Introduction | How Tax Sharing Works | Theory and Operation
Procedures for Making the Adjustment Payment | Tax Sharing Payment Schedule
Amendments to the Intermunicipal Tax Sharing Formula
Inter municipal Tax Sharing Theory and Operation
This report was prepared by the New Jersey Division of Taxation in 1972 and describes the theory and operation of the Commission Intermunicipal Tax Sharing Formula. Sections of the report have been modified to conform to legislative changes to the formula.
This report is an analysis of the Tax Sharing provisions in article 9 of the New Jersey Meadowlands Commission and Reclamation Act as amended by Chapter 103. PL., 1972. Its purpose is to explain and simplify the procedures involved in the computation of the tax sharing formula. Each basic part of the formula will be defined as the outset of this report and subsequently its specific role in the overall formula will be depicted.
Theory & Operation - Definitions
(A) Apportionment Rate
The effective or true value tax rate of each individual municipality after deducting the county portion of the levy is thus established as the rate. This insures that a municipality will not be required to make a contribution for an amount in excess of its levy.
(B) Adjustment Year
Means the year in which the respective obligations of the Inter municipal Account and the constituent municipalities are due and payable, with 1973 being the first adjustment year.
(C) Base Year
Is established as the calendar year 1970.
(D) Comparison Year
Means the second calendar year preceding the adjustment year. In the first year of operation 1971 is established as that comparison year.
(E) Intermunicipal Account
Means the administrative device established and administered by the New Jersey Meadowlands Commission to record all transactions pursuant to Ch. 103 P.L. 1972, for the purpose of the calculating the Meadowlands adjustment payment for each constituent municipality, and to act as a clearing-house for the transfer of the Meadowlands adjustment payments among the fourteen constituent municipalities.
(F) Meadowlands Adjustment Payment
Means the amount that is payable to each constituent municipality to the Intermunicipal Account, or the amount that is payable by the Intermunicipal Account to each municipality, as the Commission shall determine the case to be pursuant to the provisions of Article 9. This is the amount remaining after all the payments are made or credits applied to each to each municipality. It is payable to each municipality in direct proportion to its land holdings within the Commission District.
(G) Resident Enrollment
Means the number of full-time pupils who are resident of the Meadowlands portion of the school district of that municipality and who are enrolled in day schools on the last day of September during the school year in which calculations of aid is made and are attending the public school of the school district residents paying tuition; the College demonstration school in which the school district may count in its enrollment and pupil regularly attending on a full-time basis a county vocational school in the same county for which the school pays tuition.
(H) Payment in Lieu of Taxes
Means payments treated as tax dollars that are converted or imputed back to a true aggregate valuation by the effective or true value of the constituents municipality.
(I) School Service Payment
Means the per capita cost per resident pupil of the respective constituent municipality multiplied by the increase of any additional resident pupils over the base year.
(J) Direct Retention
Means that in the first adjustment year (1973), 90% of the apportionment rate amount is wholly retained by the municipalities and reduced thereafter 4% per year until a level of 50% is reached in the adjustment year 1983. The retention feature is incorporated to reimburse municipalities for service rendered.
Because county taxes are not shared, the percentage on the gross tax levy using this method is actually greater since exemption of county taxes from the apportionment rate constitutes, in reality, another form of direct retention.
(K) Guarantee Payments
Means loss of true value as a result eminent domain and payable if not offset by other increases in true value. If a payment made under the guarantee section, the amount of payment would be arrived at by multiplying the amount of ratables subject to the effective tax rate.
Theory & Operation - How It Works in Practice
Thus far, we have described the principals of cost and benefit-sharing - what the pooling arrangement is meant to do. The next question is: how will it work in practice? The procedure is very simple.
Each municipality will continue to be the sole administrator of its own taxing and budgeting. Each municipality will continue to assess properties, set its own tax rate, and to handle to its own tax billing as usual.
Properties in the Meadowlands will be taxed by each municipality in exactly the same way as all other properties within that municipality - at the same rate.
Only a few minor changes in the usual process or municipal assessment, taxation, and budgeting need be made.
All of the new tax revenues will be distributed among the (14) municipalities. None of the tax revenues, existing or new, will be diverted to any other body.
We will run through the various computations made by the New Jersey Meadowlands Commission each year:
- Computing what each municipality must contribute to the Intermunicipal Account.
- Finding the total that is payable to the Account.
- Computing the amount that each municipality receives for school service payments, guarantee
- Finding the total that is payable by the Account to the municipalities.
- Finding the surplus in the Account and distributing the surplus.
- Finding the balance for each municipality ("The Meadowlands Adjustment Payment”)
Theory & Operation - Step by Step Analysis of Formula
To view a copy of this year's tax sharing formula and accompanying schedules for use
with this step-by-step analysis click here.
Step 1 - Begin with the Meadowlands District ratables as assessed in the municipalities merged tax list (Col. 1) for the comparison year ratio (Col. 2) to column 1 by dividing the ratio into ratables listed in column 1 to arrive at the equalized valuation of ratables (Col. 3).
Step 2 - The next step is multiply the municipal tax rate as established by the County Tax Board and adjusted for prior tax sharing payments (see Sched. 2), (Col. 8) by the Director's equalization ratio (Col. 2) to arrive at the true tax value rate (Col. 9).
Step 3 - Gather the ratables (Col. 4) as assessed by the municipalities from their certified tax list for the assessments found within the Hackensack Meadowlands District for the base year 1970. Apply the State Tax Director's equalization ratio to the Base Year 1970 (Col. 5) by dividing Col. 5 into Col.4 to arrive at the equalized valuation or true value of the Meadowlands assessments (Col. 6).
Step 4 - Subtract the true value assessment (Col. 3) found within the HMD for the Base Year 1970 from the true value assessment (Col. 6) found within the HMD for the Comparison Year to arrive at either the increase or decrease (Col. 7) in the true value ratables for the comparison year. Columns 10, 11, 12, 13 and 14 list the data necessary in making the advance calculations in the formula. Column 10 reflects the increase over the base year in the number of pupils within the HMD for the particular municipality. Column 11 reflects the cost allowed per pupil in the comparison year. Column 12 lists that percentage of the municipality's tax rate stipulated for county purposes while Column 13 reflects the remaining percentage of the tax rate after the county portion (Col. 12) is taken out. Column 15 is that percentage of the Meadowlands District falling within each constituent municipality.
Step 5 - The next step is to multiply the true value increase or decrease (Col. 7) by the true value tax found in Column 9. The results are the gross (true value) equalized tax dollars (Col. 16) subject to sharing in the Intermunicipal pool. These figures will be reduced substantially by the following computations or credits.
Step 6 - Multiply the true value tax dollars found in Column 16 by the percentage of the municipality's tax rate which represents the county percentage of taxes (Col. 12) to arrive at the county tax dollars (Col. 17) which are to be excluded from tax sharing. Subtract these county tax dollars (Col. 17) from the true value tax found in Column 16 to arrive at the amount of dollars to be contributed to the Intermunicipal pool (Col. 18) before the direct retention percentage 60% is applied.
Step 7 - Column 19 reflects the amount of tax dollars retained by the municipalities not subject to tax sharing after 60% retention. Column 20 represents the amount subject to sharing.
Step 8 - Column 22 lists the school cost payments payable to a municipality. The figure is attained by multiplying the increase, if any, in the number of pupils (Col. 10) over the base year within a municipality's Meadowlands by the cost allowed per pupil in the comparison year. (Col. 11)
Step 9 - Column 23 represents the residual payment allowable to each municipality after all other prior payments are made. It is allocated in proportion to the percentage (Col. 15) of the Meadowlands District falling within each constituent municipality. The total amount of all tax dollars contributed before the 60% retention percentage (Col. 19) total is applied, is subtracted from the total amount of all the tax dollars retained (60%) (Col. 18 total). The school cost payment total (total Col. 19) is then subtracted from the results of the above computation. The individual payments (Col. 23) are then computed by multiplying the land ratio percentage (Col. 15) for each municipality times the Apportionment Rate minus the total of Columns 21 and 22.
Step 10 - The total credits due to each municipality (Col. 24) will be computed by adding Column 21 + Column 22 (school cost payment based on increase in pupil enrollment over the base year) + Column 23 (Apportionment Payment).
Step 11 - These total credits (Col. 24) are subtracted from the gross amount of tax dollars minus the county portion (Col. 17) to arrive at the pre-adjustment payment [plus or (minus)] (Col. 25) that goes into calculating the final adjustment payment as indicated in Step 13.
Step 12 - Retroactive adjustments for adjudicated tax appeals are allowed for the prior 2 years through the recalculation of each of the affected years assessments and the subsequent calculation. These differences (adjustments) are shown in Columns 26 and 27. Column 28 represents the adjustment payment in the form of either a payment or receipt from the tax sharing pool after the adjustments of previous years.
Step 13 - The final adjustment payment is an average of the pre-adjustment payment for the current calendar year and two prior calendar years (Schedule A-1). In each subsequent year, the final pre-adjustment payment is a moving average of the current and two prior years.
For more information about the formula and schedules, please contact us.