Assemblymen Joe Howarth and Ryan Peters’ proposal would cap state spending each year at the same 2 percent cap placed on local government tax levies. The two Republicans argue that the limitation on state spending is the best way to prevent lawmakers from increasing state taxes or imposing new ones.
By David Levinsky/Burlington County Times
TRENTON — For the better part of the last eight years, New Jersey towns and school districts have been restricted from raising taxes more than 2 percent annually.
The cap, which has only a few exemptions, is generally credited with helping to slow the rapid growth of New Jersey’s notoriously high property taxes, although that particular tax remains, on average, among the highest in the nation, and is deeply unpopular with local homeowners.
Citing that local limit, two 8th District lawmakers have introduced a proposal to amend the New Jersey Constitution to place a similar restriction on the state government’s annual budget.
Assemblymen Joe Howarth and Ryan Peters’ proposal would cap state spending each year at the same 2 percent placed on local government tax levies. The two Republicans argue that the limitation on state spending is the best way to prevent lawmakers from increasing state taxes or imposing new ones.
“If the latest budget cycle proved anything, it’s that the state has a major spending problem.
Conversations on what taxes to raise dominated the discourse without discussions on what spending to cut,” Howarth said in a statement. “The size of government is ballooning at untenable rates, and the people of New Jersey cannot and should not be subjected to anymore wild tax increases brought on by its growth.”
He pointed to this year’s recently approved $37.4 billion state spending plan, which raised total spending close to 8 percent, including a record-high boost in school aid and mass transit funding, a $765 million surplus and a $3.2 billion contribution to the state’s chronically underfunded pension system.
Lawmakers also added $57 million for expansion of pre-kindergarten programs and $25 million for Gov. Phil Murphy’s plan to make community colleges tuition free over time.
In order to keep the budget balanced, the spending plan relies on several tax increases, among them a so-called “multimillionaires tax” on individual and family earnings over $5 million and a corporate business tax surcharge that will require companies earning over $1 million to pay 2.5 percent higher in corporate business tax this year and next, and 1.5 percent more the following two years before the tax sunsets.
Businesses also will face a new combined reporting requirement that will likely raise the state tax liability for large companies that do business in multiple states, and the state’s sales tax will be applied to all online purchases. There also will be taxes on ride-hailing services like Uber and Lyft and rental services like Airbnb.
“Trenton obviously needs to be constitutionally forced into fiscal responsibility,” Peters said. “It’s not something politicians are going to decide to do on their own. We need an unwavering standard that makes them.”
Their proposed constitutional amendment would cap state spending each year at 2 percent but would exempt some spending, including those items already written into the state constitution.
The exemptions include spending on state aid for school districts, municipalities and counties, federal funding that the state uses or distributes, debt service, capital construction spending and all spending from the Property Tax Relief Fund, which is used for several state programs, including the state’s Homestead tax credit and Senior Freeze property tax relief programs.
The cap would exempt spending related to emergencies or natural disasters. Also, the cap could be exceeded if the Legislature approves a fiscal emergency measure by two-thirds majorities in both chambers.
The 2 percent tax levy imposed on local governments has exemptions for pension and health care cost increases, debt and approved emergencies. School districts are allowed to exceed the cap for some spending related to significant enrollment increases, and towns and school districts also are permitted to exceed the cap with voter approval.
Howarth and Peters said the state government should be subject to the same standards imposed on local government.
“It’s the height of hypocrisy to ask local governments to adhere to a 2 percent cap without the state doing so as well,” Peters said.
Unlike with the local cap, the proposed state cap would not exempt pension payments, which are due to rise to close to $4 billion next year and still fall short of what actuaries recommend the state pay in order to keep the funds afloat for all future retirees. Without a pension exemption, the state would likely have to impose benefit changes on public workers or drastically cut other spending in order to remain under the proposed cap.
The amendment is the second introduced by the two Republicans this summer. The first would end the state’s longstanding practice of diverting millions in “energy tax receipts” paid in lieu of property taxes by utilities and energy companies from going to municipalities as state aid to the state’s general fund budget.
Both amendments would require voters’ approval. However, getting on the ballot is the real challenge, since Republicans are a minority in both the Senate and Assembly.
In order to get on the ballot this November, a three-fifths majority of both the Democratic-controlled Assembly and Senate would need to approve it.
Howarth argued that a strong limit on state spending is warranted.
“Giant yearly spending increases need to become a thing of the past,” he said. “The current state of affairs is unsustainable. The 2 percent cap will bring us into a more sustainable future for New Jersey.”