Upper Township, in Cape May County, received $6.1 million last year in energy receipts taxes for hosting the B.L England Generating Station.

Township officials say it should have been much higher.

Mayor Richard Palombo said changes to the funding formula and the state’s “skimming” of money from the tax have taken $500,000 per year off what the township received between 2005 and 2008, when it got $6.6 million each year.

Palombo says the tax, which dates in some form to telegraph and telephone lines in the 19th century, should be growing. He said it could be as high as $10 million.

“We’ve potentially lost millions of dollars. The formula was supposed to adjust to (the Consumer Price Index) and generation output. That was changed, and it wasn’t supposed to be changed. Our tax structure is changing because of this,” Palombo said.

The township is one of many involved in a battle with the state over how the money paid by utility companies is provided to towns that host their equipment and power plants. The tax was called the Gross Receipts and Franchise Tax, and was known by the unfortunate acronym GRAFT. It’s now referred to as the Energy Tax Receipts Property Tax Relief Fund, although many officials still use the old acronym when talking about the funding.

“Our whole budget and our services are based on that plant,” Palombo said.

The first state franchise tax on utilities, including the telegraph, began in 1884. In 1919, a public utility gross receipts tax was added.

What began at 2 percent had risen to 7.5 percent by 1955.

In 1980 the state Division of Taxation took over collecting the tax from the municipalities. Since then, the state has been keeping more and more of the revenue it collects from the utilities each year.

By 1990 GRAFT totaled $847 million, with the state taking $162 million.

The issue went to the New Jersey Supreme Court in 1982 after Gov. Thomas Kean used a line-item veto to take $32 million out of GRAFT. The court upheld the governor, and by 1998 the state’s take was $408 million. By 2008 it totaled $829 million, and in 2011 it exceeded $888 million. The municipal share declined from $1.58 billion in 2001 to $1.29 billion in 2011.

East Windsor Township Mayor Janice Mironov, who chairs the Energy Receipts Restoration Committee for the New Jersey State League of Municipalities, said that in 2003 the state Office of Legislative Services determined the state-collected tax should not be used for state purposes.

Since then, however, the state has played a game with the energy receipts tax and another fund, known as Consolidated Municipal Property Tax Relief aid, or CMPTRA, Mironov claimed.

When towns get an increase in utility taxes, Mironov said, the state reduces its CMPTRA aid. Mironov said this has allowed the state to avoid a poison pill provision that would have resulted in the state losing its ability to collect the energy receipts if payments to towns that fell below 2002 levels.

Proposed state legislation to bring back the amount municipalities received in 2007 and eliminate the CMPTRA loophole passed both houses, but was vetoed by Gov. Chris Christie last month, Mironov said.

Some South Jersey towns have been big losers in this battle. Lacey Township hosts the Oyster Creek Nuclear Generating Station, and, according to Administrator Veronica Laureigh, the township once received between $12 million and $14 million each year, but has seen its share cut to $11.1 million.

If the growth indexes were being honored, Laureigh said, the township would be receiving $15 million by now.

“We have a lot to lose here. Our amounts are declining over the years and we’d definitely like to see them restored. This is 40 percent of our budget,” Laureigh said.

The Lacey Township Committee in April passed a resolution calling for a restoration of the tax to 2007 levels.

Andy Pratt, a spokesman for the state Department of the Treasury, declined to discuss the issue, which he said was decided by the governor’s veto.

But the New Jersey State League of Municipalities does not believe the issue is dead.

New Jersey has consistently mischaracterized the money it provides to the towns as “state aid,” according to the league.

The league considers it municipal money since it originally was supposed to go to the towns in lieu of property taxes.

“Something’s got to give,” said John Moran, a legislative analyst with the league. “He (Christie) didn’t start it, but he took the biggest chunk. We hope the state revenue picture improves and he’s willing to get the money to its intended use.”

Moran traces the major funding changes to 1997. The energy industry was going through deregulation and Gov. Christie Whitman pushed changes to make utilities more competitive. GRAFT was replaced with five new taxes on utilities and renamed.

He said towns were promised similar funding as in the past with three-quarters of the growth in the future going to towns and one-quarter to the state. Since that time, Moran said the state has taken nearly $4 billion from the fund, money Moran said towns should have received.

“That money is gone and spent,” Moran said. “It all goes into the general fund. You can’t track a dollar once it goes into the general fund. It might be for good programs, but it’s not where the money is supposed to go.”

Taxpayer advocates are weary of listening to the towns and state fight over the money. President Jerry Cantrell, of the New Jersey Taxpayers Alliance, said utility ratepayers ultimately foot the bill for this hidden tax.

Cantrell said the “honest resolution” to the debate is to eliminate energy taxes.

“Everybody wins. Everybody is a consumer at one level or another,” Cantrell said.

Energy taxes are not unique. Cantrell noted there are many hidden taxes.

“These taxes creep in like the stuff on cell phone bills and taxes on rental cars; years later nobody can remember why they were initiated and what their purpose was. If they had a legitimate intent up front it’s clearly been lost on the fight over the dollars,” Cantrell said.

Even small towns are feeling the pinch. Cape May does not have a power plant but has seen its share decline in recent years. City Manager Bruce MacLeod said it used to be about $550,000 a year but it started declining about five years ago and was at $337,632 this year. It’s the only state aid the city receives.

“Even though there are certain laws out there, I believe the (state) budget becomes its own law and supersedes everything else,” MacLeod said.

Mayor Ed Mahaney has fought the state over the issue.

“It keeps getting less and less each year,” said Mahaney. “These are revenues that belong to the municipalities and should be passed through 100 percent to the municipalities.”

Mahaney, however, said the stakes are higher for towns such as Vineland and Upper Township that have more utility infrastructure. He said the state-imposed limits on property tax increases, user fees and other revenue streams could make it very difficult to find this money elsewhere.

Contact Richard Degener:

609-463-6711