-1. Those provisions would permit local units participating in the State Health Benefits Plan to negotiate cost sharing and require an arbitrator to consider the new 4% tax levy cap, when resolving contract disputes between a local unit and a public safety union.
We fear that special interests may try to emasculate the bill by asking the Legislature to remove those two crucial reforms dealing with public employee relations.
In its carefully researched investigative series, "Runaway Pay," which the Bergen Record published last summer, public employee compensation, including pensions and benefits, was rightly called "the biggest reason for our fiscal woes." The Record's focus on teachers and public safety officers shed light on the major problem facing local elected officials and the property taxpaying citizens that they have sworn to serve.
On the same day that appointments to the Special Joint Committees were announced, local officials were informed by the Division of Pensions that 2007 property tax contributions to PERS and PFRS will total $650 million. That will mean $267 million in new spending, over which local officials will exercise no control.
For Police and Fire, for local governments, the billing which will be released on July, 31 will be for $422,743,217. This represents an 82% increase for normal and accrued liabilities and added to that will be any early retirements for those towns that passed early retirements. Local government PFRS costs will grow by 82%. Remember there are 44,211 active members of PFRS and 208,899 active local PERS members. Therefore, the annual cost will be $9,500, per member of PFRS, as compared to $1,100, per every PERS member.
Arbitration awards are not the sole cause of this cost, but they are a major contributing factor. Those awards impose significant burdens directly on our taxpayers. And the burden is compounded by the overly generous pension benefits that past Legislatures have given to PFRS participants.
These costs, by and large, do not result from decisions made at the local level. Rather, they are caused by decisions that were made by officials elected to serve in State Government. And those who have held such office in the past have made other decisions that have imposed additional burdens on our property taxpayers.
The new language makes it mandatory -- not permissive -- for arbitrators to consider – not abide by -- this new levy cap in disputes. While by no means a panacea for this problem, Section 14 of A-1 is an important statement of Legislative intent. Obviously we believe interest arbitration needs to be reformed more comprehensively, but this new language arms mayors with a necessary tool in arbitration disputes.
Likewise, the provisions contained in Sections 42 through 45, dealing with the negotiation of cost sharing for State Health Benefits Plan participants, will provide a useful tool for local officials struggling to provide a wide array of vital life sustaining and life enhancing services, within the constraints of the new artificial 4% cap on the property tax levy.
Section 14 and Sections 42 through 45 of A-1, while not sufficient, are absolutely essential for meaningful and lasting property tax relief for the long suffering citizens of our Garden State.
We strongly support these provisions.