Meadowlands Hotel-Room Tax Quietly Expanded Beyond Former Strict Limits

John Reitmeyer | July 31, 2018 | Budget
In little noticed move, tax broadened to cover all hotels in 14 district towns, not just those located within environmentally sensitive area

Credit: Steven Reynolds
meadowlands
A revamped version of a special room tax on hotels in the Meadowlands district is set to take effect tomorrow, and it has the potential to put an end to sizable state bailouts for the region’s longstanding tax-sharing arrangement.

The key element of the tax-policy change was signed into law by Gov. Phil Murphy earlier this month; it expands the geographic area where hotel rooms are subject to an existing 3 percent Meadowlands district room-tax.

The 3 percent rate won’t change at all. But beginning tomorrow, it will be levied on rooms in any hotel that is located within one of 14 Meadowlands host communities, instead of just on hotels located within the environmentally sensitive Meadowlands district itself.

The new policy comes as the latest state bailout for a longstanding Meadowlands municipal tax-sharing agreement was just included in the new state budget Murphy signed into law earlier this month and with revenue from the existing hotel-room tax continuing to fall short of what’s needed to sustain the tax-sharing agreement. Murphy and lawmakers enacted the little-noticed expansion of the Meadowlands hotel-room tax at the same time the new budget was signed into law. (The state has been giving the bailouts for years.)

What remains to be seen is just how much new revenue the policy change will generate as there was little time for executive branch and legislative analysts to prepare a full fiscal estimate after the bill was drafted. But, with the expanded taxing area now covering the entirety of municipalities like Jersey City, the chances appear to be greatly improved.

Fourteen towns in Bergen and Hudson counties

Created in 1969, the 30-square-mile Meadowlands district covers parts of 14 towns in Bergen and Hudson counties: Carlstadt, East Rutherford, Jersey City, Kearny, Little Ferry, Lyndhurst, Moonachie, North Arlington, North Bergen, Ridgefield, Rutherford, Secaucus, South Hackensack and Teterboro.

To help manage the impact of development on the environmentally sensitive region, a tax-sharing agreement was established for the district, requiring those communities with more allowable economic development to share revenues with those that are subject to more restrictive development policies. But many officials complained about the tax-sharing arrangement over the last several decades, and it was also subject to fluctuations during economic downturns that left leaders in many communities unhappy with its results, particularly in the wake of the Great Recession.

Those frustrations led Democrats who control the state Legislature to begin working several years ago with then-Republican Gov. Chris Christie on a 3 percent room tax for hotels located directly within the Meadowlands district to help generate more revenue for the tax-sharing agreement.

The tax went into effect in March 2015, with proceeds collected by the Department of Treasury and deposited into an intermunicipal account. The state was also required by law to pick up any gaps between what the tax generated and what was needed to fully fund the tax-sharing agreement.

The tax generated $4 million in revenue in both fiscal years 2016 and 2017, according to the nonpartisan Office of Legislative Services, but that fell significantly short of what was needed to fully fund the Meadowlands tax-sharing arrangement. The tax was also the source of an embarrassing episode for the Christie administration after an initial, $4.5 million subsidy for the Meadowlands communities was deleted from the final version of the fiscal 2016 budget, requiring lawmakers to approve a special transfer several weeks after the fiscal year began.

Bailout to cost state $4M in FY 2019

Lawmakers just inserted $4 million into the fiscal year 2019 budget to cover what’s listed as Meadowlands “tax-sharing payments arrears,” and the state also provided $3 million for the same purpose in fiscal year 2018, according to OLS records.

The bill seeking to expand the scope of the existing tax was introduced by Assemblymen Gary Schaer (D-Passaic) and Clinton Calabrese (D-Bergen), and Assemblywoman Angelica Jimenez (D-Hudson) on June 18, the same day the $37.4 billion budget for fiscal 2019 was also introduced in both houses. But unlike the budget bill, the hotel-room tax legislation received little attention as legislative leaders were in the midst of public disagreements with Murphy over other, more significant proposed changes in tax policy, including the governor’s push to establish a millionaires tax and to increase the sales-tax rate.

In the end, Murphy and legislative leaders agreed to establish a pentamillionaires tax and increase the corporate-business tax as part of a broader budget deal. Also included in their agreement was a bill that, starting October 1, will apply the sales tax and hotel-occupancy fees on room-sharing services like AirBnB. The governor also allowed the $4 million subsidy for the Meadowlands tax-sharing agreement to remain in the fiscal 2019 budget and signed the legislation to expand the taxing area for the Meadowlands hotel-room tax.

A subsequent notice issued by Treasury’s Division of Taxation alerted hotel owners in the 14 Meadowlands communities of the new room-tax policy and its August 1 effective date.

The Office of Legislative Services prepared a fiscal estimate within days of the bill’s introduction, which concluded the new policy would have an “indeterminate impact” on the state budget. But the OLS analysts did note that it “could result in a decrease in budgeted State expenditures.”

“Assuming that the Meadowlands adjustment payments are fully distributed every year, the enactment of the bill would reduce the extent to which the State is required to appropriate or transfer budgeted revenues to support those payments,” according to the OLS analysis.