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Lawmakers Push to Return Utility Tax Funds to Hard-Pressed Municipalities

Bipartisan bill aims to ease local property tax burden by phasing out diversion of revenues to state coffers

troy singleton
Committee Chair Troy Singleton (D-Burlington)

When New Jersey plunged into the depths of the last recession nearly a decade ago, funds the state collects for municipal governments from taxes on utility company equipment within their borders were instead kept in Trenton to help balance the state budget.

That diversion of funds helped prevent massive cuts in aid for hospitals, schools, and safety-net programs for the poor.

But now, with state revenues on the rebound and property taxes still on the rise, a bipartisan group of lawmakers wants to make those local governments whole – and give New Jersey property owners some relief.

The effort comes in the wake of the release of new data by Gov. Chris Christie’s administration that shows average New Jersey property tax bills went up again last year, up to $8,353, and climbed at a higher rate than the previous year for the third straight year.

An improving state budget outlook could also make it easier to afford returning the energy tax-revenue to the municipalities after a similar efforet to reverse the diversions – which -started under former Gov. Jon Corzine and were then ramped up by Christie -- after a similar effort was blocked by Christie several years ago when the state was still suffering through budget problems.

A bill approved yesterday by the Assembly State and Local Government Committee would restore roughly $331 million in energy tax dollars diverted from New Jersey’s more than 560 municipalities over the course of the 2009, 2010 and 2011 fiscal years. It would also require the towns that receive their diverted money back to put the funds toward lowering the local property tax levy.

The bill would give the state five fiscal years to pay back the diverted energy tax funds, starting with the 2017 fiscal year, which begins on July 1, 2016. The payment schedule would also be subject to the annual budget process, meaning Christie and lawmakers could delay the repayments if another recession hits and revenues take a tumble again.

According to the New Jersey League of Municipalities, the local taxes on energy infrastructure in New Jersey go back more than 100 years. But it’s only been within the last several decades that the state has assumed the responsibility of collecting all of those funds on behalf of the municipalities.

More than $980 million is expected to be collected by the state from the energy taxes during the current fiscal year, with approximately $192.3 million diverted for state purposes, according the League of Municipalities’ calculations.

That diversion is one of many that have occurred during Christie’s tenure, which began in early 2010. They include the use this fiscal year of more than $150 million in funds collected from a surcharge on gas and electric bills paid by New Jersey’s residential and business consumers that’s supposed to go toward encouraging the use of clean energy.

Jon Moran, senior legislative analyst at the League of Municipalities, appeared before the legislative panel in Trenton yesterday to explain why the organization largely supports the proposal to restore the $331 million in energy tax receipts diverted from municipal coffers during the recession years.

Local officials primarily rely on revenue raised from property taxes, fees, and the energy taxes to balance their budgets. Thus, the diversions of the energy tax receipts put more of the burden on property owners, Moran said.

“The state is supposed to collect the energy tax and pass it through, back to the host municipalities,” Moran said.

Even though much of the revenue collected from local property tax bills goes to schools and county governments, local officials are the ones who field the most complaints when property tax bills go up, like they did in 2015, Moran said.

“It’s the mayors who send out the bills and it’s the mayors who get the blame,” he said.

Moran said his organization opposes the language in the bill that would specifically dedicate the restored energy tax funding to lowering the property tax levy. He said such a restriction, though well-intentioned, will take away flexibility local officials need when they craft municipal budgets.

But Assemblyman Jay Webber (R-Morris), describing the rising tax burden faced by local property owners as a “crisis,” stood firm on requiring the restored funds to be used only to lower municipal property tax levies.

The 2.4 increase in average property tax bills measured from 2014 to 2015, he noted, occurred even though Christie and lawmakers put in place a 2 percent cap on levy increases, with some exceptions, starting with the 2011 tax year.

“Municipalities in this state exceeded that 2 percent cap, on average, last year and we want to make sure they get back under,” said Webber, a primary sponsor of the bill.

Committee Chairman Troy Singleton (D-Burlington) agreed, saying it’s most important to provide tax relief to those who’ve been battered by local property tax increases.

“They just want to see as much of that money get back in their pocket and lower that tax levy as quickly as they can,” said Singleton, who is also a primary sponsor of the bill.

Lawmakers tried in 2012 to force Christie to restore the diverted energy tax funds, but he vetoed their efforts as the state was still suffering from revenue shortfalls tied to its slow recovery from the recession. But the state’s budget outlook has improved since then, with a modest revenue windfall coming in toward the end of the last fiscal year.

Christie’s $33.8 billion for the current fiscal year had a slight surplus as of the end of December, which is the midway point of the state fiscal year. That fiscal improvement could give this new effort a better chance of getting funded.

A spokesman for the state Department of Treasury declined comment on the energy tax bill yesterday, citing agency policy to not comment on pending legislation. Christie, meanwhile, is scheduled to present his next state budget to a joint session of the Legislature in Trenton on Feb. 16.

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