The letter below was written originally to Governor Chris Christie.
I attended your recent Town Hall meeting in Jamesburg. I wanted to write and thank you for your efforts on behalf of the taxpayers of New Jersey.
I also wanted to correct your comments on school districts and the property tax cap. You quoted that only 14 districts proposed spending above the cap and that voters defeated most of them.
I live in the WW-P Regional School district, where our tax increases have exceeded your cap. I understand that you were specifically asked a question about this district at your town hall in Hamilton on April 26. Your answer to that question basically said it is not so, as the district was not one of the 14 that asked voters to override the cap. You were wrong!
In 2010-’11 our property taxes went up by 6.5 percent, versus a cap of 4 percent. In 2011-’12, the cap is 2 percent, but the proposed budget was a 3.8 percent increase. What happened? How has the district been able to exceed the cap?
First, there are exceptions to the cap for enrollment, health benefits, and other things. The district claims that with those exceptions, the 2011-’12 cap is really 2.24 percent. The bigger reason is that local taxpayers pay both the general fund and debt service. I understand that the cap only applies to the general fund. Since taxpayers have previously approved the district debt, they can not revoke those commitments in future years. So while the general fund has stayed within the cap, the debt service tax has gone up significantly, 111 percent in 2010-’11 and 11 percent for 2011-’12. How can the debt service tax more than double in the past two years, when actual debt service expenditures have been flat over the past several years?
To get the answer, you have to turn the clock back to the 2009-’10 budget year. At that time, due to increased state aid, higher fund balances, and low spending increases, the district was well below the cap. That would have constrained future tax increases.
To avoid that situation, the district created a debt service “Capital Reserve” of $6,220,829 within the general fund. This reserve was then immediately used to pay debt service. The simple result was to increase the general fund tax levy and decrease the debt service tax levy, so the net impact was a wash for the property taxpayers.
So why did the district bother? I have asked this question at school board meetings but have never received an answer. I can only conclude that this budget gimmick allowed the district to bank this $6 million for future years. Hence, at any time the district is allowed to increase the debt service levy up to the full amount required to fully fund the obligation, resulting in property tax increases above the statutory cap.
In the 2010-’11 budget year, the district provided another debt service “Capital Reserve” of $3,165,179 within the general fund. The year over year decrease of $3,055,650 was then moved over to the debt service levy. This resulted in the total local tax rates going up by significantly more than the cap.
For the 2011-’12 budget year, the district provided another debt service “Capital Reserve” of $2,154,724 within the general fund. The year-over-year decrease of $900,926 was then moved over to the debt service levy. Again, this resulted in the total local tax rates going up by more than the cap.
I understand that the Mercer County Superintendent reviewed the district budget. That review seems to have only focused on the general fund local tax levy, which was within the cap rules. The increase in the debt service levy, the total tax levy, and the dramatic impact on property taxes seem to have been ignored.
Looking forward to the 2012-’13 budget year, the district has the opportunity to use the remaining $2,154,724 to evade your cap again.
Quentin Walsh
Petty Road, Cranbury
Editor’s notes: Walsh’s wife, Ellen, is a member of the WW-P School Board. The comments above reflect his views, not hers.
The Mercer County Superintendent’s office has responded to Walsh’s letter. That office confirmed that the property tax cap only applies to the general fund tax levy. The debt service tax levies are not subject to these limits.
