From the Times Trenton:
A leading Wall Street bond rating firm has warned that the Legislature’s tax relief strategy could create fiscal problems for New Jersey’s 566 municipalities in years to come.
In a report issued this week, Moody’s Investors Service cautioned that the state’s tax reform act, signed earlier this month by Gov. Jon Corzine, will increase municipal reliance on budget surpluses to balance spending plans and will force less conservative budget practices.
“Moody’s anticipates that the new law will result in more municipalities utilizing higher levels of reserves (surplus) to support operations while diminishing their opportunity to fully replenish, thereby reducing financial flexibility.”
What it means, critics of the tax reform measure say, is less money for a rainy day.
“There is no question there is always unexpected circumstances that need to be funded and if you don’t have a surplus, that can cause consequences elsewhere in the budget,” said state Sen. Peter Inverso, R-Hamilton, who voted against the measure last month. “Where do you take it from? Do you close schools or lay off employees?”
Inverso said there have always been questions about how much surplus is necessary and some township’s may be too conservative, but “to have no surplus is clearly risky.”
In a second report issued earlier this month, Moody’s maintained the “negative outlook” on the state’s school districts, also as a re sult of the tax relief law.
“Moody’s believes that the 4 percent cap on property tax increases for school districts limits the ability to raise revenues to meet increasing expenditures and, together with existing fund balance restrictions, will present challenges to school districts to balance their budgets going forward,” the report said.