Energy Tax Receipts Property Tax Relief Act (ETR)
Energy Tax Receipts Property Tax Relief Act
In 1997, reforms changed the way these taxes were distributed. A new program, the Energy Tax Receipts Property Tax Relief Act replaced the previous method of distributing funds guaranteed to municipalities. The intent of the Energy Tax Receipts (ETR) program was to ensure that municipalities receive at least the same amount of money that they received from Franchise Taxes in the past.
In 1998, regulated natural gas and electric energy utilities operating in New Jersey were exempted from Franchise and Gross Receipts Taxes. However, this was repealed and replaced with ETR. Up to five revenue streams replaced the Franchise and Gross Receipts Taxes:
- Sales and Use Tax to energy or utility services;
- Corporation Business Tax to electric and natural gas utilities that are subject to the Franchise and Gross Receipts Taxes prior to January 1, 1998;
- Corporation Business Tax to telecommunications utilities that were subject to the Franchise and Gross Receipts Tax as of April 1, 1997;
- Transitional Energy Facility Assessment Act (assessments of transitional energy on light, heat and power corporations); and,
- Franchise and Gross Receipts Taxes to privately owned sewage and water corporations as before.
In 1999, legislation was signed to provide that ETR and CMPTRA distributions would annually increase at the rate of the implicit price deflator. (The implicit price deflator is used to measure the impact of inflation on governmental spending.) This went into effect after state fiscal year 2002.
In 2006, the State’s Sales Tax was increased by 1% (from 6 to 7%). The 1% increase was earmarked for Property Tax Relief. However, this 1% actually represented a 16.7% increase in revenue based on the current rate of the average resident’s spending.
In 2009, the State again changed the formula, and ETR and CMPTRA, which were originally looked at as two separate numbers, were combined as one number. A “needs based” formula was used to change each municipality’s fiscal 2009 distribution. Resulting in a $32 million total reduction in formula aid in the year 2009. The budget included the mandatory ETR increase by 6.5%, which was accomplished by transferring the 6.5% increase from the CMPTRA line to ETR. Additionally, the ETR transfer was calculated prior to the $32 million reduction. The State’s reductions to these programs, included the following elements:
- Reducing a municipality’s CMPTRA dollar amount, based on and matching the amount provided under the 6.5 percent ETR increase they received. In other words, CMPTRA was decreased based on the amount ETR was increased.
- Prorating a reduction to municipalities receiving CMPTRA, to offset the part of the ETR increase that was not absorbed on the first round (when the CMPTRA reductions reduced the allocation to zero) (NJDCA Local Finance Notice and SFY 2010 State Aid, 2009).
- Or more simply, adding a reduction when the first round of reductions did not create a zero CMPTRA obligation (NJDCA Local Finance Notice and SFY 2010 State Aid, 2009) .
- A $32 million reduction, based on the belief that municipalities, with higher wealth and lower taxes, were able to absorb more of an aid reduction than a municipality with low wealth and high taxes (NJDCA Local Finance Notice and SFY 2010 State Aid, 2009). To calculate wealth, the State used the per capita income and equalized property value per capita, similar to the school aid formula methodology at that time.
Municipalities were assigned a group, illustrated in the chart below, based on equalized tax rates and wealth. This resulted in the allocation for each municipality being decreased by a different percentage.
% of reduction
# of municipalities effected
% of municipalities effected
|Low equalized tax rate/High income|
|Medium equalized tax rate/high income||4.5%||11||1.9%|
|High equalized tax rate/high income||4.0%||123||21.7%|
|Low equalized tax rate/medium income||3.25%||53||9.4%|
|Medium equalized tax rate/medium income||2.5%||253||44.7%|
|High equalized tax rate/medium income||2.0%||19||3.4%|
|Low equalized tax rate/low income||1.5%||40||7.1%|
|Medium equalized tax rate/low income||0.5%||28||4.9%|
|High equalized tax rate/low income||0%||20||3.5%|
When making this change, the State concluded that the statutory requirements of ETR were not violated, as municipalities continued to receive the minimum amount required by law. The State believed that as long as they distributed the overall ETR obligation, they were in compliance, regardless if individual municipalities received less ETR funding than in previous years.
By Blending the CMPTRA & ETR, the State ensured that they could comply with the Poison Pill provision without increasing the money paid to the municipality from year to year. They did so by moving money between these two line items.
In 2010, CMPTRA & ETR were decreased by $272 million (17%). However, even with this reduction, the State budget met ETR’s minimum statutory requirements, as the implicit price deflator for that year was 0%. This was again accomplished by prorating and transferring money from CMPTRA to ETR. The 2010 reductions continued to use the 2009 formula from the chart above, and by using the same benchmarks that were used in 2009, the impacts were far greater in 2010. The 2010 reductions were as follows:
|Grouping||% of reduction||# of municipalities effected||% of municipalities effected|
|Low equalized tax rate/High income||26.45%||24||4.2|
|Medium equalized tax rate/high income||24.95%||12||2.1|
|High equalized tax rate/high income||23.45%||123||21.7|
|Low equalized tax rate/medium income||21.95%||52||9.2|
|Medium equalized tax rate/medium income||20.45%||248||43.8|
|High equalized tax rate/medium income||18.95%||16||2.8|
|Low equalized tax rate/low income||17.45%||42||7.4|
|Medium equalized tax rate/low income||15.95%||33||5.8|
|High equalized tax rate/low income||14.45%||16||2.8|
In 2010, through State budget language, the State introduced its “best practices inventory”, a questionnaire which attempts to gauge if municipalities are flowing the State’s published best practices. The questions varied from year to year, and municipalities could potentially see reductions in CMTPRA & ETA funding based on their responses. The best practices inventory continues today through current the State budget language.
In 2011, the combined total of CMTRA & ETR remained flat.