Category Archives: tax cap

Byrnes: 2% Cap Place Ball Squarely in Muncipalities’ Court

” The 2% cap is a good thing. It places real restrictions on municipal tax increases by capping additional tax levies year to year at 2%. But make no mistake, this law places the onus for tax relief on municipalities…The time to start planning for this cap is now…”Middletown Committeeman Sean Byrnes – Middletown Township Committee

This latest blog entry by Middletown’s Sean Byrnes takes on the proposed 2% cap on property taxes that is now making it’s way through the Legislature and how it will effect municipal budgets, particularly Middletown’s. He states that the time to start planning for the 2% cap is now, not next year, while waiting to see how much aid will be coming from the state.
Below is from his Mobilize Middletown blog that was posted late last night:
The 2% cap is a good thing. It places real restrictions on municipal tax increases by capping additional tax levies year to year at 2%. But make no mistake, this law places the onus for tax relief on municipalities. The Governor’s “tool chest” promises to make that job easier, but the job of cutting spending rests with the towns. The Governor and Assembly have sent a clear message that most of the hard work of saving tax dollars will take place at the local level. Given that reality, we need to prepare for the difficult work ahead.

To be clear, we operate under a 4% cap now, but there are numerous exceptions that make the existing cap toothless. The new law has just a few exceptions and will leave municipalities with little wiggle room. In any given year, if you have a category of spending (e.g. fuel costs) that increases by more than 2%, you will need need to cut spending elsewhere to offset that increase. Many municipalities, including Middletown, have not had the discipline to operate within a cap. Last year, against my vote, we applied for a waiver of the cap. We voted to defer our pension contributions (which will need to be repaid with interest over a term that starts in 2012), and by year’s end, we needed to borrow $800,000 from 2010 to pay 2009 expenses. This type of reckless spending must end.

The time to start planning for this cap is now. One of the biggest problems with the budget process in Middletown has been our failure to start the process until well into the fiscal year. This year has been no different. It is July, and we have not held a single public meeting to discuss our budget or how we should cut spending. Clearly, at this point, any annual savings to be achieved from budget cutting measures will only be 50% effective, since half the funds have been spent by now. The perennial excuse is that we don’t know exactly how much money we’re getting until the State gives us our revenue numbers several months into the year. The problem with that line of thinking is that it assumes we cannot make cuts until we know how much money we have. Obviously, uncertainly over our final revenue numbers does not stop us from planning layoff, furloughs, reductions in service, etc. We have waited too long, and we cannot afford to make that mistake again.

We should start working on the 2011 budget now. We need to assume that Governor Christie’s tool kit will pass. We should assess that tools that will be available to us, and we should start planning on how to use them. There will be difficult, contentious debates when it comes to jobs and benefits. We may need to reconsider our status as a civil service town. Our negotiating stance with Unions will toughen as the specter of mandatory arbitration is removed.

But even with these additional measures made available to us, a thorough, regular process for evaluating our services and the programs we deliver needs to be followed. Currently, we have no mechanisms or structure to ensure efficient execution of budget-cutting ideas and recommendations. No finance or budget committee. Without a more robust governance structure to engage in the work of following through on some of these budget-cutting ideas, we will never see their fruition. Some ideas that have been discussed but not yet implemented include: combining the maintenance functions in the Parks Department and Public Works Department, sharing maintenance functions with the Board of Education, outsourcing leaf and brush pickup, one day per week garbage pickup, and tougher enforcement of recycling laws. There are more suggestions, but no real process for implementing them. So, as we consider how we might use the Governor’s tools, let’s also put in place the committees and people to help us use the tools to their full measure.

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Filed under budget planning, Middletown Township Committee, Mobilize Middletown, Sean F. Byrnes, tax cap

NJPP Monday Minute 6/14/10: Cap 2.5: An Unnecessary Amendment to the Constitution

Gov. Christie has proposed an amendment to the state constitution that would limit property tax increases to 2.5 percent each year. This amendment, which he is calling Cap 2.5, is part of a 33 bill “tool kit” he claims will fix property taxes in New Jersey once and for all. Under his cap, property tax increases would be limited to 2.5 percent; only debt payments would be outside the cap; and the only way to go above 2.5 percent would be with a 60 percent override by the voting public.

Given the hype surrounding his plan, one might think local governments in New Jersey currently have complete freedom to spend as they wish – without limits.

Anyone who believes that would be wrong.

Municipal caps on property taxes have been in effect in New Jersey since 1976; county and school caps more recently. All have allowed important exemptions for extenuating circumstances such as services essential to the public’s health, safety and welfare.

In the past, each cap has been calculated differently, creating some confusion. The municipal cap allowed appropriations to increase by 2.5 percent or an “index rate”, whichever was less; the county cap allowed increases of 2.5 percent or the cost of living allowance set by the Division of Local Government Services in the Department of Community Affairs, whichever was less; and the school cap allowed increases of 2.5 percent or the CPI, whichever was greater.

Data in the chart from the New Jersey Division of Taxation show property tax revenues since 1966. Over those 43 years, statewide average property tax increases ranged from less than one percent between 1976 and 1977 to 15.3 percent between 1969 and 1970. The most recent data from the Division of Taxation show increases from 2008 to 2009 of 3.6 percent on average.

The common link between the lowest property tax increases has been the infusion of state money or other support. Only three times in the past 40 years have property tax increases been less than the 3.6 percent increase this past year:

  • 1976 – 1977 when the state income tax was enacted (.46%)
  • 1990 – 1991 when Gov. Florio increased income and sales tax rates to increase state aid to schools and municipalities (1.3%) and
  • 1996 – 1997 when the state took over cost of the courts from local governments.

That’s because of an imbalance in the state’s tax structure. Local government in New Jersey relies solely on property taxes and state aid for support. In other states, local governments have a more balanced source of revenue that includes local income and sales taxes in addition to property taxes. In the absence of higher state aid, municipalities could be helped by access to additional local revenue streams.

No doubt property taxes in New Jersey are high, but that does not mean New Jersey is a high tax state. Among all states, New Jersey ranks third in property taxes as a percentage of personal income, according to an analysis of Census data by the Center on Budget and Policy Priorities. But when local income and sales taxes are figured in, too, New Jersey falls to 24th. And when all state and local revenues are combined, New Jersey is 31st among the states.

In New Jersey, school budgets tend to be the heaviest lift in terms of property taxes. As an average across the state, they account for nearly 60 percent of property taxes paid while municipal taxes account for about 25 percent to 30 percent and county taxes account for about 10 percent to 15 percent.

While history shows state money helps to constrict property tax growth, the 4 percent cap, enacted in April 2007, after months of deliberation by the Legislature during its special session on property tax reform, may prove to have the same effect in future years.

Last year was the first full year of the four percent cap. Preliminary evidence seems to indicate it is working. Between 2008 and 2009, the total amount raised by property taxes increased to just over $24 billion from $23.2 billion, or 3.6 percent.

Rather than make hasty policy by enacting a constitutional amendment, it would be wiser to allow the recent statutory property tax limits to continue reining in property tax increases as the legislation intended, and to provide real reforms that rebalance the local tax system.

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Filed under Gov. Chris Christie, Monday Minute, New Jersey Policy Perspective, NJ Division of Taxation, tax cap