Republican lawmakers and local officials are calling for Gov. Phil Murphy to restore a special $150 million municipal aid program that was cut from the current year’s budget.
They urged the governor, who is set to deliver his final budget address later this month, to use his spending plan to reinstate the program, warning that towns and cities would face the brunt of the loss of aid as they move to adopt budgets this spring.
“These cuts take effect in the municipal budgets being adopted by local governing bodies over the next few months and will translate into property tax increases and/or service impacts if they are not restored,” Sen. Mike Testa (R-Cumberland) said in a letter to Murphy this week.
The cut funding, first introduced at $75 million in fiscal year 2023 before being doubled to $150 million the following year, was meant to partially restore energy-tax receipts the state collects on municipalities’ behalf.
New Jersey utilities pay a tax on facilities and other infrastructure into a state fund, and the money is meant to be returned to municipalities, but New Jersey’s state government has diverted a share of those dollars to its own coffers since the Great Recession.
Diversions of energy-tax receipts ramped up in 2009 amid a budget crunch spurred by the economic downturn, and they continued to rise in following years, eventually reducing municipalities’ receipts by roughly $331 million annually.
The diversion has persisted even after the state’s economy recovered from the housing market’s collapse. Local officials have redoubled efforts to end the diversion amid high inflation and other escalating costs in recent years.
The special municipal aid that appeared in the 2023 and 2024 fiscal year budgets was meant to partially restore those diversions, but a subsequent revenue slowdown put the funding on the chopping block when Murphy and lawmakers approved the budget for the current fiscal year, which ends June 30.
“We still want to see the path to restoration. We’ve always known this wouldn’t be a one-year deal, that it would have to bephased in. Our hope is last year was just a one-year bump in the road and we can get back to the path to restoration this year,” said Michael Cerra, executive director of the New Jersey League of Municipalities.
It’s unclear whether Murphy and Democratic lawmakers who control both legislative chambers will move to restore the funding. Some — including Sen. Paul Sarlo (D-Bergen), the Senate’s budget chair — have indicated they would support a restoration, though Murphy and lawmakers have warned that the budget for the next fiscal year, which begins July 1, could be a tough one.
New Jersey’s current budget calls for the state to spend roughly $2.1 billion more than it takes in, and that deficit is expected to expand to more than $3.8 billion in the coming fiscal year due to the expiration of one-shot revenue sources.
Murphy in October and November ordered a hiring freeze and asked his agencies to identify cuts equal to 5% of the administration’s budget targets.
Local governments will face their own budget crunches. Federal funds that helped underwrite municipal budgets during the pandemic have been committed or spent, Cerra said, and concerns about the stability of the State Health Benefits Plan have only grown more dire as towns and cities moved to other health insurers amid steep rate spikes in recent years.
“When you’re dealing with a 2% levy cap, your options to address line items that exceed 2% are pretty limited other than cuts in one line item to address others,” he said. “So you’re talking about reductions in services, maybe attrition in hiring and whatever cost-saving measures may be needed.”
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