HPAE Takes Position on Tax and Spending ‘Caps’

This year’s budget contains more than $800 million in cuts to education and $450 million in municipal aid. In addition, support for women’s health services and clinics was eliminated and family care subsidies for health coverage drastically cut – though the NJ Senate and Assembly attempted to restore these funds.

Alongside the budget cuts, Governor Christie is proposing constitutional amendments to put a ceiling on property taxes, state spending and public collective bargaining agreements of more than 2.5%. A debate on the 2.5% cap on property tax, and alternatives is currently pending in the NJ Legislature.

There are two current proposals to ‘cap’ property taxes –

1. Governor Christie’s proposal to amend the NJ Constitution to place a ‘hard’ cap of 2.5% on property tax increases – with an exemption only for debt service, that can only be overridden by 60% vote of the local voters. This is based on a bad model from Massachusetts, which initially supplemented the reduction in local funding. But when the state stopped providing extra funding, local municipal services took a severe hit. This constitutional amendment would allow no local flexibility; no exemption for local collective bargaining; no increases in health premiums; and no ability to increase services or programs when the economy improves. It would result in drastic cuts to education and local services – even as the new 2011 budget cuts education by $840 million and municipal aid by $420 million. Note: the GOP will be introducing a proposal that mirrors the governor’s cap plan however the cap would be statutory not constitutional.
2. The NJ Senate and Assembly have passed a measure sponsored by State Senator Sweeney, which is a 2.9% cap proposal –done by statute, with exemptions for health care costs. Municipalities will be able to ‘bank’ the cap – so if they spend less one year, then can save towards other years. And, it can be overridden by majority of voters.
   HPAE opposes the constitutional amendment proposal, based on its lack of flexibility for local needs; its immediate harmful impact on public services; and the lack of state support to compensate for locally lost revenues. We call on the Governor and Legislature to address the real crisis due to the downturn in our economy, and focus on methods of supporting our local communities.

To date, HPAE has remained neutral on Senator Sweeney’s proposal. It is the more prudent path, since it does offer flexibility based on the realities of future costs – for example, unless we can dictate to insurance companies that they cannot increase their premiums by more than 2.5%, local governments and their workforces would be unable to negotiate fair contracts – or would have to slash programs. However, neither of these ‘caps’ address the real problems, or provide additional support from the state. In fact, NJ already functions under a local 4% cap, instituted in 2006 by Governor Corzine and the NJ legislature.