Dear Mayor:

Yesterday’s meeting of the special Joint Committee on Constitutional Change and a Citizens Convention focused on budget caps.

The first speaker was State Senator Diane Allen. Senator Allen, citing a need for consistency in the application of caps, a need to control State spending, and a possibility of freeing up more State revenues for property tax relief, has introduced SCR-15.

This resolution would allow the voters to amend the State Constitution to impose an annual cap on some State appropriations. The cap, which could be over-ridden by super-majority votes in both Houses, would be based on inflation plus State population growth. The cap would NOT apply: to municipal property tax relief or county and school district State aid; to debt service; to the Transportation Trust Fund; to funding for open space, farmland, recreational and historical acquisition and preservation; or to casino generated revenues, which are constitutionally dedicated for programs and services assisting senior and disabled citizens.

Revenues in excess of those needed to fund State services within the cap would be divided for two purposes. One half of these ‘excess revenues’ would be placed in a ‘rainy day fund’ to meet State needs in times of revenue contraction. The other half of the ‘excess revenues’ would be dedicated to property tax relief.

While some expressed concern with some specific aspects of the bill, most Committee Members seemed willing to either move in this direction or, at least, to give the matter more consideration. Co-chairman Senator Bernie Kenny, however, expressed serious reservations about any artificial limitations, which could hamper the State’s ability to respond to emergencies or opportunities for long-lasting beneficial investments.

The second speaker was DCA Commissioner Susan Bass Levin, who described, for the Committee, the history of the Local Expenditure Limitation Act – the municipal and county Cap Law – and the process through which the Act is implemented by local mayors and governing bodies and by the Division of Local Government Services. The Commissioner also noted when and why cap exceptions had been added and removed by the Legislature, and an explanation of ‘cap banking.’

The Commissioner also advised the Committee of issues currently facing municipal and county budget makers. She specifically listed: public employee salaries, pensions and benefits; energy costs; and the loss of the 2004 exceptions for pensions and benefits, insurance costs and extraordinary hometown security obligations.

The final speaker was Dr. Iris Lav, Deputy Director of the Washington-based Center for Budget and Policy Priorities. The Center is a non-profit, non-partisan organization, which analyzes the effects of policy decisions on people, particularly low and moderate income people. Dr. Lav had been invited by the Committee to explain the mechanics and effects of property tax caps that either were or are in use in other states around the Nation.

Dr. Lav’s power point presentation, along with the rest of the Hearing, can be viewed on-line at http://www.njleg.state.nj.us/media/archive_audio2.asp?KEY=JCCR&SESSION=2006. She pointed out the problems that such artificial limits can cause, including the deterioration of services and the exacerbation of inequities between higher income and lower income jurisdictions. Dr. Lav testified that, “When you put a cap on taxes, you don’t do anything to change the cost of services. And you don’t prevent the cost of services from increasing.” Further, “The cap does not necessarily force efficiency. … Artificial caps do not necessarily make for good government. … There are ways to make government more efficient, but if you want to do it, a cap doesn’t help that process.

She, further, clearly demonstrated that “Caps don’t work,” due to voter reaction to service deterioration. This can produce exceptions, over-rides, suspensions and, in some cases, repeal of the caps. “They definitely don’t provide relief, without service deterioration.”

According to Dr. Lav’s expert analysis, this problem can be addressed by the provision of alternative revenues. She listed four specific recommendations for the Committee’s consideration. They are: Make property tax relief mechanisms more comprehensive and understandable; Use circuit breakers, and not just for seniors and the poor, but for families and individuals “well into the middle class”; Diversify local government revenue sources; and Increase state aid for education. Dr. Lav clearly implied that state property tax relief funding to local units needs to be sustainable and responsive to inflationary increases in local government costs.

For more information, visit our website at www.njslom.com, or call Jon Moran at 609-695-3481, ext. 21.