Towns Lose Out as Utility Taxes Once Again Diverted to Balance NJ Budget

Tom Johnson | June 18, 2012 | Energy & Environment
Move angers local officials who had hoped to end practice to help provide tax relief

It is once again looking like it’s “wait ‘til next year” for New Jersey’s mayors.

The budget deal hashed out by Democratic-controlled legislators last week will continue the practice of skimming hundreds of millions of dollars in utility taxes supposed to help municipalities provide tax relief will be used to balance the annual spending plan.

The move angered local officials who had made a big push to end the practice, or at the very least, take less during legislative hearings on the Christie administration’s proposed budget for next year, which begins July 1.

“While we appreciate the fact that key legislators now agree that vital municipal revenue replacement funding should be restored, mayors all around the state are extremely disappointed that they will, once again, be asked to wait until the state’s revenue picture improves,” according to East Windsor Mayor Janice Mironov, first vice president of the New Jersey State League of Municipalities.

Since 2008, local governments have lost more than $270 million in assessments on utility properties, a practice that has been used by former governors and legislators for more than 25 years, but never so dramatically as in 2010, when $210 million was diverted, according to a background paper prepared by the league.

This spring, the league pushed back and had won a sympathetic ear from some key lawmakers. Sen. Paul Sarlo (D-Bergen), the powerful chairman of the Senate Budget Committee, even introduced a bill that would have increased the money going to towns by $60 million over each of the next five years.

“We thought it was a modest proposal,” said Bill Dressel, executive director of the New Jersey State League of Municipalities. “We felt it was doable and reasonable, even with the downfall in revenues.”

The bill never got out of committee.

Under the budget deal agreed by Democrats last week, the lawmakers agreed to set aside $183 million in money for an income tax cut proposed by Gov. Chris Christie, but the Legislature would only appropriate those funds if the administration’s projections of more than $32 billion in revenue coming into the state is on track.

“If the state is prepared to promise state tax relieve, assuming revenue projections prove accurate, then the state should be prepared to promise local relief under the same conditions,” Mironov said.

Various statues 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 back to 1980, when the state began collecting taxes formerly done by local governments. These taxes were imposed to compensate towns for the benefits that utilities derived from their use of public rights of way.

The diversion of funds away from targeted programs is becoming an increasingly important tool in balancing state budgets without having to resort to unpopular tax increases. In the proposed state budget, the Christie administration is diverting more than $200 million in funds targeted toward clean energy funds and about the same amount for affordable housing programs.

Dressel vowed local officials would continue to “pull out all stops” to have the issue fixed before the final budget is adopted.

“We’re still part of the dialogue,” he said. “At least, it is still being discussed.”