There once was a time when municipalities had direct access to a number of revenue sources aside from the general property tax. In 1966, the State became the collection agent for property taxes on Class II Railroad properties and agreed to hold municipalities harmless, by annual appropriation. Until 1968, when the State became the collection agency, municipalities also collected the Business Personal Property Tax.
When it assumed collection, the State pledged to return the revenues to local government. In 1970, the Financial Business Tax, which had formerly been equally divided between the host municipality and the host county, was doubled, and the new revenue distribution was 50% for the State, 25% for the host county and 25% for the host municipality. In 1980, major changes in Public Utility Gross Receipts and Franchise Taxes were enacted, but the State promised, once again, to return the revenues to the host municipalities.
State's Annual Appropriations Act
That promise was soon forgotten. In 1982, the Governor then in office used the line item veto of the State's Annual Appropriations Act (for Fiscal Year 1983) to skim $32 million of Public Utility Gross Receipts and Franchise Tax funding from the appropriation intended for municipalities, and to use that money for other State priorities-priorities other than property tax relief. The then-Assembly Speaker and the then-Senate President went to bat for our property taxpayers. This skim was challenged in Court. But, in the case of Karcher v. Kean, the State Supreme Court sanctioned this practice. Throughout the ‘80s and into the ‘90s, every State Budget featured an annual diversion of some of the funding dedicated by permanent statutes to municipal property tax relief, and the use of that funding for different State purposes
Local Revenues, Temporarily Displaced
So the lion's share of the monies that municipalities receive from the State as Energy Tax Receipts, Property Tax Relief and as Consolidated Municipal Property Tax Relief Aid are only a partial replacement for funds that were originally direct sources of municipal revenue. Municipalities originally collected, for example, Public Utility Gross Receipts and Franchise Taxes, Business Personal Property Taxes, Financial Business Taxes and Class II Railroad Property Taxes. These revenues were intended for municipal use from their beginnings. When the State, at the request and for the convenience of the taxpaying businesses, became the collection agent for these taxes, it pledged to redistribute the funds back to local governments. So, from our perspective, these do not constitute new "aid" from the Treasurer of New Jersey. Instead, we see them as local revenues, temporarily displaced.
In the 1990s, Legislators in both parties and in both Houses recognized the fact that increases in population, prices, wages and employee benefits - increases over which mayors and governing bodies have little, if any, control - erode the ability of local officials to keep a lid on property taxes with "level funding." Appreciating that fact, they put laws on the books that were supposed to preserve the property tax relief benefits of the most significant of these programs into the future.
For the past decade, however, the Legislature has decided that it could not honor its statutory commitment to full municipal property tax relief funding. With the passage of this past year's budget, over those ten years the State has denied local property taxpayers, statewide, over $3.4 billion of relief.