A Primer for New Jersey Budget and Tax Levy Caps

August 10, 2017 | Author: Albert Hart | Category: N/A
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New Jersey Education Association Rich Brown

Division of Research & Economic Services

Associate Director Research & Economic Services

June 2010

A Primer for New Jersey Budget and Tax Levy Caps

Primer on NJ Budget and Tax Levy Caps.doc

Page 1

I. Introduction A Property Tax Levy Cap (levy cap) was created by Legislative bill A-1 and passed into law as Chapter 62, P.L. 2007 which is a temporary law effective for fiscal years 2007-08 through 2011-12. Prior to the Levy Cap local governmental units (municipalities, counties, and school districts) were subject to appropriation limits through the budget process. These appropriation limits are sometimes referred to as Budget Caps. This primer is intended to explain, in diagrammatical terms, how the temporary Property Tax Levy Cap and prior Budget Caps are implemented. Illustrations of the “caps” for school districts, municipalities, and counties are provided. In addition, tax levy growth charts and trend lines are included from 2002 through 2009 to illustrate the effects of the tax levy caps (beginning 2007-08) on counties, municipalities, and school districts.

II. Outline

A. SCHOOL DISTRICTS A1. The LEVY CAP for School Districts A2. The BUDGET CAP for School Districts B. MUNICIPALITIES B1. The LEVY CAP for Municipalities B2. The BUDGET CAP for Municipalities C. COUNTIES C1. The Levy CAP for Counties D. WORKSHEET EXAMPLES for School and Municipal E. EFFECTS OF TAX LEVY CAP on growth of property taxes

Primer on NJ Budget and Tax Levy Caps.doc

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A. SCHOOL DISTRICTS A1. THE SCHOOL DISTRICT TAX LEVY CAP The Property Tax Levy Cap law (P.L. 2007, c. 62) is effective for school years 2007-08 through 2011-12. The Levy Cap law supersedes certain aspects of the Spending Growth Limitation Adjustments (SGLAs) of the Comprehensive Educational Improvement and Financing Act of 1996 (CEIFA). The School Funding Reform Act of 2008 (SFRA) amended the CEIFA funding law and changed the allowable SGLAs and other provisions of the law. What is the School District Levy? The school district tax levy is the revenue determined by a school district board of education or board of school estimate as necessary to support local spending for schools. Revenues to support School District budgets include the General Fund tax levy, Debt Service tax levy, State Aid, and miscellaneous other revenue. Only the General Fund tax levy is subject to the tax levy cap. How is the School District Levy Cap Calculated? The General Fund Tax Levy is allowed to increase by 4.0% of the prior year Adjusted General Fund Tax Levy plus enrollment increases and adjustments for Health Care costs and Reduction in Total State Formula Aid. The Adjusted General Fund Tax Levy includes any permanent cap waivers or permanent separate proposals approved for the prior year. Districts may also apply to the Commissioner for cap “waivers” or propose separate proposals to the voters to exceed the cap. Separate proposals require 60% voter approval which are final with no appeal. Example: NET BUDGET: PRIOR YEAR ADJUSTED GENERAL FUND TAX LEVY INCREASE IN WEIGHTED ENROLLMENT X Prior year per Pupil Tax Levy

X 1.04

PLUS PLUS

HEALTH CARE COSTS EXCEEDING 4% UPTO THE Average Percentage Increase Of the State Health Benefits Program (SHBP)

PLUS

STATE AID, DESIGNATED GENERAL FUND BALANCE, MISCELLANEOUS GENERAL FUND REVENUES

DECREASE IN TOTAL STATE FORMULA AID Equalization Aid, Education Adequacy Aid, Adjustment Aid, School Choice Aid, Categorical Special Education Aid, Categorical Security Aid, Categorical Transportation Aid, and Preschool Education Aid

PLUS PLUS

COMMISIONER CAP WAIVERS or SEPARATE PROPOSALS Energy costs>4%, capital outlay>4%, non-recurring G.F. revenue, insurance costs >4%, hazardous busing >4%, special education >$40,000 per pupil, tuition charged to a sending district >4%, new school opening, not meeting core curriculum content standards

Primer on NJ Budget and Tax Levy Caps.doc

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A2. THE SCHOOL DISTRICT BUDGET CAP The Comprehensive Educational Improvement and Financing Act (CEIFA) and subsequent amendments of S1701, signed into law on July 1, 2004, changed several areas relating to school district budgeting. The S-1701 law revised the base budget spending cap and applicable spending growth limitation adjustments (SGLAs) from the greater of 3% or CPI, down to the greater of 2.5% or CPI. For 2006-07, the CPI was 4.04%. For 2007-08 to present, the Levy Cap applies. What is the School District Budget Cap? The Budget Cap under CEIFA and S-1701 amendments applies a growth limit of 2.5% or CPI, whichever is greater to the school district NET BUDGET (also referred to as the BASE BUDGET). How is the School District Budget Cap Calculated? The School District NET BUDGET is allowed to increase by 2.5% or CPI, whichever is greater plus: a) statutory spending growth limitation adjustments, b) Commissioner approved adjustments, and c) separate proposals for nonT&E purposes presented to the voters for additional funds. Example: NET BUDGET:

GENERAL FUND TAX LEVY or COUNTY TAX LEVY (Vocational Districts)

X (greater of) 2.5% or CPI

BUDGETED FUND BALANCE MISCELLANEOUS LOCAL REVENUE STATE FORMULA AID and STATE CATEGORICAL AID

PLUS STATUTORY ADJUSTMENTS Enrollment changes, capital outlay costs, non-remote pupil transportation, special education costs in excess of $40,000 per pupil, opening a new school facility

PLUS COMISSIONER ADJUSTMENTS Tuition increase charged a sending district, temporary cap adjustment for an increase in certain insurance and domestic security preparedness costs

PLUS SEPARATE PROPOSALS (VOTER APPROVED)

Primer on NJ Budget and Tax Levy Caps.doc

Page 4

B. MUNICIPALITIES B1. THE MUNICIPAL TAX LEVY CAP The Property Tax Levy Cap law (P.L. 2007, c. 62) establishes a formula that limits increases in the amount to be raised by taxation for the municipal budget. The law also applies to existing municipal solid waste districts and for fire districts. The only exceptions to the levy cap are municipalities that have a municipal purpose tax rate of $0.10 or less for the previous tax year. The Levy Cap is designed to expire after five years (after FY 2012) at which time the Legislature may consider extending or modifying it. On or before January 15, 2012, the New Jersey Tax and Fiscal Policy Study Commission created by P.L.2007, c.43 (C.52:9H-39 et seq.) shall report to the Governor and Legislature, pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1), evaluating the efficacy of the tax levy caps and making recommendations. For municipalities, the Levy Cap is in addition to the existing appropriations (BUDGET) cap. EXAMPLE: PRIOR YEAR TAX LEVY FOR MUNICIPAL PURPOSES MINUS ONE YEAR WAIVERS and PRIOR YEAR capital Improvement Fund & Down Payments, Deferred Charges to Future Taxation Unfunded, Recycling Tax

X 1.04

PLUS/MINUS CHANGES IN SERVICE PROVIDER AND ADJUSTMENTS

PLUS EXCLUSIONS Lease and Debt Service change (+/-), State formula Aid loss Allowable Pension increases, Uncollected Tax Reserve increase > 4%, Health Care increase > 4% up to SHBP average increase, Recycling Tax appropriation, Capital Improvement Fund and/or Down Payment on Improvements, Deferred Charges to Future Taxation Unfunded

LESS: Cancelled or Unexpended Waivers or Exclusions

PLUS ADDITIONS New Ratables (New Construction and Additions) x Prior Year Tax Rate/$100, Local Finance Board Statewide Blanket Waivers, Waiver Application Amounts, Amounts approved by Referendum

Note: The above Tax Levy Cap cannot exceed Appropriations (BUDGET) Cap Primer on NJ Budget and Tax Levy Caps.doc

Page 5

B2. THE APPROPRIATIONS (BUDGET) CAP The Municipal budget must be introduced as “cap compliant” which means that the budget must be at or under cap for all cap requirements (i.e., the municipal appropriation and levy caps). 1) ALLOWABLE OPERATING APPROPRIATIONS WITHIN CAP:

BASE PRIOR YEAR GENERAL APPROPRIATIONS PLUS CAP BASE ADJUSTMENTS Public Employees Retirement System payments

X 1.0125 cap

LESS

X 1.035 C.O.L.A.

EXCEPTIONS Interlocal Service Agreements, Public/Private Programs, Capital Improvements, Debt Service, Deferred Charges, Judgments, Reserve for Uncollected Taxes, Additional Appropriations, Other Operations

PLUS

PLUS ADDITIONAL EXCEPTIONS New Assessments X Prior Year Tax Rate/$100 Assessed Value and any Banked Cap use

2) TAX LEVY CAP: APPROPRIATIONS (Used within Allowable Appropriations Cap)

PLUS APPROPRIATIONS EXCLUDED FROM CAPS for certain municipal purposes and Local School District Purposes in Municipal Budget

PLUS Reserve for Uncollected Taxes

LESS Anticipated Revenues from Other Than Property Taxes (i.e. Surplus, Misc. Revenues, and Delinquent Taxes)

EQUALS Amounts to be Raised by Taxes for Support of Municipal Budget

Primer on NJ Budget and Tax Levy Caps.doc

Page 6

C. COUNTIES C1. THE COUNTY TAX LEVY CAP In preparation of county budgets, a county may not increase the county tax levy to be apportioned among its constituent municipalities in excess of 2.5% or the cost-of-living adjustment, whichever is less, of the previous year’s county tax levy, subject to exceptions.

PRIOR YEAR COUNTY TAX LEVY

X 1.025 or C.P.I. (whichever is less)

PLUS EXCEPTIONS Revenue from New Construction or Improvements Capital Expenditures Emergency Temporary Appropriations (health, safety, property endangerment) All Debt Service Contract payments (water, sewerage, parking, senior citizen housing) Lease payments of county improvement authority owned facility Funding to participate in any federal or State aid program (matching funds) Extraordinary expenses (required to implement interlocal service agreements) Mandated expenditures (natural disaster, civil disturbance, other emergency) Mandated services costs (court, federal, State statute, etc.) County college funding (in excess of county tax levy required in 1992) Administration of general public assistance expenditures Amounts expended on tick-borne disease vector management Interlocal services agreement amounts (Interlocal Services Act) Joint contract amounts (Consolidated Municipal Service Act) Amounts for liability, workers’ compensation, and employee group insurance (1st three yrs after P.L.2003,c92) Expenditures for the State Recycling Fund

Primer on NJ Budget and Tax Levy Caps.doc

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D. SAMPLE SCHOOL DISTRICT AND MUNICIPAL TAX CAP CALCULATION

Summary Levy Cap Calculation SCHOOL DISTRICT

COUNTY

AMOUNTS

Model Tax Levy Calculation Worksheet Levy Cap Calculation Prebudget Year Adjusted Tax Levy Less: Non-Permanent Waivers Less: Non-Permanent Separate Proposals Plus: Adjustment for Districts w/St. Aid Increases > of CPI or 2% Plus: Wtd. Enrollment Increase x PreBudget per pupil Tax Levy Prebudget Year Adjusted Tax Levy, Including Wtd. Increase for Enrollment Plus: 4% Cap increase Adjustment for Increase in Health Care Costs Adjustment for Reduction in Total State Formula Aid From Prebudget Year Adjusted Tax Levy Prior to Waivers/Separate Proposals

Requests for Commissioner Waivers: Increase in Capital Outlay Increase in Spec. Educ. Costs Over $40,000 per pupil New School Costs Increase in Energy Costs Increase in Insurance Costs Increase in Transportation Costs, Hazardous Routes Increase in Tuition Costs Not Meeting CCCS under QSAC Non-recurring Gen. Fund Revenues Other Waiver Requests Total Commissioner Waivers: Maximum Allowable Amount to be Raised by Taxation * Amount to be Raised by Taxation for School Purposes

$32,150,625 $400,000 $118,406 $31,869,031 $1,274,761 $100,000 $400,000 $33,643,792

$20,000 $50,000 $0 $50,000 $10,000 $10,000 $0 $0 $0 $0 $140,000 $33,783,792 $33,000,000

* The tax levy recorded on line 150 of the budgeted revenues cannot exceed the Maximum Allowable Amount to be Raised by Taxation, unless the result of a merged separate proposal. Additional levy increases must be proposed separately to the voters or board

Primer on NJ Budget and Tax Levy Caps.doc

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Summary Levy Cap Calculation MUNICIPALITY

COUNTY

AMOUNTS

Tax Levy Calculation Worksheet Levy Cap Calculation Prior Year Amount to be Raised by Taxation for Municipal Purposes Less: One Year Waivers Less: Prior Year Capital Improvement Fund & Down Payments Less: Prior Year Deferred Charges to Future Taxation Unfunded Less: Prior Year Recycling Tax Changes in Service Provider and Adjustments (+/-) Net Prior Year Tax Levy for Municipal Purpose Tax for Cap Calculation Plus: 4% Cap increase Adjusted Tax Levy Prior to Exclusions Exclusions: Change in debt service and existing county leases (+/-) -$598,434 Offsets to State formula aid loss $2,183,255 Allowable pension increases $385,653 Allowable increase in Reserve for Uncollected Taxes $3,882,398 Allowable increase in health care costs $1,282,426 Recycling Tax appropriation $150,000 Capital Improvement Fund and/or Down Payment on Improvements $845,000 Deferred Charges to Future Taxation Unfunded Add Total Exclusions Less Cancelled or Unexpended Waivers Less Cancelled or Unexpended Exclusions Adjusted Tax Levy Additions: New Ratables - Increase in Valuations (New Construction and Additions) $65,191,100 Prior Year's Local Municipal Purpose Tax Rate (per $100) $0.275 New Ratable Adjustment to Levy LFB Approved Statewide Blanket Waivers Amounts approved by Referendum Waiver application amount Maximum Allowable Amount to be Raised by Taxation Amount to be Raised by Taxation for Municipal Purposes *

$47,985,468 $400,000 $118,406 $959,709 $48,426,769 $1,937,071 $50,363,840

$8,130,298 $6,376 $58,487,762

$179,276

$58,667,037 $58,422,699

* Determined by Budget Cap Limits

Primer on NJ Budget and Tax Levy Caps.doc

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E. EFFECTS OF TAX LEVY CAP (On GROWTH of property taxes) E1. COUNTY (Tax Levy Growth)

County Tax Levy GROWTH 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

7.8% 5.9%

5.5%

6.0%

6.6% 5.5%

4.9%

2.8% y = -0.004x + 0.077

2002

2003

2004

2005

2006

2007

2008

2009

E2. MUNICIPAL (Tax Levy Growth)

Municipal Tax Levy GROWTH 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

8.4% 7.5%

6.8%

7.5%

8.7% 7.7% 5.8%

5.2%

y = 0.001x + 0.064

2002

2003

Primer on NJ Budget and Tax Levy Caps.doc

2004

2005

2006

2007

2008

2009

Page 10

E3. SCHOOL DISTRICT (Tax Levy Growth)

School Tax Levy GROWTH 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

8.3% 7.5% 6.7%

6.2%

6.3% 5.0%

3.0%

2.7%

y = -0.007x + 0.091

2002

2003

2004

2005

2006

2007

2008

2009

E4. TOTAL (Tax Levy Growth)

TOTAL Tax Levy GROWTH 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

7.0%

7.6%

6.5%

6.5%

6.9% 5.8% 4.9% 3.6% y = -0.004x + 0.081

2002

2003

2004

2005

2006

2007

2008

2009

NOTE: Tax Levy Growth Charts include tax levy for Debt Service (THE TAX LEVY CAP BEGAN 2007-08 and is effective through 2011-12)

Primer on NJ Budget and Tax Levy Caps.doc

Page 11

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