New Jersey property taxpayers could benefit from several bills moving through the Legislature, including one that would increase aid to municipalities for the first time in more than a decade.
The Senate Community and Urban Affairs Committee advanced three measures on Monday meant to blunt local tax increases or, in one case, reduce property taxes. Two of the three measures are contentious for different reasons. But the committee unanimously supported a measure (S-51) despite the fact that it would eventually cost the state as much as $331 million a year in additional state aid payments.
Sen. Troy Singleton (D-Burlington), the committee chair and sponsor of two of the three bills, said the concerns of New Jerseyans over property taxes was a motivation behind the legislation. At an average $8,767, the state has the highest property taxes in the nation.
Restore reductions in municipal aid
Singleton’s bill would require the state to increase the amount of money it gives to municipalities in energy taxes over a period of five years to restore reductions in municipal aid that were made during the Great Recession.
“By increasing the funds our municipalities receive through the Energy Tax Receipts Property Tax Relief Fund, we are ultimately providing direct tax relief to our towns,” Singleton said. “Clearly, this bill is a win for property taxpayers.”
State aid to municipalities next year is expected to be 11 percent less than what towns received in 2007 although inflation has risen by 21 percent during the same period. Municipal officials have been complaining for years about the state taking some of the energy-tax receipts money it collects and using it to close holes in the state budget, while that money used to be collected by municipalities and was intended to fund local spending.
“We very much appreciate that this is back on the table,” said Janice Mironov, mayor of East Windsor and vice president of the New Jersey Conference of Mayors. “It would be a very big step to put these monies back to the (fiscal year) 2008 baseline.”
The bill would have the state return to municipalities the amount in energy taxes that were cut in 20-percent increments per year over five years until the full amount they received in the 2008 fiscal year is restored.
When would the money be returned?
It’s unclear when towns would begin to get that money, though. The bill has been pending in one form or another for a number of years, and there is no money in Gov. Phil Murphy’s FY2020 budget proposal for it. The committee statement on the bill, however, indicates that the first increase would come in the 2021 fiscal year.
The bill would also amend current law to require a municipality to subtract any additional amount of ETR aid it receives from its adjusted tax levy when calculating the levy for its next fiscal year. This would let towns raise a lower amount of taxes through the levy for municipal purposes.
The contentious bills include one that would give towns more time to repay business property-tax overpayments. It is opposed by the New Jersey State Bar Association and business groups and did not get support from the Republicans on the committee. The other, which would require municipalities to share with school districts the money they get in lieu of taxes for new development, got full committee support but has the group representing towns squaring off against the one representing school boards.
Singleton said there is a need to be mindful of property taxpayers “and the conversation we hear often is they need to reduce their property taxes,” he said in reference to S-59, which deals with municipal payment-in-lieu-of-taxes or PILOT agreements.
PILOTs often are used by municipal officials to entice property development. They are annual payments made for as long as 30 years instead of property taxes and often allow developers to pay less than they would in property taxes. Currently, when a municipality and developer agree to a PILOT, the town gets to keep 95 percent of the money and must give 5 percent to the county.
Singleton’s bill would require municipalities to give local and regional school districts at least 5 percent of annual PILOT payments, when applicable, for urban renewal commercial and mixed-use developments. Schools would get a greater share of payments for housing developments, using a formula based on the number of students the homes generate. Money the schools receive would have to be spent “to reduce that tax levy,” Singleton said.
Taking critical funds from school districts
“A State Comptroller report from several years ago noted that New Jersey’s municipal tax abatement program is pulling critical funding away from school districts and leaving taxpayers to pick up the costs,” Singleton said. “The report noted municipalities often receive more funds by granting tax abatements because they arrange for payments in lieu of taxes. School districts, however, receive no share of those payments and therefore lose out on the municipality’s new wealth. In some cases, the result is schools’ increased reliance on state aid. This bill seeks to change that.”
That report made a number of recommendations for making PILOTs more transparent and said the “arrangements should be structured in a way that encompasses the interests of counties and school districts.”
John McCormac, the mayor of Woodbridge and a former state treasurer, said it’s not accurate to say that schools are losers under PILOTs because they always receive 100 percent of the funding needed for their budgets. Non-residential construction has no impact on schools and they should not share any of the PILOT money. Structuring a sharing of PILOT funds based on the impact a housing development has on schools is appropriate, he added, “if a district can document and defend the actual increased costs.”
Woodbridge has spent $35 million to improve such “community use” facilities on school property as ballfields and playgrounds and has an “unofficial policy” of using some PILOT funds to help pay the school district’s debt service, he said.
Singleton called Woodbridge an exception and said, “If more municipal leaders had such unofficial policies, we wouldn’t be here today.” But he still does not consider it fair that a municipality gets to keep almost all PILOT funds when, if it were collecting taxes on a property it would get to keep only about 40 percent of the money, with the majority paying for education.
Singleton: ‘We are hopeful…’
“Development in a community affects every aspect of that community,” Singleton said. “We are hopeful … the taxpayer gets to see a reduction in their property-tax bill when communities move in this direction.”
This Singleton bill, which the committee unanimously passed, also would require that proposed PILOTs be shared with county and school officials and that municipal officials would have to consider their input before finalizing a payment.
The third bill (A-2004) that the committee passed could help blunt the effects of large tax appeals on municipal finances and property taxpayers.
It would give a municipality up to three years to refund the excess taxes found to have been paid by a commercial or other non-residential property due to a successful tax appeal and potentially lower the amount of interest the town would need to pay to 1 percent above the prime rate, but no more than 5 percent.
Currently, a municipality has to reimburse anyone who successfully appeals his taxes within 60 days and must also pay an annual 5 percent interest rate on the amount.
Business interests not keen
Assemblyman Robert Karabinchak (D-Middlesex), the prime sponsor of the bill, said the change is needed because it can be difficult for a municipality to pay the large amount of some business appeals so quickly, especially during a downturn in the economy. He said during the last recession, his home town of Edison faced almost $100 million in tax appeals from two large industrial parks and noted Atlantic City faced hundreds of millions of dollars in appeals from casinos.
“The debt shifts directly to homeowners,” Karabinchak said. “This just allows municipalities to pay off the financial piece of this over three years … This is not meant to hurt businesses.”
But Andrew Musick, vice president of government affairs for the New Jersey Business & Industry Association, said it’s not fair to force a company judged to have been overtaxed to have to wait three years to get its money back.
“The tax appeal process can already be long and tedious in its own right,” he said. “Extending the repayment period to three years will only further delay the process of recouping an overpayment in taxes … after a successful tax appeal.”
One provision of the bill, which has already passed the Assembly, would have the Local Finance Board establish a dollar threshold below which a refund for non-residential property would have to be paid within 60 days so that smaller refunds would still be paid quickly.
The committee voted along party lines, 3-2 with the Democrats supporting it, to advance the measure.
All three of the bills next head to the Senate Budget and Appropriations Committee.