Local Governments in NJ: Big Cuts in Aid, Small Change In State Budget

John Reitmeyer | August 19, 2016 | Budget, Politics
With a stroke of his veto pen, Christie increased penalties for municipalities found to have strayed from best practices on transparency and fiscal accountability

Gov. Chris Christie
Municipal governments trying to hold the line on property taxes have a new concern this year thanks to a little-noticed change in local-aid policy inserted by Gov. Chris Christie into the fine print of the current state budget. The change now threatens to force towns and cities to absorb the loss of a combined $280 million from their own budgets.

The Christie administration for several years running has required municipal governments seeking state aid to fill out a “best practices” questionnaire to demonstrate how well they are complying with various transparency and fiscal-accountability standards. If the answers to the questionnaire reveal a local government is not meeting minimum standards, language in the state budget permits as much as 5 percent of each community’s municipal-aid allocation to be held back as a penalty.

But in the state budget that Christie signed into law in late June, that language was changed at the last minute using the governor’s line-item veto authority to take out the 5 percent limit on those penalties. Instead, the modified language now significantly ups the stakes for municipalities, linking the full payment of aid from the state’s Consolidated Municipal Property Tax Relief Aid program to their grade on the best-practices questionnaire.

With this year’s questionnaire expected to come out in the next few weeks, the New Jersey League of Municipalities, the lobbying group for towns and cities, says concerns among local officials are now running high. But so far, the state is holding firm to Christie’s decision to boost punishments for not complying with the best-practices standards and is also encouraging towns to get ahead of the curve.

The change in municipal-aid policy has come at a time when the state is facing its own set of fiscal challenges, which has led to fears that the municipal-aid allocations could get caught up in bigger state budget problems if they develop later on during the fiscal year.

An ongoing political impasse in Trenton over renewing the Transportation Trust Fund has already shifted the cost of essential construction projects and emergency work to the budget’s general fund as the TTF has run dry.

The budget also assumes $250 million in savings from changes to public-employee healthcare benefits that have yet to be agreed to by members of a plan-design committee. Representatives from unions and the Christie administration that make up the committee are currently deadlocked. With Christie, a Republican, pressing Democrats who control the Legislature to authorize a significant tax cut in exchange for the 23-cent gas-tax increase they want to enact to renew the TTF, any deal that ends the transportation-funding stalemate could further strain the budget.

Last year, the municipalities were notified in early September about the latest version of the 50-question best-practices survey, and those operating on a calendar-year budget were given a little more than a month to complete it. Among the questions that were included in last year’s survey were inquiries into municipal tax-assessment practices, whether issues raised in audit reports were being addressed, and if local public-contracting laws were being followed. Only a small percentage of the state’s 565 municipalities were penalized as a result of their responses, losing a portion of the CMPTRA aid that’s paid out in December.

Last month, officials at the League of Municipalities sent a letter to the state Division of Local Government Services, an agency within the Department of Community Affairs that administers the best-practices checklist, to voice concerns about the new penalty policy and to find out when this year’s questionnaire would be available. A response that was sent to the organization on July 21 by Timothy Cunningham, the division’s director, said only that this year’s list of questions had not been finalized and would be made available “in the coming weeks.”

“We hope that the League will continue to impress upon its member municipalities the need to adhere to — or adopt if necessary — best practices to ensure efficient operations and taxpayer safeguards,” Cunningham said in the same letter.

But Michael Darcy, the League of Municipalities’ executive director, said yesterday that local governments are facing the challenge of trying to predict the specific issues that will be emphasized in the latest draft of the state questionnaire. If all of this year’s CMPTRA aid is held back as a penalty, the towns and cities would lose a combined $281.2 million.

“There’s a double whammy going on here,” Darcy said. “They’re holding you to a standard that doesn’t exist yet.”

He also pointed to other state policies related to the issue of local-government finance to raise a growing concern. For example, municipal leaders are still working with lawmakers to try to fully recoup funds collected by the state from a tax on utility companies that are supposed to be shared with the local governments but were partially held back as the state faced significant revenue losses during the last recession. The CMPTRA aid is also supposed to serve only as a pass-through to compensate local governments for past state tax-policy changes that have had a negative impact on municipal budgets.

“It’s really a troubling escalation of what we’ve seen go on for years,” Darcy said.

A spokeswoman for the Department of Community Affairs declined to comment yesterday when asked for a response to the concerns raised by the League of Municipalities.