How Statewide Property Tax Reform Could Affect Bernards Township

As municipal and school governments across northern New Jersey prepare to adapt to a new 2-percent property tax cap signed into law earlier this month, uncertainty remains among local representatives as to the future of local budgets.

Sweeping changes at the state level regarding property tax laws in New Jersey have been prevalent in headlines this month, but how the changes will affect Bernards Township remains to be seen.

The New Jersey state legislature passed the first portion of Gov. Christie's property tax reform package, a year-to-year 2 percent cap on property taxes, earlier this month. The cap comes as an amendment to previous legislation that allowed for up to a 4 percent increase, with exceptions. For more details on the nature of the 2 percent cap, see our detailed guide.

The idea of the cap may be most familiar to local residents who closely follow the school budget process, which in years past has narrowly exceeded the 4 percent cap while taking advantage of exemptions. Earlier this week, Patch reported on the school district's preparations for meeting the reduced level in upcoming budget years.

The Basics

On the municipal level, where taxes decreased for four straight years from 2005-09 before increasing 3.65 percent in 2010, the effects of the new 2 percent cap will likely pose different challenges than those facing the school district.

Despite recognizing difficulties with the legislation, Mayor Scott Spitzer said he supports the cap as a way of improving the overall tax situation in the state.

"New Jerseyians are among the very heaviest taxed citizenry in the United States. The unchecked and escalating taxes are corrosive.  They are damaging our business competitiveness, and therefore constitute an inhibitor to job creation, and they are driving our seniors out of their homes and out of the state," said Spitzer.

"[The cap] is a blunt, but necessary means to help reduce the skyrocketing burden on our taxpayers. I don't underestimate the tax cap's challenges, especially to fiscally well run municipalities like Bernards Township," Spitzer said.

Bernards Township Administrator and Chief Financial Officer Bruce McArthur said of the nuts and bolts of the new proposal, "In my world, I'm not a big fan of caps. I think you do the prudent thing and you balance what services people demand with you're ability to pay for them."

McArthur said that to him, it appears that some municipalities budget at the level of the cap regardless of how much they actually need. Bernards, said McArthur, has resisted that temptation. If the municipality had raised taxes at the level of the previous cap, total tax revenue in Bernards could be almost $4 million dollars more than the level at which it currently resides.

One significant difference between previous legislation and the new 2 percent cap is that unused tax increases now can be rolled over from year-to-year for up to three years, meaning if a municipality raises taxes 1 percent one year, the next year they could raise taxes by more than 2 percent to make up for the unused cap space. McArthur said the ability to bank the unused increases could help get rid of what he called a "use it or lose it" mentality among municipal planners.

"Maintain the Status Quo"

McArthur said that despite the exemptions for rising health care costs and pension payments, among other items, the cap still places limits on the municipal level that might be difficult to make up.

For example, the New Jersey American Water Company recently asked for a rate increase from the state. Bernards must currently rent all of the fire hydrants in town from the company at $40 per month per hydrant. An increase over 2 percent would be difficult to handle with the cap in place, according to McArthur.

"That said, I think Bernards is in a better position to deal with [the cap] than most," McArthur said. The town uses a pay-as-you-go policy, holds a AAA bond rating, and has slowly been reducing its workforce through attrition.

The aim, according to the administrator, is to keep the level of services currently offered steady while keeping taxes in check.

"If any town can maintain the status quo in terms of the services they offer they're doing a fabulous job," McArthur said. "I think that's the goal, doing the same with less. But doing more, I think, is now completely off the table."

The Problem With Paying Off Debt

One of McArthur's "pet peeves" with the way caps have functioned in New Jersey as it concerns Bernards is the way they handle debt payments. Bernards, which has been paying off its debt steadily over the past several years and expects to be completely debt free in 2011, is uniquely affected by the way debt service payments are used to influence cap numbers.

If a town adds debt in any given year, that town is allowed to add the amount of debt to how much they can increase the cap. For example, if Bernards were to take in $100,000 of debt in 2010, under the cap exemption for debt, the town could add $100,000 in taxes on top of the 2 percent allowed under the cap.

The opposite is also true. If Bernards pays off $100,000 of debt, then must lower taxes by $100,000 under the 2 percent cap level. The system, according to McArthur, encourages municipalities to take on debt, rather than pay it off. The administrator also said that it's possible for a situation to develop in which a town could have a negative cap, or in other words be forced to lower taxes because the town paid off large portions of debt.

The Governor's Tool Kit

Along with the 2 percent tax cap, Gov. Christie proposed a slew of reforms that are intended to give local government's more control in controlling cost measures in their area.

"The tax cap is not by itself sufficient," Spitzer said. "The state legislature needs to promptly adopt additional reforms, like those proposed by the Governor's "tool box" reform package, to give municipalities the effective tools to attain the tax cap mandate, reverse the tax and spend environment, and help bring the fiscal discipline that our citizens want."

Many of the proposals deal with civil service towns, unlike Bernards, which has no white-collar unions, according to McArthur. The township administrator said that some of the proposals could help lower costs in town, however, including arbitration reform that could lead to savings while negotiating police contracts and with other public employees.

In regards to some of the reforms, McArthur said that there are some stereotypes of municipal employees not working hard and retiring with lifetime medical benefits and other lavish packages. Bernards employees, according to McArthur, are hard working and do not get any medical benefits post-retirement.

"I am not in favor of painting with a broad brush," McArthur said. "It makes assumptions that everyone is the same."