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If Murphy Holds Municipal Aid Flat, Can Property Taxes Go Anywhere But Up?

The proposed budget represents the eighth consecutive year of flat funding, while inflation has continued to climb

suburban house

New Jersey’s municipalities are being left out in the cold again by a state budget that seeks to freeze aid to towns at 2010 levels, leaving municipal officials with little choice but to increase property taxes to avoid cutting services.

Gov. Phil Murphy’s proposed budget recommends no increase in aid to communities, keeping the level of municipal property-tax relief in the new fiscal year at $1.4 billion. That’s in sharp contrast to the 3 percent, or $283 million, hike in aid to schools that he proposed.

“This will be the eighth year of flat funding, following three years during which municipal property-tax relief funding was reduced by a total of $320 million,” said Jon Moran, senior legislative analyst with the New Jersey State League of Municipalities. “Local budget-makers deserve a lot of credit for keeping property taxes as low as possible, while continuing to deliver quality services.”

A spokesman for Murphy referred questions about the decision to maintain level funding for municipal aid to the state Treasurer's office, which did not return a request for comment.

Falling behind inflation

Over the past eight years, while municipal aid has remained stable for nearly every town, inflation as measured by the change in the Consumer Price Index has risen by 15 percent. Since 2007, just before the start of the Great Recession, inflation rose by 22 percent and the major category of municipal aid decreased by 17 percent.

Only nine municipalities, led by Atlantic City and Camden, are slated to get more aid this year than they did in 2007. All of those have received transition aid to counteract extraordinary negative financial circumstances.

State officials have always considered municipal aid less important than school aid, in part because school spending makes up the lion’s share of the local property-tax bill. Further, unlike the longstanding Abbott v. Burke case over school funding, there has been no court decision ordering the state to spend a certain amount to assist towns. While officials have acknowledged the role state aid plays in blunting local property-tax hikes, no governor has increased municipal aid since Jon Corzine. After the recession hit, he was the first to cut that aid, in 2008 and 2009. Former Gov. Chris Christie cut it further on taking office in 2010 and it has remained level ever since.

Municipal officials had hoped Murphy might change that pattern and give them some additional relief.

“Though better than a cut, we had hoped to see these funding sources restored to their previous levels,” the league wrote in a letter to members. “From our perspective, municipal property-tax relief funding is of paramount importance.”

New Jerseyans pay the most property taxes, on average, in the nation, with the typical bill last year totaling $8,690.

Worse times ahead?

Moran said things may get worse, as the Legislature last year let expire a 2 percent cap on the annual raises that an arbitrator can award to police officers and firefighters to settle contract disputes with municipal governing bodies. Christie had sought and gotten that cap, which took effect in 2011, as a way to try to control property taxes. A report released by Republicans on a task force created to assess the effectiveness of the cap concluded it had saved homeowners $530 million in total by keeping a lid on pay raises. The full report was never made public.

“It will only get harder,” is how Moran characterized municipal officials’ ability to draft local budgets that have to account for inflationary increases and employee salary hikes with no additional aid and a 2 percent cap on the amount they can raise through property taxes.

The only help Murphy seems willing to give the average town at the moment will be a “Shared Services Czar,” whose responsibility will be to “encourage more municipalities to pursue shared services.”

Murphy did propose increasing by $15 million the amount of “transition aid” given to municipalities in the most dire financial straits.

At the same time, though, he has not budgeted any money for Meadowlands Tax-Sharing. In the current year, the state budgeted $3 million for six municipalities in the Meadowlands to make up for environmental restrictions placed on land in the sensitive region. Since some of the region is prohibited from development, the former New Jersey Meadowlands Commission used to arrange for tax sharing between towns that could develop and those that could not. That system was replaced by a 3 percent hotel tax that is supposed to pay the communities about $8 million, with the state making up the difference if the tax does not collect enough, as happened in the past two years.

Whether lawmakers will be more sympathetic toward the municipalities when they get their say on the budget proposal is unclear. For years, mayors have been pushing the Legislature to give their communities more of the Energy Tax Receipts the state collects, saying the state is keeping more of that money than it should, but to no avail.

Legislators are to begin to hold public budget hearings next week.

Earlier this week, the state Division of Local Government Services released aid data for all municipalities in the state. You can search for a town in our interactive database.

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