Assemblymen Ryan Peters and Joe Howarth plan to introduce a constitutional amendment on Monday that aims to end the state’s practice of diverting tax revenues from utilities and energy companies that they say is intended to go to municipalities but instead is used for state programs and salaries.
By David Levinsky/ Burlington County Times
TRENTON — Two Republican lawmakers from Burlington County believe they have a way for residents to vote to reduce their own property taxes.
Assemblymen Ryan Peters and Joe Howarth plan to introduce a constitutional amendment Monday aimed at ending the state’s longstanding practice of diverting tax revenues from utilities and energy companies that they say is intended to go to New Jersey municipalities but is instead withheld and used to help pay for state programs and salaries.
“We have the highest property taxes in the nation,” Peters, R-8th of Hainesport, said Friday. “You don’t get stuck in a hole this deep without doing a lot of digging, and for years, state politicians have been taking a backhoe to two of the most important revenue funds that municipalities have.”
Close to $1 billion is collected by the state annually from utility and energy companies in lieu of property taxes for the use of public lands for infrastructure such as power lines, pipes, plants and substations, and services that utilities receive, notably police and fire protection.
For years, New Jersey mayors have complained that money is supposed to be returned to their communities as part of their annual state aid, but large sums of the revenue are being diverted to the general fund budget to pay for state services at the expense of towns, which have endured reduced or flat aid for several years.
The aid is used to pay for services and keep property taxes in check.
The diversion of the revenue has been done by both Democratic and Republican administrations through forms of accounting trickery.
Prior to the 1940s, energy tax receipts were collected by the towns themselves as payments in-lieu-of-property taxes. The state took over the practice to make collections easier, but beginning in the 1980s it also began keeping a share of the revenue for its own budget, a practice that was codified into law in 1997.
The law specified that the state was to increase the amount of energy tax receipts awarded to municipalities each year based on inflation and that any reduction would amount to a “poison pill” that would end state collection of the tax.
But the state has managed to skirt the poison pill provision through annual budget language and by making drastic cuts in the other category of aid that towns receive, called Consolidated Municipal Property Tax Relief Aid, or “formula aid,” that offsets the required energy tax receipt awards. The end result is that the state government is keeping larger shares of energy tax receipts revenue for its own general fund at the expense of towns, which have been forced to endure reduced or flat aid awards for over a decade.
Peters’ and Howarth’s amendment would change the state constitution to require both the energy tax receipts and formula aid be fully funded each year based on the $631 million in municipal aid awarded to towns in 2009 and that subsequent increases be made each year based on inflation.
The change would provide an immediate boost in aid to municipalities, which could use it to provide property tax relief to beleaguered homeowners, the lawmakers said.
The lawmakers said the change would effectively put a “lockbox” around energy tax receipts and municipal aid, but would require the state to increase municipal aid by about $384 million in fiscal year 2019 in order to comply.
That won’t be easy given the state’s current finances plus the new initiatives Democratic Gov. Phil Murphy has proposed.
The governor’s $37.4 billion budget already relies on some $1.5 billion in new or increased taxes, notably a return to the state’s 7 percent sales tax and a top rate income tax surcharge on earnings over $1 million.
Those increases are expected to help fuel Murphy’s proposed $284 million increase in school aid, which he has described as property tax relief, as well as other initiatives, such as an increase in funding for NJ Transit and money for expanding preschool programs and making county colleges tuition-free.
Murphy has said the spending increases are needed to restore “value” to New Jersey residents for the high taxes they pay, but Democratic leaders of the Legislature have been resistant to the proposed tax increases.
The state also continues to face a financial crunch from its rising pension and health care expenses, which threaten to overwhelm the state’s finances.
In fact, Murphy’s administration has proposed a new bit of accounting wizardry by shifting all energy tax receipt money to the state’s general fund in order to provide more financial flexibility. Towns would continue to receive the same amount of municipal aid because the state would offset that loss with a corresponding increase in formula aid.
That proposed change has drawn the ire of mayors, who fear it will make it easier for additional municipal aid reductions in future years.
On Friday, state Treasurer Elizabeth Maher Muoio directed all state cabinet and agency heads to immediately freeze all hiring, promotions and discretionary spending until further notice due to uncertainty surrounding general fund revenues and the lack of action by lawmakers on the administration’s proposed energy tax receipts shift.
“I have repeatedly made it clear that we face extraordinary fiscal challenges due primarily to the structural imbalance in our general fund,” she said. “Given the uncertainty about bringing Energy Tax Receipts on budget before the close of the fiscal year, we have to reserve all available resources in order to ensure we close out the general fund in a positive position.”
Howarth and Peters say all energy tax receipt money belongs with municipalities as property tax relief rather than with the state government for spending.
“It seems to me that politicians have been giving towns property tax relief with one hand and taking away with the other,” Howarth said.
“There will always be something new the state will justify using this money to pay for, when it should be focused on the tax burden that’s piled high on the backs of New Jersey families and businesses,” Peters added. “This is something mayors from around the state have called for, and everyone can see it’s sorely needed.”
In order for the 8th District lawmakers’ proposed amendment to make it on the November ballot for voters to consider, a three-fifths majority of both the Democratic-controlled Assembly and Senate will need to approve it.
While the ongoing budget battle makes their proposal a long-shot, Democrats have supported similar proposals to restore energy tax receipts in past years.
The most notable of those was a bipartisan bill penned by Democrat Troy Singleton, D-7th of Palmyra, that would phase in the return of over $300 million of the revenue diverted from towns during the previous fiscal years.
Singleton’s bill, which would have required all additional aid be applied directly to municipal tax levies to offset property taxes, was approved by the Democratic-controlled Legislature in 2012 but was vetoed by then-Gov. Chris Christie.
Singleton has reintroduced the legislation each year since, including this year after he moved from the state Assembly to the Senate.