On Tuesday, Governor Murphy presented his first budget proposal to the Legislature and the people of New Jersey.
From our perspective, municipal property tax relief funding is of paramount importance. Regarding that priority, the Governor has called for level funding of comingled Energy Tax and CMPTRA property tax relief. Though better than a cut, we had hoped to see these funding sources restored to their previous levels. Currently, funding for Energy Tax and CMPTRA property tax relief are $320 million lower than they were before the Recession of 2008. And while we appreciate the proposed $15 million increase in Transitional Aid; we are concerned with the proposed elimination of Meadowlands Tax Sharing Payments.
We have another concern with the proposal. It appears that the Governor’s proposal may jeopardize the most significant and reliable source of municipal revenues, other than the property tax, in future State budgets. Since the passage of the Voorhees Tax Act in 1900, municipalities have been able to lay claim to certain taxes paid by energy producing utilities. (Please see the League’s White Paper, Energizing Tax Relief, for a complete history of this issue.) Language in the Governor’s proposal would allow the State to access these revenues. For the upcoming State Fiscal Year, the revenues would be replaced by funding derived through the State Income Tax. But we have been unable to find, in the proposal, any assurance that the State will guarantee distribution of Energy Taxes in future years.
A little history of municipal property tax relief, and the State’s role in that matter, might help us to better explain our concern.
There are two main formula-driven general municipal property tax relief programs currently in use in our Garden State. Though often referred to as “State Aid” programs, these are actually Revenue Replacement programs. The revenue they replace was, formerly, generated through taxes assessed and collected locally.
The simplest to describe is the Energy Tax Receipts Property Tax Relief program. It is the direct descendant of the Public Utility Gross Receipts and Franchise Tax (PU-GRAFT). That 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 taxpaying utilities, the State became the collection agent for this assessment. The law that effected this change promised that the proceeds would be distributed back to the municipalities, which provide services to utility facilities and from whence come utility profits. The State of New Jersey neglected that commitment, immediately repurposing 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. That reform law validated and, supposedly, capped the State’s annual percentage. The League lobbied hard for the inclusion of a ‘poison pill’ provision, which requires the State to annually distribute, to municipal governments, their fair share of Energy Tax proceeds. Failure to do so would result in the forfeiture of the State’s authority to collect the tax.
The second formula-driven general municipal property tax relief program is CMPTRA. Around the same time as the energy tax reforms, the State decided to ‘consolidate’ a number of previously discrete municipal property tax relief programs. While some may see ‘no rhyme or reason’ to the distribution of Consolidated Municipal Property Tax Receipts Aid (CMPTRA), each of its component parts were distributed according to state-established formulas. And many of those parts were, like Energy Taxes, the lineal descendants of taxes that had once been assessed and collected at the municipal level. 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 a big chunk of State Payments In Lieu Of Taxes (PILOT) payments, that had been under-funded for many years, prior to being folded into the Consolidation. These are all meant to be municipal revenue replacement programs. They were not, properly speaking, State aid. They were not meant to make things better for municipal property taxpayers. They were only intended to keep things from getting worse. Unlike the Energy Tax, CMPTRA funding is not assured by a ‘poison pill.’
We will strongly oppose any proposal that would change the Energy Tax Receipts Property Tax Relief program from a dedicated source of municipal funding, which the State can only reduce at some risk to its own revenues, to another discretionary aid program, which the State could reduce at any time, without danger of any repercussions.
Contact: Jon Moran, Senior Legislative Analyst, email@example.com, 609-695-3481 x121.