The lobbyist for the state’s 566 municipalities is calling on the Christie Administration to hand over more than $700 million in revenue they say legally belongs to local governments.
The State League of Municipalities has been in talks with the administration over Christie’s use of energy tax receipts to balance the state budget. League officials say the money is by law the property of the municipalities. The state merely collects it on their behalf, officials say, before paying it out each year as one of two pools of state aid.
But calling it “aid” is a misnomer, league and local government officials say.
“Our argument is that the original purpose of this money was to provide an alternative to property taxes,” said Bill Dressel, executive director of the League. “It was never intended to be classified as state aid. This money belongs to the municipalities. We are not saying we should get all of it, but we are saying we should get a much bigger piece of the pie.”
The energy tax receipts in question are made up of several revenue streams, including sales tax on energy, corporate business taxes and TEFA – the transitional energy facilities assessment. The revenue streams took the place of the Public Utility Gross Receipts and Franchise tax, which was originally collected by municipalities to reimburse for rights of way containing energy towers and infrastructure within their borders.
In the 1940s, the state became the collection agent for the tax, with the understanding that the money would continue to be forwarded to municipalities.
Once the state began collecting the money, league officials charge, it became fair game and beginning in the 1980s was diverted in ever increasing amounts to the state’s general fund. The result was a drop in what was once considered untouchable municipal revenue.
In 1997, energy deregulation led to a change in the structure, and a law passed at the time codified the state’s entitlement to some of the money while at the same time capping the skim. A 1999 law required the state to phase in an increased payout to municipalities and added an inflation boost each year. The law also required that aid levels never drop below the amount paid in 2002. The law included a “poison pill” that required the state to meet its requirements or forfeit the right to collect the money.
But instead of steadily increasing aid to municipalities, what actually happened is the state began siphoning money from another pool – CMPTRA aid – to increase the energy tax receipts. Because the CMPTRA aid was not protected by the poison pill, it was targeted by governors seeking to side-step their obligations on energy tax receipts, league officials and local mayors charge. The result was a steadily shrinking CMPTRA pool that has dropped from $786,932,761 in fiscal year 2000 to a proposed $207,486,291 in fiscal year 2013. That number represents a $297.9 million transfer from CMPTRA to the energy tax pool in the upcoming budget.
During that time the energy tax receipts paid out as state aid rose from $750 million to $1.086 billion while the state skim has risen from $246.9 million to a proposed $735 million in the upcoming fiscal year, a fact which enrages some league and municipal officials.
“Municipalities collect school taxes on behalf of the school district, but they don’t keep a portion of it,” said Jon Moran, senior legislative analyst at the League. “This is the same situation.”
But the state is actually within its rights to keep the money. A landmark 1984 Supreme Court decision held that the state’s budget legislation pre-empts all others, meaning that if the budget includes the money, it’s perfectly legal, despite the earlier law.
But legal doesn’t equate with right, local mayors charge.
“It is unfair and unjust to take that money away,” said East Windsor Mayor Janice Mironov, who is among those leading the charge to have the money restored in full. “It is an extraordinary assault on local taxpayers and really unfair to municipal governments.”
At least some state legislators agree. Last year, several Republican senators, including Chris Connors and U.S. Senate candidate Joe Kyrillos, introduced a bill that would cap the state skim at the 1997 level – $403 million – and send the rest of the revenue back to municipalities as state aid.
“This bill puts an end to the practice of overtaxing New Jersey’s energy consumers and short changing New Jersey’s municipalities,” the bill statement reads.
The bill, introduced in 2008, was carried over into the 2010-11 legislative session, but never made it out of committee. It has not yet been introduced in the current legislative session.
Neither Connors nor Kyrillos returned calls to speak on the bill.
State Sen. Linda Greenstein, (D-14), Plainsboro, also has introduced legislation that would put a floor on energy tax payments at the 2010 level of $1.029 billion.
“I think our mayors are right on this,” Greenstein said. “Much as we all need the money it’s not right for the state to take the money if it was promised to the locals. Certainly I want to do everything I can to help municipalities reduce property taxes.”
Hamilton Township Mayor John Bencivengo, a Republican, also has joined the fight to force the state to release the money. Bencivengo said he has cut what he can from his budget and despite a reduction in spending in the upcoming budget, he will be forced to raise taxes.
“It’s outrageous that they are doing this,” said Bencivengo. “Our share of the skim is $5 million. If that was sent to us as it should be, I’d be able to reduce taxes this year.”
In total, Bencivengo said his township has lost million in energy tax receipts since 2002. This year alone, the difference is more than $13.8 million, or about 15 percent of the township’s budget.
“This money was put there in the first place for property tax relief,” Bencivengo said. “They are not only not using it for what it was intended they are using it for their own budget.”
Bencivengo and others say the governor’s plan to offer a 10 percent income tax cut is particularly offensive given the skim.
“Obviously they have enough money because the governor is offering an income tax cut,” he said. “They took this from us and now they are using it for their own gain and that’s not fair.”
Mironov, whose municipality has seen almost $10 million diverted over the past decade, said she has had meetings with state officials on the topic and at least some seem to understand the issue.
“They are pleasant and I think it’s fair to say some of them understand the issue, but we never hear back from them,” she said.
A spokesman for the administration declined to comment on the issue, but privately, at least one administration official said Christie is doing more than past administrations to protect the needs of municipalities.
Aid was held steady from last year, the official said, and the governor has implemented reforms designed specifically to help local governments, including pension and benefit reforms, interest arbitration caps and the maintenance of the transitional aid program.
The topic of energy tax receipts is up for discussion in Monday’s Assembly Budget Committee. The committee has invited State Treasurer Andrew Sidamon-Eristoff, Acting Department of Community Affairs Commissioner Richard Constable, and several local mayors to speak on the topic.