State Shortchanges Poor Towns in South Jersey on Municipal Aid — New Report

John Reitmeyer | April 10, 2018 | Budget
Economically distressed communities in southern suffer from significant state underfunding compared to municipalities in northern end of state

Millions of dollars in state aid gets distributed to municipalities each year, but the state is shortchanging the poorest communities in South Jersey, compared to those in other parts of New Jersey, according to a new report.

The regional funding disparity among New Jersey’s economically distressed communities is more than 30 percent, and it shows up even after factors like population and property values are considered, according to the findings released by the Rutgers University¬-Camden Walter Rand Institute for Public Affairs.

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The report looked at state budgets going back to 2008, and closely reviewed two long-standing state-aid programs, Energy Tax Receipts (ETR), and Consolidated Municipal Property Tax Relief Act (CMPTRA). The funding gap between the poorest communities in South Jersey and other parts of the state has been growing over time, according to the report, which was authored by Rutgers-Camden professor Michael Hayes. It also suggested the regional funding gap could be addressed with an overall increase in aid of about 3 percent.

The study was released just as lawmakers are holding a series of hearings on the budget proposal that Gov. Phil Murphy has put forward for the 2019 fiscal year that would carry on a policy established by former Gov. Chris Christie by keeping funding for New Jersey’s municipalities roughly flat. State funding for municipalities in general is still well below what was provided before the Great Recession, a shortfall that representatives of the municipal governments say likely compounds the north-south disparities measured by Hayes.

37 percent less on average

In all, Hayes found the average municipality in South Jersey receives 37 percent less in state funds than the average municipality in north Jersey. But after taking into account South Jersey’s generally lower property values and populations, the gap he detected effectively vanished, except in economically distressed communities.

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In those cases, Hayes found that municipalities in South Jersey have been receiving about a third less aid from the state than similarly distressed communities in north Jersey, even after the regional differences in property values and populations are considered. To land in the category of economically distressed, a community’s vacant-property, unemployment and child-poverty rates, and residents’ education level were taken into account by Hayes.

“When we focus our attention to just the most economically distressed municipalities, something interesting happens — this regional gap reappears and is quite large,” Hayes said.

Hayes’s research into municipal-aid trends follows the results of a 2008 survey released by Monmouth University’s Polling Institute that found more than 50 percent of South Jersey residents believe that more state resources are distributed in north Jersey compared to where they live. A Rand institute study released two years ago found that county governments in South Jersey — defined as those in Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester and Ocean counties — received less aid compared to similar counties in north Jersey.

Revenue provided by the ETR program used to be collected by the municipalities themselves, but in recent decades the state took over those duties and it now provides those funds to towns through the annual budget. Meanwhile, the CMPTRA aid is a successor of a number of different municipal property-tax relief programs that were eventually folded into just one.

Economic distress

The research linked the regional disparities in aid involving the poorest communities to the CMPTRA program, suggesting rules that allow for more discretion among policymakers to determine how much aid is distributed where could be the cause of the funding differences. Overall, the report also found that there are generally more communities in South Jersey that could be considered economically distressed compared to those in other parts of the state.

Under the current state budget signed into law by Christie last summer, the state is distributing about $1.43 billion to municipalities through the ETR and CMPTRA programs. While Murphy’s $37.4 billion budget for fiscal 2019 also keeps the state aid from the ETR and CMPTRA programs generally flat, there is one bright spot as state assistance for distressed cities known as transitional aid is due to be increased by $15 million.

The report suggested that increasing overall funding by 3 percent — and targeting the funding to needy communities in South Jersey — would likely “eliminate the gap” uncovered by the Hayes research.

For the last several years, officials from the New Jersey State League of Municipalities have been raising concerns about the impact that flat state aid is having on communities across the state that rely heavily on local property taxes as a main source of revenue. Unlike the state, the towns are not allowed to increase taxes by more than 2 percent annually, unless they put the proposed tax increase before voters.

Last month, NJ Spotlight reported that the rate of inflation has gone up by 15 percent during the time that aid for municipalities has been held flat in the state budget. Since 2007, just before the start of the Great Recession, inflation rose by 22 percent, while the major category of state municipal aid decreased by 17 percent.

By the league’s estimates, the state’s municipalities are still down about $320 million in aid compared to before the recession. While its staffers are still reviewing Hayes’s findings more closely, Michael Cerra, the league’s assistant executive director, said the research seems to highlight New Jersey’s long-term underfunding of municipal property-tax relief.

“If the State were to start to meet its statutory obligations and return CMPTRA funding to the pre-recession levels, everybody would be better off,” he said.