Murphy’s Budget Proposal: No Boost in Municipal Aid for Cash-Strapped Local Governments

Colleen O'Dea, Senior writer | February 27, 2020 | Budget
Murphy is third governor in row to hold municipal aid flat, even as costs for necessary services like police, road maintenance continue to climb
Credit: Ernesto Eslava via Pixabay
Road work

In his budget address, Gov. Phil Murphy mentioned property-tax relief 15 times and touted a proposed school-aid increase as a major way his spending plan would keep New Jersey real estate taxes in check, but he virtually ignored the second-largest driver of local taxes — municipal government spending.

Murphy’s $41 billion 2021 budget proposal, unveiled Tuesday, contains no increase in aid to local governments to cover the cost of police salaries, road maintenance and other expenditures that keep the state’s cities and towns operating. Municipal aid is budgeted at $1.58 billion, $500,000 less than in the current year.

That’s the third year in a row Murphy has kept municipal aid flat and he is the third governor in a row to do so. Unlike school districts, local governments have gotten no increase in state assistance in more than a decade. New Jersey would give municipalities less aid in the new fiscal year than it did in 2007, before the Great Recession. Yet over that 13-year period, inflation has risen roughly 24%, leaving each dollar towns get worth much less. Still, municipal officials have to meet rising expenses, including salaries driven in part by the annual incremental increase in the state’s minimum wage.

“Municipal aid is again flat, and now at the same level for over a decade,” said Michael Cerra, assistant executive director of the New Jersey State League of Municipalities. “Because of inflation, this is effectively a reduction in aid.”

Municipal spending and property taxes

Spending for schools is unquestionably the largest portion of the typical property tax bill and is responsible for more than half of all real-estate levies statewide. But not too far behind is municipal spending, which accounted for close to 30% of the total local levy in 2018, according to data from the state Department of Community Affairs.

But municipal officials’ continuing calls for the state to give them all the energy and other tax receipts that they say is rightfully theirs have been ignored by governors and lawmakers, for the most part.

Beginning in the early 1900s, municipalities were collecting taxes on public utilities to compensate them for the use of the public rights of way. The money was meant to reduce property taxes, according to a report written for the league. Over time, some of the taxes changed and they are now collectively known as Energy Tax Receipts. The state started collecting the taxes and began skimming some of the funds for the state budget. That skim reached new heights during the Great Recession and continues.

Again, revenues collected locally, intended for local purposes and for property tax relief, will be used to prop up the State’s general fund,” Cerra said.

The league contends that municipalities should be getting in the current year almost twice what is budgeted in Energy Receipts — close to $2.5 billion — and Consolidated Municipal Property Tax Relief Aid due to the skim and a promised incremental increase in those aids. Since 2001, the state has shortchanged towns close to $12 billion in total, the league maintains.

Miniscule increase in municipal aid

Under Murphy’s proposal, the only increase in municipal aid is a $3.5 million increase in open-space payments in lieu of taxes for communities in the Pinelands, where development is limited. That restores the Open Space PILOT funding to fiscal year 2010 levels. The increase was more than paid for by a zeroing out of $4 million in tax-sharing payments to Meadowlands communities.

Last year, Murphy had given a slight increase in transitional aid, available only to cities and towns in dire financial straits, but that amount is slated to remain at $114.6 million next year.

Cerra said municipal officials do appreciate that Murphy has proposed continuing the $10 million Local Efficiency Achievement Program, which helps communities explore and implement shared-services arrangements with others to save money. Such agreements include one town contracting with another for debris removal, two towns sharing a tax assessor and municipalities splitting senior citizen transportation services. The state currently has three grant programs for which municipalities or counties can apply.

County officials also cheered the continuation of LEAP funding, said John Donnadio, executive director of the New Jersey Association of Counties.

“County governments have long been leaders in promoting the regionalization and sharing of services,” he said.

Murphy said during his budget address that LEAP funding will help support the work of the shared-services “czars” he appointed last year and “further our progress” in this area. He announced that more than 1,000 such agreements are now in operation in New Jersey, though it is unclear how many of those may have been in place before Murphy took office.

Donnadio also said the counties were grateful that Murphy agreed to spend $5 million on grants to enhance county and municipal 911 call centers, “the first time in more than a decade” that the state has spent any money to upgrade the emergency calling system. County officials and some lawmakers called last month for the state to end annual diversions of some $90 million in telephone taxes meant to fund 911 system upgrades. Providing funds to maintain and improve the systems means property taxes won’t have to fund the upgrades, though the $5 million is far short of what officials say is needed. Donnadio said officials “plan to advocate for the funding and more during the Legislature’s budget process.”