NEW BRUNSWICK – While several towns were impacted during the “Great Recession,” forcing them to lay off and furlough workers, one expert predicts towns will go through another “municipal tsunami.”
Professor Raphael J. Caprio of the Edward J. Bloustein School of Planning and Public Policy, said the reasons largely stem from severe state aid cuts to municipalities over the years. Also, many towns have exhausted much of their surpluses and there isn’t much hope other types of revenues, such as hotel taxes and permit fees, will grow enough to make up for the loss.
Add to it the 2 percent cap on property tax hikes and the result is towns have their proverbial hands tied, Caprio said.
Over the past five years, municipalities have cumulatively lost more than $700 million in state aid. Some 50 percent of the property tax increases that towns approved during that time had largely to do with making up for that state aid loss, Caprio said.
He predicts the new pain will come some time after 2015.
“Towns will have to engage in a new paradigm,” he said at the New Jersey League of Municipalities Educational Foundation economic summit Thursday at Rutgers University. “This is not the state it was 20 years ago. Government employees are taking the blunt of the blame.”
An example of that impact is the increased health insurance costs public sector employees are facing, and will face, due to the pension and health benefit reform legislation passed last year. He said that over the next five years, the increased health costs will amount to a net income loss for public workers that is equivalent to between 8 and 10 percent.
Unlike past recessions, this recession has led to a decrease in the number of government employees. Recessions under Presidents George H.W. Bush, George W. Bush and Ronald Reagan all saw the size of government increase, Caprio said.
“Government is now experiencing the same economic malaise (as the private sector),” the professor said. “This is unprecedented.”
He said state revenues have to grow at least 4 percent a year to prevent what he called a “fiscal squeeze,” whose impact would trickle down to municipalities and the services they provide to residents.
Caprio’s forecasts are conservative compared to the 7 percent growth in revenue the Christie Administration has predicted for FY 2013.
While a shrinking government could mean more property tax savings, Caprio also anticipates an increase in “labor management contention.”
“We no longer have the luxury of not dealing with how public goods and services are paid for,” Caprio said. “A 19th century structure cannot deliver 21st century services.”