Property Tax Relief funds are meant to help municipalities relieve property tax burdens. But in New Jersey, that’s not always the way things happen. All too often, State-level policymakers have redirected relief resources to pay for other priorities.
In 1997, the Energy Tax Receipts Property Tax Relief Fund (ETR) replaced Public Utility Gross Receipts and Franchise Taxes (Utility Taxes). Those taxes on regulated public utilities were originally assessed and collected at the municipal level. In the early 1980s, for its own benefit and for the convenience of the tax paying utilities, the State became the collection agent for these assessments. The law that effected this change promised that the proceeds would be distributed back to the municipalities, which provide access to public rights of way and other services to utility facilities. (And only because of that access, and thanks to those services, utilities derive their profits.)
The State of New Jersey neglected that commitment, immediately diverting large and growing portions of the Utility Taxes to its own general fund.
Modernization and deregulation led to a major reform of utility taxes in 1997. That reform law validated and, supposedly, capped the State’s annual percentage of the proceeds. At the League’s urging, future ETR municipal property tax relief funding was protected by the, so-called, poison pill. The ETR “Poison Pill” provides that, if the State does not appropriate and distribute Energy Tax Receipts Property Tax Relief funding, in any year, in accordance with statutory requirements, then the State forfeits the right to collect the corporation business tax (CBT) from all corporate taxpayers that are not public utilities for that tax year.
In order to explain what would later happen with the ETR, you need to know a little bit about New Jersey’s other significant municipal property tax relief program – the Consolidated Municipal Property Tax Relief Aid (CMPTRA) program.
Throughout the first nine decades of the Twentieth Century, municipalities had access to various sources of revenue. Like the Utility Taxes, over time, the State made itself the collection agent for many of these municipal assessments. In the SFY 1996 Budget, the Whitman Administration decided to ‘consolidate’ fourteen municipal property tax relief programs. Each of CMPTRA’s component parts was distributed according to state established formulas. And many of those parts were extensions of taxes that had formerly been assessed and collected at the municipal level. These include the Financial Business Tax, the Insurance Franchise Tax, the Railroad Class II Property Tax, the Business Personal Property Tax, the Corporation Business Tax on Banking Corporations, as well as State Payments in Lieu of Property Taxes (PILOTs) on State owned properties and buildings (which, by the way, had been underfunded for several years).
Like Utility Taxes, these were all municipal revenue replacement programs. Absent these programs, local residents and businesses would have needed to cover local revenue losses caused by State actions. Revenue replacements were not meant to make things better for municipal property taxpayers. They were only intended to keep things from getting worse. In the first year, CMPTRA provided $861.4 million of property tax relief.
Due to rising costs, municipalities often need to spend more in successive years in order to maintain services and programs at a steady level. When the State provides flat property tax relief, the difference will, in many cases, have to be made up by increases in property taxes or reductions in existing services.
Realizing this, active members of the League of Municipalities battled, for years, to convince State Legislators to provide some annual inflation based increases in property tax relief funding programs. In 1999, we were successful in winning such adjustments for the Energy Tax Receipts Property Tax Relief program and in the Consolidated Municipal Property Tax Relief Aid. Because ETR distributions are protected by the “Poison Pill,” the State has needed to annually increase municipal ETR funding (or, at least, to appear to do so). Because there are no consequences for the State, should it fail to annually increase CMPTRA distributions, guess what happened next?
Beginning in SFY 2002, and in almost every year since, the State has passed budgets that ignore the law calling for inflation-based adjustments to CMPTRA. (Each annual State Budget can include provisions that supersede, during that Fiscal Year, previously passed funding laws.) Instead, CMPTRA dollars were used to fund ETR inflationary adjustment.
The way this works is testimony to the creativity of State budget-makers.
Those budgets distributed CMPTRA funding according to CMPTRA (Revenue replacement) formulas to CMPTRA recipient municipalities. But, the State called the CMPTRA monies Energy Tax Receipts. On paper, ETR distributions increased by the rate of inflation. In reality, local budgets got flat funding. That has been the usual case, right up to and including the current State budget, except in the years when more is subtracted from CMPTRA than is added to ETR. In those years, the State used local property tax relief money to address State level needs.
And that’s what happened in 2008, 2009 and 2010. In those years, the State saw its own-source revenues stagnate in response to the Great Recession. State budget-makers solved their problem, in part by ‘repurposing’ local property tax relief. And, over those three years, local budgets absorbed total losses of about $320 million. That $320 million loss is not a one-time loss of property tax relief. It has been reenacted, every year since 2010.
Remember that CMPTRA distributed over $861 million to the cause of local property tax relief in its first year (SFY ’96). In the State’s current budget, thanks to twenty years of State gamesmanship, including three years of actual reductions, CMPTRA will provide only about $280 million of help to municipal budgets. And a source of non-property tax revenue that was supposed to increase annually by the rate of inflation has been steadily drained.
We remember that Property Tax Relief has always been the purpose of the ETR. We know what the PTR in CMPTRA means. Now is a good time to remind the folks in the Statehouse.
Contact: Jon Moran, Sr. Legislative Analyst, email@example.com, 609-695-3481 x121