Will Rising Property Taxes Encourage Mergers Among NJ’s 565 Municipalities?

Sharing public services can help bring down their cost -- a big plus in today’s economy -- but consolidation has never caught on among New Jersey’s communities

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As property-tax bills continue to rise across New Jersey, lawmakers are taking a new look at ways to encourage municipal officials to find savings by merging with a neighboring town.

The effort comes nearly a decade after a similar legislative endeavor, but there’s only been one successful municipal consolidation since that attempt, the 2013 joining together of Princeton Borough and Princeton Township.

So now, after 2015 set a new record for New Jersey property-tax bills — with the average amount rising to $8,353 — lawmakers are trying again by advancing legislation that would change rules applying to property tax assessments, debt, employment, and other areas that can trip up potential mergers.

But the new legislation also has its critics, including the New Jersey League of Municipalities, which says the bill as written could actually end up discouraging mergers by making them costlier to implement.

One area where there seems to be no debate, however, is the mounting frustration with New Jersey’s high property-tax bills. A cap on property tax increases went into effect in 2011 after a bipartisan deal was struck by Gov. Chris Christie, a Republican, and Democratic legislative leaders the year before. The cap has helped to slow the rate of growth in recent years, but property tax bills nonetheless remain on the rise.

Last year, the average New Jersey property tax bill rose by nearly $200 to $8,353. At the same time, state property-tax relief provided through the popular Homestead program has remained flat. In recent years, budget problems have delayed the payment of credits, leaving recipients with no relief at all.

Adding to the frustration for local officials has been the state’s failure during Christie’s tenure to replenish funds for municipal aid programs that totaled over $1.7 billion before the Great Recession. The current state budget provides municipal aid programs with $1.5 billion. More than $300 million in revenue from utility taxes has also been diverted from municipalities and into the state budget in recent years, adding to the strain.

The bill seeking to encourage more mergers by updating the Uniform Shared Services and Consolidation Act of 2007 is sponsored by Sen. Robert Gordon and Assemblyman Timothy Eustace (both D-Bergen). Gordon is a former mayor of Fair Lawn, and Eustace served as mayor in Maywood.

“Having been small-town mayors, we’ve been trying to move the consolidation process along,” Eustace said moments before the bill was cleared by the Assembly State and Local Government Committee last week.

“I think this bill will help,” Eustace said.

Some mergers have foundered following studies that show property owners in one town will initially receive higher tax bills while the other get a break.

The legislation would require that a municipal consolidation report and Municipal Consolidation Study Commission fully flesh out the projected impact on property tax bills that any proposed merger would have. It would also allow for a loosening up of rules used for tax assessments and equalization, which is a process followed in New Jersey to ensure the tax burden is evenly divided across a municipality, to facilitate a merger.

The bill would also allow for the drawing up of special zones or “taxing districts” so that debt can be apportioned fairly among property owners as two new municipalities come together. Severance pay could be offered to employees to encourage them to stay on the job until a consolidation is completed.

Gina Genovese, executive director of Courage to Connect NJ, a nonprofit organization created in 2010 to help encourage municipal consolidations, testified during the committee hearing in favor of the legislation. She said those interested in mergers have learned a lot about the consolidation process since the 2007 effort.

Updating the original law “adds some more flexibility, and it adds some more options for taxpayers and local officials,” Genovese said.

But there’s also been some research that suggests municipal consolidations may not be the panacea for high property tax bills that many believe them to be.

The results of a study released in 2014 by two officials from Rutgers University’s Local Government Research Center determined the highest property tax bills in the state were found in wealthy communities where residents demand a high level of services and in poorer cities where public safety and social-service expenses run high. But in more rural communities — which are often viewed as good merger candidates — the researchers found the per-person costs of providing municipal services were already fairly low, meaning mergers may not deliver much benefit for property taxpayers.

Earlier this year, Christie vetoed a similar legislative attempt to update and streamline the municipal consolidation rules. The rejection came in the form of a pocket veto at the end of the past legislative session, and the governor did not offer any specific reasons for his decision not to sign the legislation. Christie has also begun talking in recent weeks about a coming initiative that could further address the state’s rising property tax bills, but he’s yet to put forward anything specific.

Meanwhile, officials from the New Jersey League of Municipalities, the main lobbying organization for the state’s 565 towns, say the latest attempt by lawmakers to encourage consolidation doesn’t pass muster in its current form.

The organization is worried about sections of the bill that apply specifically to employees of the merging communities, said Michael Cerra, the group’s assistant executive director. Flagged as a concern are proposed rules granting tenure, continued employment, and terminal-leave rights to public-safety employees in the merging communities that the league fears could end up adding on additional costs for each town’s public workers even as the merger itself is attempting to save money.

Without amendments, Cerra and other league officials are concerned the bill could end up preventing future mergers more than encouraging them.

“The bill will actually limit local flexibility, increase consolidation costs and, thereby, discourage future consolidations,” he said.