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Posted on: April 13, 2018

Concerns with Governor’s Energy Tax Proposal Aired

On Monday, League President Mayor Jim Cassella of East Rutherford testified before the Assembly Budget Committee. Mayor Cassella’s testimony explained the municipal impact of the Governor’s FY 2019 budget proposals to State budget makers. Much of Mayor Cassella’s testimony focused on Energy Tax Receipts Property Tax Relief funding. On Tuesday and Wednesday, State Treasurer Elizabeth Maher Muoio testified on the proposal before the Senate and Assembly budget-writing committees.

When discussing the State budget with your legislators, please make certain that they understand our concerns with the Governor’s Energy Tax Receipts (ETR) proposal. As the Treasurer emphasized, this change will not reduce municipal property tax relief funding in 2018. But, the change raises serious concerns about future ETR funding.

The Energy Tax, in one form or another, has been a reliable and significant source of non-property tax revenue for local governments for over a century. Though often underfunded, the 1997 reforms set a floor, below which the fund wouldn’t sink. Pursuant to those reforms, sales taxes on energy utility bills and corporate taxes on energy utilities are collected by the State and placed in a dedicated, off-budget Energy Tax ‘lockbox.’ At least $788.5 million of the funds are dedicated and must be distributed to New Jersey municipalities for property tax relief.

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. The Governor’s budget proposes the elimination of the ‘lock box’ and the redirection of sales taxes on energy bills and corporate taxes on energy utilities into the State’s General Fund. This would give State budget makers broad discretion concerning the use of the funds. Instead, the proposal would shift ETR funding to an annual budget line-item appropriation, with the funding provided through the State Income Tax.

Income Tax proceeds are constitutionally dedicated to property tax relief, in general. But the specific property tax relief uses of the funds can vary from year to year.

From the State Treasurer’s perspective, this change amounts to an ‘accounting shift.’ While aid remains flat this year, the elimination of the “lock box” poses a serious concern for taxpayers going forward, as it would allow the state to effectively reduce property tax relief funding in future years. From our perspective, that is an unacceptable outcome.

As Mayor Cassella stated, “While, for this year, the Governor intends to replace the dedicated funds with other revenues; we need assurances that we will be able to count on funding, in the future. 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 want to thank State Senator Patrick Diegnan, Assemblyman John DiMaio, and Assemblywoman Nancy Munoz, who each raised concerns with the proposal. In response to a question from Assemblywoman Munoz, Treasurer Muoio indicated that the poison pill will remain in place, pursuant to language to be included in the State budget.

Again, when discussing the State budget with your legislators, please make certain that they understand our concerns with the Governor’s Energy Tax Receipts (ETR) proposal.

For more on the history of the energy tax relief funding, read the recently revised League white paper.

Contact: Jon Moran, Senior Legislative Analyst, jmoran@njslom.org, 609-695-3481, x121.

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