Findings

  • The state is keeping a larger portion of the utility taxes, which once were paid entirely to municipalities.
  • Although collections have grown by 29 percent over the last four years, the amount sent to towns has not increased.
  • Most municipalities entitled to utility payments in Atlantic, Cape May and Cumberland counties received less money this year than last year.

The greatest tax-relief asset for New Jersey’s local taxpayers may be hovering overhead or buried under the ground. Either way, the tax relief is increasingly out of reach for municipal budget officers.

New Jersey energy and utility companies have laid miles of water mains and strung millions of feet of power lines to reach their customers in towns, cities and rural areas. The physical presence of those pylons and pipes prohibits development of that space, depriving municipalities of potential property tax revenue.

Once, the utilities paid money in lieu of those taxes directly to the municipalities. In 1979, the state took over collection of the money, promising to send it back to municipalities as property tax relief. But state government began taking a cut — and that take is growing. It’s gotten to the point where mayors now say the relief no longer comes near the amount the energy companies once paid.

Prompted by reductions of as much as 26 percent in the energy tax-receipts aid to some towns this fiscal year — at a time when Gov. Chris Christie will force municipalities to adhere to a tight tax cap next year — some local mayors are calling for a renewed focus on bringing the money back to areas with a large utility presence. Some even want control of the money to be put back in the hands of the towns’ government leaders.

The state estimates it will take in $1.8 billion in taxes from utilities this year. That total, which includes taxes unrelated to infrastructure, has risen from $1.4 billion since 2006. The state kept more than $1 billion for its state budget this year, the first time New Jersey has kept so much.

In the same period, the amount distributed to towns statewide has remained frozen at $788.5 million. Their share comes out of the sales and corporate business taxes and the Transitional Energy Facilities Assessment.

Bill Dressel, head of the League of Municipalities, described the increase in municipal operating costs in recent years as “runaway.”

“Costs (ranging) from health care to even our own energy bills can’t be capped. So how are we living under a cap while missing revenues that were always meant to reimburse towns?” he asked.

State keeps more than half

In 2010, the towns’ share of the estimated total represents only 43 percent of what the energy companies paid, according to The Press of Atlantic City analysis of data from the state Treasury and Department of Community Affairs.

That money goes into a fund, the Energy Tax Receipts Property Tax Relief Fund. Although revenue from the utilities rose this year, the overall total of aid allocated remained the same.

Locally, all but nine of 66 municipalities in Atlantic, Cape May, Cumberland and southern Ocean counties received less money from the state this year than last, under a formula that assesses the local tax rate and income levels. Among them, Atlantic City lost more than $1.2 million, Lacey Township lost nearly $400,000 and Hamilton Township lost about $700,000.

Officials in Egg Harbor Township were surprised to find they had lost $700,000 year to year. Utility assets in its boundaries include a gas field and two buildings owned by Atlantic City Electric. But its population has grown in comparison with other towns in recent years, and it is comparatively wealthy.

While assessments of municipalities’ utility infrastructure were done in 1997 and are reflected in their aid allocations, all cuts since then have followed an across-the-board formula, equally affecting municipalities with lots of infrastructure and those with none. Since 1997, the state has based each town’s reimbursement not on the amount of utility infrastructure, but through the formula, so the amount of power plants and water lines are not the deciding factor.

Mayor James “Sonny” McCullough compares the recent reductions to when the state government first took control of the funds, which were promised at the time as continued property tax relief but quickly wound up supplementing the state’s general fund. At the time, the state argued it was more convenient for utilities to pay one central collector, but pledged to redistribute the money to municipalities.

“That, back then, was like a smash-and-grab,” he said. “The problem is, the state has never put it back.”

Consistent decline

For some towns, the money from utilities has provided services year in and year out: Lacey Township, in Ocean County, where the Oyster Creek nuclear plant is located, received just more than $11 million this year, half a million dollars less than last year.

Officials in other towns say they have been losing revenue steadily since the 1970s. Egg Harbor Township, McCullough said, lost more than half of its original allocation after the state took the purse strings of the tax-relief account.

“We used to get twice what we do now,” he said last week. The township’s administrator, Peter Miller, said he had corresponded directly with the Board of Public Utilities last year, and was told that utilities in the township paid the state about $14 million. But since the state took over the fund, the revenue to the town has dropped and continues to decline, down to $6.8 million this fiscal year.

Likewise, Peter Elco, mayor of Absecon, researched how much his city had lost in year-to-year revenue in that same period.

“It looks like 20 percent this year alone,” he said, looking at this year’s numbers.

A spokesman for the state Treasury, Andrew Pratt, said of the mayors’ suggestion to change the formula: “Any legislation making a change like this would have to be reviewed on its merits. Clearly, taxpayers would get no benefit from a system that increases the costs of collection, reduces aid to municipalities or increases utility rates for state customers.”

Municipalities want the money back

The question towns ask now is where they would be financially if the state agreed to let them have the direct revenue from the energy companies, rather than a slice of the relief fund.

“We’d be able to use that full amount to offset the problems we have being based in the Pinelands,” said Chuck Chiarello, mayor of Buena Vista Township, a smaller township than Egg Harbor Township but one also restricted to development outside the boundaries of the Pinelands.

With less aid this year overall, Buena Vista Township had to lose a couple of employees and faces stiff cost-cutting.

McCullough agrees that returning the energy tax funds would make a huge difference. “I think we probably would not have had to increase taxes. That might have wiped that right off this year,” he said.

And he argues the timing is right for bringing the money back to the control of the towns themselves, as the governor makes a broad push to make towns financially self-sustaining without aid and continuous tax raises.

Other mayors statewide agree.

Janice S. Mironov, mayor of East Windsor Township, and Dave Fried, mayor of Robbinsville, both in Mercer County, wrote to the Legislature in May, saying the state should not pare down the energy tax receipts money to towns as if it were aid.

They wrote, “In fact, one could argue whether they should be called “aid” at all.”

While this fiscal year two revenue streams making up the energy tax receipts fund—water and sewerage gross receipts and franchise taxes, and TEFA, the transitional fund on gas and electric companies — are stable relative to last year’s projections, Fried described Robbinsville as losing nearly $230,000 in aid.

And he has joined the call by southern New Jersey officials to bring that money back to towns for good.

In May, Christie unveiled a planned “toolkit” for towns, which he said he intended to get passed within weeks of enacting a new property-tax cap.

The cap will be law under the next budget cycle, meaning that towns cannot raise tax levies by more than 2 percent without a ballot vote of local residents.

The toolkit of proposed legislation was meant to help towns keep their costs under control through contract bargaining reform and a list of about 30 other proposals. But the toolkit does not address the energy fund.

McCullough and Chiarello agreed the restoration of energy-tax receipts money to municipalities should be an addition to the toolkit.

As Chiarello said, “We’ve been doing without that money for nearly 30 years, but times have changed.”

Contact Juliet Fletcher:

609-292-4935