Posts Tagged ‘Energy Tax Receipts’

A neighbor pointed out that Trenton has the highest effective tax rate in Mercer County and another neighbor blamed Governor Christie for it while also suggesting that Princetonians shouldn’t complain about their taxes because Trenton’s tax rate is so much higher.  Rather than tie up the neighborhood e-group I thought I’d comment further on Reinvent Trenton.

Trenton has had the highest effective tax rate in the entire State of NJ (not just Mercer County) for a long time.   Trenton’s rate is 4.753% and Princeton’s is 2.031%.
Mercer County Tax Rates by municipality

Despite any partisan claim that this is somehow the current Governor’s fault, we’ve had the highest rate since as long as I’ve been tracking it which goes back to Corzine and McGreevy.   If one wants to assign blame, we’ve had Democratic Mayors for the 24 years it took for our tax rate to climb to where it is.

And while we’re on the subject, let’s not forget what the situation would be if we weren’t an Abbott school district (that’s what you are if you’re so destitute that you can’t pay for education), our tax rate would be double than what it is now.   The State pays for our public schools.

However, The comparison to Princeton is correct.   People are generally oblivious to their tax “rate” and instead focus mistakenly on absolute value of the tax bill.   It’s our tax rate (in some cases higher than mortgage interest) that scares away new investment.

We do not have a cost problem.

Our costs are comparable to similar cities.  Politicians like to suggest to citizens that they are cutting costs but in a city like ours, that’s like cutting bone, a bad idea. Even our wasteful spending on parades and festivals is just a drop in the overall budget.

One notable exception is that Camden’s (a city with slightly lower median income than Trenton) policing costs are now much lower than Trenton’s and for what appears to be a superior level of service.  Camden’s solution was drastic and many people (mostly those in police unions) deride it.  Nonetheless regionalization (whether its union busting or not) should be considered.

While we can certainly be smarter about our spending, it’s not the big problem.

Our Big problem is revenue!

Hopefully everyone in Trenton is up to date on the drivers of our municipal and school budgets and the actual structural problems as they relate to State payments to Trenton (CMPTRA formulas, Energy Tax Receipt formulas, State PILOT payments, Transitional Aid and Abbott funding).   All of these sources measure in the millions.   Our immediate problem with the state is that the formulas are either incorrect, not being maintained or both.

Federal law prevents Municipal governments from taxing State governments.  That hasn’t prevented other state capitols in this country from being successful cities.  If one investigates some of those cities (“Fix Trenton’s Budget” did a few years ago) they find that NJ’s compensation package to Trenton is on par or better than most.  It’s what we’ve done with our limited resources that has caused the problem.

Trenton has been shortchanged on CMPTRA (includes taxes on business that the state collects on our behalf) and Energy Tax Receipts (state collects money from for energy companies on our behalf).   The previous administrations (Mack and Palmer) were asleep at the wheel on these issues.  We’ve forfeited millions of dollars (at last count over $20M as I recall).  Meanwhile the league of municipalities has spearheaded an effort to fix this.   Our current admin and council are somewhat more familiar with the subject and will hopefully lend Trenton’s weight to the effort to overhaul this payment system.

The fundamental problem revenue side of the equation.   Not one single policy has been enacted to drive investment in Trenton since I’ve lived until this week.  The “Vacant Property Registration Fee” measure is the first policy I know of in the last 14 years that seeks to stimulate an increase in our tax base.   The proposed property revaluation would be another and if we get our act together on use of the Abandoned Properties Act and Homesteading (buying City owned houses for $1) those will be 3 more.

We’ll continue to have the highest tax rate in the state until we straighten out our revenues.   Cutting costs is easy, anybody can do that and then not take blame for the results.  Fixing a city’s revenue picture takes imagination and thought.

Historically (before Mack and Christie) the state funneled four main sources of revenue to Trenton:  Capital City Aid, CMPTRA, PILOTs on State Buildings and Energy Tax Receipts.

Two of those sources, CMPTRA and Energy Tax Receipts, are meant to be pass-through payments the state collects from corporations on behalf of every city in NJ.  CMPTRA includes business taxes (but in the case of Trenton also included some ill-defined PILOT payments). Energy Tax Receipts are paid from utility company fees.  It turns out that the State has been shortchanging cities across NJ for many years in both of these revenue streams.  Neither of them have transparent funding formulas.  The NJ League of Municipalities has taken the State to task over this but Trenton has been silent up until now.  Support for A-2753 to end diversion of Energy Tax Receipts is especially important.

There is no very accurate measure of the level that we have been shortchanged but experts in Trenton estimate the amount to be in the millions.  The next Mayor of Trenton will add his voice to those of other municipalities in formulating a better mechanism for transferring the money that rightly belongs to the cities.

The State discontinued the Capital City State Aid program in 2011.  It was essentially replaced with Transitional Aid though, at a lessor amount as you can see in the revenue charts below.    Capital City State Aid was a very undependable source of funding because it had no formula and was supplied through a yearly act of Legislation.   Obviously this Governor has decided that this outright grant is untenable.  I agree with him.

Transitional Aid was meant to be transitional, a gradual decrease in State funding with a lot of conditions monitored by the Dept. of Community Affairs (DCA) but really, the State wanted a plan to revitalize the city, a plan that it never got.  All of us in Trenton are aware of how that has gone under the Mack administration.   Because DCA and the Governor couldn’t trust our former Mayor, funding was cut and the restrictions became tighter.

The final form of funding is what’s most important for our future relationship with New Jersey.  Several State owned buildings in Trenton have had negotiated PILOTs with the City.  There is no rhyme or reason to this other than it was a mechanism in which to transfer additional funding to the City for various reasons.  Only a handful of State buildings have PILOTs.  The total amount comes out to about $9M.   This is an ad hoc approach to funding.

No State in the U.S. has any obligation to pay a City anything.  Governments can’t tax each other.  However, many States understand that especially in Capital cities the state is a major property owner and employer and must behave more like a corporate landowner.   I propose that we formalize this approach through negotiation and State legislation to generate a funding PILOT based on either the assessed value of State land in Trenton or the proportion of land owned by the State.   The Fix Trenton’s Budget group has analyzed this issue by examining the city’s tax rolls and report that the State of NJ owns roughly 19% of all property value in Trenton.  However, we have reason to believe these values are under-assessed by quite a bit (perhaps 50%).   Additionally, the State owns about 28% of the acreage in the City.

The question is, if the State were taxed like a corporation, what would it pay?

Let’s say that after a reassessment the State is found to own 30% of the land and property value.  Total values in Trenton are roughly $4B.   Our current tax rate is 3.85%.  Therefore the State could theoretically pay 30% X $4B X 3.85% = $46.2M.   This is more than it pays today in Transitional Aid and PILOTs (roughly $32M) but less than it did in 2010.   This is a good formula.

Trenton is in a dire situation though and we do need the State of NJ’s help in recovering from this.   Our next Mayor will do well to ask for State assistance in many areas mainly around legislative relief to overhaul our tax system and create incentives to invest in Trenton.   In the meantime we will request that Transitional Aid be maintained until our economic plans can begin to bear fruit, likely 4-5 years.

Jim Golden’s Trenton Forward plan is unique in that it includes a detailed plan to revitalize the city that specifically seeks to rid us of the need for transitional aid as long as our funding formulas can be formalized.   The BIG goal in that plan is to make Trenton much more self-sufficient.   Our lack of self-sufficiency puts us all at risk because our budgets will be uncertain.   We’re entirely too dependent on the whims of a Governor or Legislature.

Trenton Revenue Source Comparison

Source:   Trenton City Budgets, Fix Trenton’s Budget.

Trenton Forward “Asks” to New Jersey: Beyond the Funding Formulas

• Support for consulting project to define and implement Best in Breed
• Seek a Land Value Tax capability to replace PILOTs and Vacant property registration fees
• Allocate $50M to a Residential Investment subsidy over 10 years
• Enact enabling legislation for Income Tax Credit Zone that caps state income taxes in Trenton
• Continued funding for temporary police assistance