In his testimony before the respective Legislative Budget Committees and in a recent meeting with the State Treasurer, League President, Mayor Jim Cassella of East Rutherford, voiced our concerns with a key piece of Governor Murphy’s State budget proposal. Our concerns are well-founded.
The Governor’s proposal would shake the foundations of the Energy Tax Receipts Property Tax Relief Fund (ETR), which, for more than twenty years, has delivered reliable and significant property tax relief to municipal home- and business-owners, all around our Garden State.
Specifically, the Governor’s proposal would zero-out the ETR, which has always been funded through taxes (Sales and Corporate) levied on energy suppling utilities. In lieu of the ETR, funding would be derived through the Income Tax. This change, we have been told, will be effected not by the passage of a new statute, but instead by the insertion of new budgetary language.
A little background on New Jersey State finance will help to explain the State’s reason for the proposed shift.
The vast majority of the money that the State collects (and spends) every year goes into one of four main funds. (A fifth fund, the Gubernatorial Election Fund, exists only to provide State funding for those elections.) Three of the four funds can only be used for specific purposes.
The Casino Control Fund (with revenues derived from casino-related licensing fees, which must be used to fund the Casino Control Commission and the Division of Gaming Enforcement) and the Casino Revenue Fund (with resources derived from a gross revenue tax on the casinos, and which must be used for the benefit of senior and disabled citizens) are not involved in the matter at hand.
Monies collected through the State Income Tax are deposited into the Property Tax Relief Fund (PTRF) and are constitutionally dedicated and must be spent on a purpose that can reduce or offset property taxes. The General Fund receives most other State taxes, fees, fines and Federal funding. The largest source of General Funds is the State Sales Tax. (Portions of Sales and Corporate Taxes are, like the ETR, dedicated for specified purposes. But the lion’s share of all sales and corporate taxes goes into the General Fund.) General Fund revenues can be used for any number of purposes, and the General Fund supports State government operations.
State Treasurers and other State budget-makers like to be able to spend money as they see fit. (And don’t we all.) The General Fund allows for that. So, while a bookkeeping shift of $788.5 million, from the ETR funding source to PTRF funding, reduces the amount that must be spent on other property tax relief initiatives, it increases the amount that the State can use to address other priorities.
As we have reported, Governor Murphy has called for level funding of combined Energy Tax and CMPTRA funding. That’s better than a cut. And while we had hoped to see some indication that these dedicated municipal property tax relief funding sources will begin to be restored to their previous levels, we appreciate that the proposal doesn’t further add to the $320 million cut, endured by local budget-makers in each of the last eight years.
Our concern is the impact that the reshuffling of ETR funding could well have in future years. And we have two main reasons for that concern
First, at the League’s insistence, Chapter 167 of the Public Laws of 1997, which established the ETR ‘lockbox,’ also includes the so-called ‘poison pill’ provisions that assure annual distributions of sufficient funds. Those provisions would prevent the State from collecting most corporate taxes, should the State ever fail to distribute the statutory minimum in any year. At that time, we fought for those safeguards, because Governors and Legislators of both parties, over many years, had used their discretion to retain revenues meant for municipal purposes, in order to fund State level priorities.
Second, history has taught us hard lessons about shifts from General Fund sourced revenues to the PTRF. This isn’t the first time it happened.
In 1995, not by the passage of a new statute, but instead by inserting new language in the budget, the State created the Consolidated Municipal Property Tax Relief Aid (CMPTRA) program. It was a new program, but it didn’t provide any new money. CMPTRA was an amalgamation of twelve pre-existing municipal property tax relief funding programs. Like the ETR, some, but not all of those, were revenue replacement programs. They replaced revenues that had been (or, in the case of Payments in Lieu of Property Taxes on State Property, that could otherwise have been) collected locally. And like the ETR, some, but not all, had been funded through the General Fund.
In the League’s testimony on the proposed budget that year, with regards to the ‘Block Grant’ proposal, then-League Executive Board Member and Union City Mayor Bruce Walter stated the following.
First, nine of the twelve funding programs which would be folded into the block grant are currently financed through the state’s general fund. That means that those dollars, which total approximately $300 million, come from sources other than the income tax. That tax is constitutionally dedicated to the property tax relief fund.
It is extremely important that those $300 million, or roughly 46 percent of the block grant, continue to come from the general fund. If, instead, you take less than $300 million, or 46 percent, of the funding from the general fund, you decrease the amount that would otherwise be available for funding other important property tax relief programs.
The Mayor, on the League’s behalf, then warned State budget-makers that, because of the change, future continued municipal property tax relief funding could be placed in jeopardy.
Sadly, his warning proved prophetic. In that first year, CMPTRA was funded at $755 million. In 2001, CMPTRA’s best year, the fund provided $818.5 million. By 2010, due to cuts and the steady shift of property tax relief dollars from CMPTRA to the ETR, funding was down to $264.7 million. And this year’s budget proposal calls for the distribution of $263.3 million through CMPTRA.
No one doubts Governor Murphy’s commitment to property tax relief. And no one questions our current State Legislators’ share that sense of purpose. But no one knows what the future will bring. And, when next faced with unanticipated problems forcing tough choices, no one can predict what a future Governor and a forthcoming Legislature might decide to do.
In his testimony to State budget-makers weeks ago, our President, Mayor Cassella, made our position clear.
On behalf of our property taxpayers, we will strongly oppose any proposal that changes the Energy Tax Receipts Property Tax Relief Fund from a dedicated source of local revenues, which the state can only reduce at some risk to its own revenues, to another discretionary aid program, which the state can cut, in future years, to meet some other priority.
We believe the Treasurer appreciates our concern and our need for guarantees. We expect our conversations to continue. Please explain these worries to your State Legislators as they consider the SFY 19 budget.
Contact: Jon Moran, Senior Legislative Analyst, firstname.lastname@example.org, 609-695-3481, x121.