Mayor Ondish Statement to Committee
Before I speak on the State Budget for Fiscal Year 2013, I want to thank you all. Over the past two years, you have made tough choices on difficult issues and I believe that our State is a better place because of that. On issues like unfunded mandates, arbitration reform and pension reform, you have worked with Governor Christie and with your legislative colleagues, across party lines. And you have made progress.
We know that it has not been easy. It has taken leadership and it has taken discipline. And on behalf of Mayors all around the State, and on behalf of the property taxpayers we represent, we want to thank you and the Governor for what you have done to help us, going forward, to get a better handle on the many local costs imposed by past State actions.
What we ask of you this year will take similar discipline. This year, we want you to begin to end the State's chronic dependence on local revenues to balance its budget. We want you to begin to restore to local budgets the dollars that have been diverted for many years to State purposes.
New Jersey's two main formula-driven general municipal property tax relief programs are the Energy Tax Receipts Property Tax Relief program (Energy Tax) and the Consolidated Municipal Property Tax Relief Aid program (CMPTRA). Though often referred to as "State Aid" programs, both are actually revenue replacement programs, intended to replace property tax relief funding that was, formerly, generated through taxes assessed and collected, specifically, to fund municipal programs and services.
The Committee needs to consider both programs, because, for years now, they have been blended together, by State budget makers. This is done so that State revenues can be protected from what is known as the Energy Tax ‘poison pill.'
Consolidated Municipal Property Tax Relief Aid program (CMPTRA)
CMPTRA was not created by an act of the Legislature. There is no CMPTRA law. Instead, it was created by Appropriations Act language in 1995. It is composed of funding previously provided through about a dozen distinct funding programs. Most of the CMPTRA dollars came to municipalities from hold-harmless, revenue replacement programs. They were meant to replace revenues that were formerly local taxes. And they were meant to protect our taxpayers from the impact of the loss of those revenue sources, due to State action.
Two years later, legislation was advanced to change the manner in which energy utilities were taxed. Since the early years of the Twentieth Century, municipalities had levied franchise and gross receipts taxes on public utilities, to fund local services and to compensate the public for the utilities' use of public rights of way. In the 1940s, the State became the collection agent for the taxes, but the statutes specified that the proceeds remained municipal revenues.
Energy Tax Receipts Property Tax Relief Fund
Following almost twenty years of large and growing State skims from utility taxes, in 1997 the old Gross Receipts and Franchise Tax was replaced by the "Energy Tax Receipts Property Tax Relief Fund." The intent of the Legislature was crystal clear: Rather than see municipalities lose this critical revenue, the reform was designed to provide reliable property tax relief.
Accordingly, energy tax receipts were not to be treated like discretionary forms of "state aid," which were subject to political winds and State budgetary misfortune. In an attempt to prevent future State raids on this vital property tax relief funding, the new energy tax regimen would be jeopardized, if the State failed to deliver on this promise. The new law included a "Poison Pill," a provision that would revoke the State's authority to collect the CBT, if it failed to distribute the proper funding to municipalities.
A few years later, Legislators in both parties and in both Houses recognized the fact that increases in population, prices, wages and employee benefits-increases over which mayors and governing bodies have little, if any, control-erode the ability of local officials to keep a lid on property taxes with "level funding." Appreciating that fact, they put laws on the books that were supposed to preserve the property tax relief benefits of the most significant of these programs, into the future.
Annual Inflationary Increments
The law that established the annual inflationary increments (Chap 168, PL 1999) provided that the Aggregate Energy Tax amount that the State distributes to all municipalities has to increase by the Implicit Price Deflator (IPD) or the poison pill is activated. The adjustments were to begin after the 2002 State Fiscal Year. That law also promised annual inflationary adjustment in the other main State revenue replacement funding program, the Consolidated Municipal Property Tax Relief Act (CMPTRA). But the CMPTRA distributions were never protected by the "poison pill" provision. Therefore, there are no consequences for the State if it fails to increase CMPTRA by the IPD.
For the next six years, by putting language into each annual appropriations act, the State has shifted CMPTRA funds to the ERT, on paper, to avoid the "Poison Pill." A municipality's CMPTRA amount went down by about the same amount that their ETR amount went up.
In 2009 and 2010 (SFY 2010 and 2011), CMPTRA was actually cut by more than the Energy Tax was increased. Total funding for municipal property tax relief went down by about $32 million in 2009, followed by losses of about $271 million in 2010. We ask you to consider the cumulative impact of the underfunding of municipal property tax relief over the decades. It has contributed to New Jersey's chronic over-reliance on the property tax. And during recessionary periods, when collection rates fall and tax appeals increase, it leaves local officials with little choice but to reduce fund balances, prudently built to protect our taxpayers and address long-term needs.
It's important to remember, keeping the money in the State Budget doesn't save one taxpayer one dime. It only changes the level of government that spends the money. And it also changes the purpose for which the money is spent. Instead of being spent on local programs and services and used to offset property taxes, the money has for years been spent as successive Legislatures and Administrations have seen fit.
We don't doubt that it was put to good use and spent on good programs. But they are not the uses intended in the original laws.
The cumulative impact of years of underfunding has left many municipalities with unmet needs. Whether they be related to deferred investments in local infrastructure, the loss of public safety personnel, dangerously low fund balances, or any other local need, local elected officials are in the best position to decide. Further, these monies were always intended to fund local programs and services.
Rebates or credits to residential taxpayers will not fix one road or bridge. They will not put another officer on the street or another fireman on duty. They will not promote modernization of our environmental infrastructure. They will provide no benefit to our local business owners. And they will not promote prudent budgeting, by locally elected and locally accountable municipal officials.
Every year, your Office of Legislative Services provides you with some history of the Energy Tax in an appendix to its Annual Tax and Revenue Outlook. When you get that report you will again see that the amount of utility tax money distributed to municipalities for property tax relief has shown little, if any, growth for the past twenty years. The proceeds going to the State's budget, however, have grown significantly.
Redress the Situation
The revenues are coming in. The taxpayers are paying the taxes. The diversion hasn't saved them a penny. The time has come, we believe, to begin to put those revenues to the use for which they have always been intended. The diversion of our municipal resources to cover State spending needs to end. We call on you to provide us with this important tool to relieve the worst-in-the-nation property tax burden borne, for too long, by the people of New Jersey.
Again, we commend you and Governor Christie for your courage in advancing efforts to bring discipline to State spending and in considering common sense solutions to local cost drivers. It will take the same courage and discipline to now wean the State off of these local revenues.
We welcome your actions and leadership to redress this situation. Thank you.
Statement by Hon. Arthur R. Ondish, Mayor, Mount Arlington Borough and President, New Jersey State League of Municipalities presented to the Senate Budget and Appropriations Committee concerning proposed State Budget for Fiscal Year 2012 to 2013 Tuesday, March 13, 2012 at Montclair State University Montclair, New Jersey.