Airing a concern that will certainly raise the eyebrows of the average New Jersey homeowner, budget officials in Trenton this week said they are worried that the state is starting to collect too much money that’s dedicated only to property tax relief.
The reason for their unease is rooted in the arcane functions of the state budget, but also in the way politicians in the past were able to win support for tax hikes, essentially by promising to dedicate the new revenue only to offset local property-tax bills, long a top complaint of New Jersey residents.
But now, more and more money is coming into the annual budget that can only be used on programs that are considered property-tax relief — primarily school aid, municipal aid and direct-relief initiatives like the one that pays for Homestead credits. And that influx has come even as Gov. Chris Christie, a Republican who preaches fiscal discipline, has expanded spending in those areas very little while also refusing to make policy changes to increase revenue raised from non-dedicated tax sources.
The result is that there is increasingly less money available for other areas of spending in the budget that are not considered property tax relief, like transportation, environmental programs, and hospital aid.
“This trend is important because it may soon be limiting the state’s budget flexibility,” explained David Rosen, the budget officer for the nonpartisan Office of Legislative Services, during yesterday’s Assembly Budget Committee meeting.
Rosen’s comments came as both he and state Treasurer Andrew Sidamon-Eristoff appeared before lawmakers for the last time this budget season as they continue to evaluate Christie’s proposed $33.8 billion spending plan for the fiscal year that begins July 1.
The budget-flexibility issue, Rosen said, dates back to 1976 when New Jersey voters approved a constitutional amendment that dedicated all revenues raised by the state’s income tax to property tax relief. Voters also ordered the state to dedicate half of the extra penny that was added to the sales tax in 2006 to property tax relief.
Those dedicated funds are deposited in the state’s Property Tax Relief Fund, and for decades there were no problems because the fund did not have enough money coming in to cover all of the state’s spending needs for property tax relief. To cover the gap, money has traditionally been taken from the state’s General Fund.
[related]But now things are starting to change, Rosen said.
“Over time, and despite a few dips, income-tax revenues have grown more robustly than the state’s other revenue sources,” he said. “Consequently, the PTRF has become an increasingly large share of the state budget.”
In the current fiscal year, for example, the dedicated funds total about $14 billion, which is more than 40 percent of total state revenue.
Having that extra cash coming in from the income tax in some ways takes pressure off the general fund to cover property-tax-relief spending going forward. But due to the constitutional restraints, the income tax money can’t be used to prop up the general fund, so if the trend continues and Christie refuses to raise revenue in other ways it could eventually force cuts to programs that right now are funded by the general fund.
Though not an immediate crisis, Sidamon-Eristoff told lawmakers “at some point the state will have to look at this issue and address it.”
“We think it was appropriate and timely for Dr. Rosen and his colleagues to raise this issue,” Sidamon-Eristoff said. “We will experience less and less flexibility.”
Committee Chair Gary Schaer (D-Passaic) asked whether the options are amending the state constitution or simply spending less.
And Assemblyman Declan O’Scanlon (R-Monmouth) noted that increasing the state’s top-end income tax rate on earnings over $1 million — something Democrats in the Senate have proposed as a way to help raise more money for the underfunded public-employee pension system — could end up exaggerating the problem.
“That would tend to make us even more reliant” on income-tax revenue, O’Scanlon said.
But Assemblyman Troy Singleton (D-Burlington) said it seems “almost ludicrous” to hear New Jersey has too much money dedicated to property tax relief. Last year, New Jersey’s average property tax bills went up by $173 to a record high of $8,161.
Rosen said the fix could be simply changing the definition of some items that now are not considered property-tax relief but may actually fall under that purpose.
Or the state could just spend more on the items that are already considered property-tax relief. Singleton noted, for example, that the state is not spending up to the amount required in its school-aid law or fully funding the Homestead relief program according to statute.
Spending on teacher pensions is also considered property tax relief, Rosen said. But during Christie’s tenure, which began in early 2010, the state has not been putting the full amount required by actuaries into the pension system on an annual basis, including for teacher pensions, which is a responsibility the state took on decades ago. The pension underfunding has also brought on the legal challenge filed by public-worker unions that’s now before the Supreme Court.
“The other option is in fact to spend the property-tax relief money on property-tax relief,” Rosen said.
“What that means is that you’d have less money available for other things that the state budget pays for” he said. “You don’t have to shift stuff around, you could in fact change priorities based on what the constitution says.”