Property Tax Relief? Not While the State Diverts Local Utility Taxes

Tom Johnson | March 20, 2012 | Energy & Environment
Municipalities appeal to Assembly committee to end the practice, which can add up to hundreds of millions

For years, the state has skimmed money from special accounts in its fiscal budget to help balance the books.

Perhaps no one has suffered more from the accounting sleight of hand than local governments, which, in in the past decade, have been denied hundreds of millions of dollars in utility taxes that should have helped municipalities provide property tax relief to residents.

Now, local governments are pushing back. Strapped by a 2 percent cap on budgets, they are lobbying legislators to end the practice, which involves the state collecting local utility taxes instead of the municipalities and keeping much of the proceeds to balance the state budget.

“It’s time to right this wrong,” Mount Arlington Mayor Art Ondish told the Assembly Budget Committee yesterday, urging them to begin sending more of the money collected by assessments on utility poles, wires, and other equipment back to where he says it belongs — local governments.

The revenue local governments receive from those assessments has been steadily declining: by $28 million in 2008, by $32 million in 2009, and by $217 million in 2010, according to Ondish, who is president of the New Jersey State League of Municipalities.

The skimming is almost rite of spring, which begins today. Governors and lawmakers see a large pool of funds, and divert it to plug holes in the budget, without the inconvenience of raising taxes and fees at other levels.

The diversion of those property tax relief revenues to other state needs has been practiced for more than 25 years, but never so dramatically as in 2010, according to a background paper provided to the two budget committees in the legislature from the league.

Indeed, these diversions have garnered far less attention in the mainstream media than other skimming practices, such as the Christie administration’s siphoning off hundreds of millions of clean energy funds to balance the budget. In this year’s proposed budget, $252 million in utility ratepayer funds are being diverted by the Christie administration, including $42 million to pay the state’s energy bills.

Various statutes provide for the distribution of all but a fraction of the energy taxes back to local governments. From $72 million in state fiscal year 2005, to $505 million in state fiscal year 2011, the state’s portion of the sales tax on energy and the energy utilities’ corporation business tax has continued to grow.

The issue stems from changes in various utility assessments dating back to 1980, when the state began collecting taxes formerly done by local governments. These taxes were imposed to compensate municipalities for the benefits that the utilities derived from their use of public rights of way, according to the background paper.

The diversions hurt local governments’ efforts to stabilize, or even lower property taxes in their communities, Ondish said.

His town of 5,000 residents lost $297,000 out of a local budget of $9 million, Ondish said. “That’s big money for a town my size,” he said.

If the state begins sending most of the money the local governments should receive, it will be spent wisely, Ondish said, given that municipal officials have to wrestle with a 2 percent cap on their budgets.

“Nobody is going to spend money like drunken sailors,” the mayor told lawmakers. “This is going to go back to direct property tax relief.”

His message seemed to resonate with lawmakers, although it is very early in the process of crafting a state budget.

“I think there’s a lot of consensus to get the money out of the state’s hands,” said Assemblyman Jay Webber (R-Morris), who urged the money, if it could be found, be directly returned to taxpayers, instead of the municipality.

Ondish backed that option, as well as others. “Wouldn’t I love to present a budget that shows our taxes are going down? ” he asked.

“We heard you loud and clear,” said Assemblyman Vincent Prieto (D-Hudson), the chair of the committee, who pledged to work with local officials to find a way to resolve the issue.