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NJ municipalities fighting back for energy tax

The Trentonian
Posted: 04/15/12


New Jersey’s cash-strapped municipalities are fighting the state’s annual “skim” of energy tax receipts owed them, calling on Gov. Chris Christie and legislative leaders to stop diverting nearly three-quarters of a billion dollars to balance the state budget for Fiscal 2013.

In a campaign launched by the New Jersey League of Municipalities, about half of the Garden State’s 566 municipalities have already adopted a resolution protesting the state’s practice of collecting and keeping public utilities taxes which were originally earmarked for local property tax relief and asking their immediate restoration.

This year the state took roughly 50 percent of the $1.523 billion paid by public utilities in energy taxes for Fiscal Year 2012, which ends June 30,

The state gave the municipalities a little more than half — $788.5 million. And that was relabeled “state aid.” The remaining $734.5 million went into the state’s general fund, which accounts for most of the state’s budget

It’s a practice that has local officials across the New Jersey steaming as they struggle to avoid tax hikes by laying off their police, educators public works employees and by reducing municipal services.

East Windsor Mayor Janice Mironov says her township was shorted $2.8 millon for Fiscal 2012, which equates to 10 cents on our 40-cent municipal tax rate, and the problem began a few years earlier when the economy tanked.

Municipalities are limited to 2 percent budget caps, but the state is raising its budget 7 percent this year, Mironov noted. “The state has other sources, money taken from court settlements, pension funds and employment funds.”

Energy tax receipts are projected to go down to $105.9 billion, says Andrew Pratt, spokesman for the New Jersey Department of Treasury. “That’s our best revenue projection, and out of that amount, the municipalities will still get $788.5 million, the same amount for the past several years since the recession kicked in, and the state’s general fund will get $720 million.”

Pratt said “these are policy decisions that are debated at budget time, and if the municipalities believe they should get a larger share, then the debate will also have to include where else the state will raise revenue for other programs, or where it will cut other programs.”

That’s not good enough, say objectors who have jumped on the New Jersey League of Municipalities bandwagon to challenge this “unfair” practice and demand restoration of the energy taxes. The list includes the Mercer County Board of Freeholders.

According to figures supplied by the Office of Legislative services, every year (from 2006 to 2011), municipalities received $788.5 million from Public Utility/Energy Tax sources, or a six-year total of $4.731 billion.

The state’s share from those energy taxes was $5.145 billion.

Ewing has lost about $7 million over the past three years, estimates Mayor Bert Steinmann, which forced the layoff of six police officers, other employees and service cuts.

Hamilton was shortchanged in 2010 when $981,192 in energy tax receipts was offset by a $1.598 million decrease in Consolidated Municipal Property Tax Relief Act (CMPTRA) funds, creating a total drop in state aid by approximately $618,000. Again, in 2011, a decrease in energy tax receipts of $3.117 million was compounded by a decrease of $1.434 million in CMPTRA aid — for a total state aid decrease of $4.927 million.

Lawrence Township is hoping for restoration of its lost millions but for now, officials are watching Tuesday’s public referendum which is asking voters to approve exceeding the state’s 2 percent budget cap or face the loss of municipal trash collection.

On Tuesday, East Windsor’s Mironov, who is an attorney and NJLOM’s first vice president, will chair a mayor’s roundtable discussion on the energy tax receipts issue before the Senate Budget and Appropriations Committee at 10 a.m. at the State House Annex.

Mironv said the NJLOM’s statutory funding compliance committee’s intent is to restore the municipal energy tax receipts to the municipalities “but not immediately, and I don’t expect 100 percent. We recognize the economic realities.”

The call for the energy tax receipts restoration will be heard at state budget hearings until May 24, when the state will give a revenue projection for 2013. Deadline for adopting the budget is June 30.

The dispute over energy tax receipts goes back to the late 1970s, when Democrat Brendan Byrne was governor and the public utilities were paying taxes annually directly to towns hosting their easements, lines and facilities.

The utilities asked the state to serve as the collection agency and to redistribute the money to these towns. And the state was happy to oblige and almost immediately took a $25 million “administrative fee,” which kept growing as the years passed.

By Fiscal 1983, Republican Gov. Thomas Kean used his line item veto to skim $32 million of what was still called the Public Utilities Gross Receipts and Franchise Tax (PU-GRAFT) for other state programs.

Assembly Speaker Alan J. Karcher and Senate President Carmen Orechio sued Kean on behalf of the taxpayers to stop this practice. In 1984, the New Jersey Supreme Court ruled in Kean’s favor and said the state budget preempted any legislative enactments.

In the late 1990s, legislation was passed recognizing the legitimacy of the municipalities’ claim that the money was collected for them and should be returned to the towns.

And 2002 was set as the base year for the amount given to municipalities with a built-in cost of living “inflator.”

This legislation also provided a “poison pill” clause that said when the distribution formula was not followed to the letter, the state could not collect corporate taxes, and if municipalities received less than they got in 2002, the same penalty applied.

Since then, the state has been reducing other money owed to the municipalities, specifically, (CMPTRA) funds, says Mironov.

“New Jersey has been playing a paper game since then,” Mironov said, “moving money to different categories. I used to get CMPTRA money but no more, I only get energy receipt money, not the full amount due.”

“In 1990, the state kept 25 percent of collected energy tax receipts,” Mironov said. “Now it’s more than 50 percent. These diversions have increased to dramatic levels since the recession began in 2008 and 2009. At the end of the day, state aid has been level in Fiscal 2001 and 2012.”

Jon Moran, NJLOM analyst, said the league is not asking for the billions that the state diverted over past years, but “for this year, we have asked for $271 million, which was the amount of property tax relief funding cut in Fiscal Year 2011.

“Looking to the future, we want the state to recognize that, absent a state emergency or crisis, the greatest share of these energy tax revenues should be distributed to municipal governments so that they can provide their citizens with property tax relief without jeopardizing vital municipal services,” Moran said.

“That was the goal of state policy makers in 1997 and 1999,” Moran said, “And it is at least as important today as it was then.”




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