New Jersey-2012-A4482-Introduced

An Act concerning municipal audits and property tax exemption eligibility and amending N.J.S.40A:5-5, P.L.1991, c.431, and P.L.1991, c.441.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. N.J.S.40A:5-5 is amended to read as follows:

40A:5-5. Each audit shall embrace the books, accounts and transactions of the local unit and every board, body, officer or commission supported and maintained wholly or in part by funds appropriated by the local unit, unless otherwise provided by statute or regulations of the board. Each audit shall cover a complete fiscal year and, in addition, shall include a verification of all cash and bank balances as of the date of the audit thereof and an audit of the accounts to such date. The municipal audit shall include a review of a random sample of initial and further statements required to be obtained by the municipal assessor pursuant to section 1 of P.L.1951, c.135 (C.54:4-4.4) and maintained by the municipal custodian of records pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.). The municipal audit shall include a review of a random sample of the ordinances and financial agreements that are required to be delivered to the tax assessor by the municipal clerk pursuant to section 12 of P.L.1991, c.431 (C.40A:20-12), a review of a random sample of all tax agreements entered into by the municipality pursuant to sections 9 through 12 of P.L.1991, c.441 (C.40A:21-9 et seq.), and a random sample of reports created by the governing body and provided to the Division of Local Government Services pursuant to section 21 of P.L.1991, c.431 (C.40A:21-21), all of which are maintained by the municipal custodian of records pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.). The municipal audit shall include a determination as to whether a sampled claimant continues to comply with the requirements for its tax exemption or abatement.

The Commissioner of Community Affairs, pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), shall establish procedures for the random selection of the materials to be reviewed by municipal auditors. The procedures shall require the annual preparation of a list of properties randomly selected for review within a municipality, which shall be a government record pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.).

(cf: N.J.S.40A:5-5)

2. Section 12 of P.L.1991, c.431 (C.40A:20-12) is amended to read as follows:

12. The rehabilitation or improvements made in the development or redevelopment of a redevelopment area or area appurtenant thereto or for a redevelopment relocation housing project, pursuant to P.L.1991, c.431 (C.40A:20-1 et seq.), shall be exempt from taxation for a limited period as hereinafter provided. When housing is to be constructed, acquired or rehabilitated by an urban renewal entity, the land upon which that housing is situated shall be exempt from taxation for a limited period as hereinafter provided. The exemption shall be allowed when the clerk of the municipality wherein the property is situated shall certify to the municipal tax assessor that a financial agreement with an urban renewal entity for the development or the redevelopment of the property, or the provision of a redevelopment relocation housing project, or the provision of a low and moderate income housing project has been entered into and is in effect as required by P.L.1991, c.431 (C.40A:20-1 et seq.).

Delivery by the municipal clerk to the municipal tax assessor of a certified copy of the ordinance of the governing body approving the tax exemption and financial agreement with the urban renewal entity shall constitute the required certification. In accordance with P.L.1963, c.73 (C.47:1A-1 et seq.) and for the purpose of conducting a municipal audit pursuant to N.J.S.40A:5-5, the municipal clerk shall compile and maintain in a book, along with other current ordinances and financial agreements concerning tax exemptions currently in effect, a copy of the ordinance of the governing body approving the tax exemption and financial agreement with the urban renewal entity. For each exemption granted pursuant to P.L.2003, c.125 (C.40A:12A-4.1 et al.), upon certification as required hereunder, the tax assessor shall implement the exemption and continue to enforce that exemption without further certification by the clerk until the expiration of the entitlement to exemption by the terms of the financial agreement or until the tax assessor has been duly notified by the clerk that the exemption has been terminated.

Upon the adoption of a financial agreement pursuant to P.L.1991, c.431 (C.40A:20-1 et seq.), a certified copy of the ordinance of the governing body approving the tax exemption and the financial agreement with the urban renewal entity shall forthwith be transmitted to the Director of the Division of Local Government Services.

Whenever an exemption status changes during a tax year, the procedure for the apportionment of the taxes for the year shall be the same as in the case of other changes in tax exemption status during the tax year. Tax exemptions granted pursuant to P.L.2003, c.125 (C.40A:12A-4.1 et al.) represent long term financial agreements between the municipality and the urban renewal entity and as such constitute a single continuing exemption from local property taxation for the duration of the financial agreement. The validity of a financial agreement or any exemption granted pursuant thereto may be challenged only by filing an action in lieu of prerogative writ within 20 days from the publication of a notice of the adoption of an ordinance by the governing body granting the exemption and approving the financial agreement. Such notice shall be published in a newspaper of general circulation in the municipality and in a newspaper of general circulation in the county if different from the municipal newspaper.

a. The duration of the exemption for urban renewal entities shall be as follows: for all projects, a term of not more than 30 years from the completion of the entire project, or unit of the project if the project is undertaken in units, or not more than 35 years from the execution of the financial agreement between the municipality and the urban renewal entity.

b. During the term of any exemption, in lieu of any taxes to be paid on the buildings and improvements of the project and, to the extent authorized pursuant to this section, on the land, the urban renewal entity shall make payment to the municipality of an annual service charge, which shall remit a portion of that revenue to the county as provided hereinafter. In addition, the municipality may assess an administrative fee, not to exceed two percent of the annual service charge, for the processing of the application. The annual service charge for municipal services supplied to the project to be paid by the urban renewal entity for any period of exemption, shall be determined as follows:

(1) An annual amount equal to a percentage determined pursuant to this subsection and section 11 of P.L.1991, c.431 (C.40A:20-11), of the annual gross revenue from each unit of the project, if the project is undertaken in units, or from the total project, if the project is not undertaken in units. The percentage of the annual gross revenue shall not be more than 15% in the case of a low and moderate income housing project, nor less than 10% in the case of all other projects.

At the option of the municipality, or where because of the nature of the development, ownership, use or occupancy of the project or any unit thereof, if the project is to be undertaken in units, the total annual gross rental or gross shelter rent or annual gross revenue cannot be reasonably ascertained, the governing body shall provide in the financial agreement that the annual service charge shall be a sum equal to a percentage determined pursuant to this subsection and section 11 of P.L.1991, c.431 (C.40A:20-11), of the total project cost or total project unit cost determined pursuant to P.L.1991, c.431 (C.40A:20-1 et seq.) calculated from the first day of the month following the substantial completion of the project or any unit thereof, if the project is undertaken in units. The percentage of the total project cost or total project unit cost shall not be more than 2% in the case of a low and moderate income housing project, and shall not be less than 2% in the case of all other projects.

(2) In either case, the financial agreement shall establish a schedule of annual service charges to be paid over the term of the exemption period, which shall be in stages as follows:

(a) For the first stage of the exemption period, which shall commence with the date of completion of the unit or of the project, as the case may be, and continue for a time of not less than six years nor more than 15 years, as specified in the financial agreement, the urban renewal entity shall pay the municipality an annual service charge for municipal services supplied to the project in an annual amount equal to the amount determined pursuant to paragraph (1) of this subsection and section 11 of P.L.1991, c.431 (C.40A:20-11). For the remainder of the period of the exemption, if any, the annual service charge shall be determined as follows:

(b) For the second stage of the exemption period, which shall not be less than one year nor more than six years, as specified in the financial agreement, an amount equal to either the amount determined pursuant to paragraph (1) of this subsection and section 11 of P.L.1991, c.431 (C.40A:20-11), or 20% of the amount of taxes otherwise due on the value of the land and improvements, whichever shall be greater;

(c) For the third stage of the exemption period, which shall not be less than one year nor more than six years, as specified in the financial agreement, an amount equal to either the amount determined pursuant to paragraph (1) of this subsection and section 11 of P.L.1991, c.431 (C.40A:20-11), or 40% of the amount of taxes otherwise due on the value of the land and improvements, whichever shall be greater;

(d) For the fourth stage of the exemption period, which shall not be less than one year nor more than six years, as specified in the financial agreement, an amount equal to either the amount determined pursuant to paragraph (1) of this subsection and section 11 of P.L.1991, c.431 (C.40A:20-11), or 60% of the amount of taxes otherwise due on the value of the land and improvements, whichever shall be greater; and

(e) For the final stage of the exemption period, the duration of which shall not be less than one year and shall be specified in the financial agreement, an amount equal to either the amount determined pursuant to paragraph (1) of this subsection and section 11 of P.L.1991, c.431 (C.40A:20-11), or 80% of the amount of taxes otherwise due on the value of the land and improvements, whichever shall be greater.

If the financial agreement provides for an exemption period of less than 30 years from the completion of the entire project, or less than 35 years from the execution of the financial agreement, the financial agreement shall set forth a schedule of annual service charges for the exemption period which shall be based upon the minimum service charges and staged adjustments set forth in this section.

The annual service charge shall be paid to the municipality on a quarterly basis in a manner consistent with the municipality's tax collection schedule.

Each municipality which enters into a financial agreement on or after the effective date of P.L.2003, c.125 (C.40A:12A-4.1 et al.) shall remit 5 percent of the annual service charge to the county upon receipt of that charge in accordance with the provisions of this section.

Against the annual service charge the urban renewal entity shall be entitled to credit for the amount, without interest, of the real estate taxes on land paid by it in the last four preceding quarterly installments.

Notwithstanding the provisions of this section or of the financial agreement, the minimum annual service charge shall be the amount of the total taxes levied against all real property in the area covered by the project in the last full tax year in which the area was subject to taxation, and the minimum annual service charge shall be paid in each year in which the annual service charge calculated pursuant to this section or the financial agreement would be less than the minimum annual service charge.

c. All exemptions granted pursuant to the provisions of P.L.1991, c.431 (C.40A:20-1 et seq.) shall terminate at the time prescribed in the financial agreement.

Upon the termination of the exemption granted pursuant to the provisions of P.L.1991, c.431 (C.40A:20-1 et seq.), the project, all affected parcels, land and all improvements made thereto shall be assessed and subject to taxation as are other taxable properties in the municipality. After the date of termination, all restrictions and limitations upon the urban renewal entity shall terminate and be at an end upon the entity's rendering its final accounting to and with the municipality.

(cf: P.L.2003, c.125, s.11)

3. Section 11 of P.L.1991, c.441 (C.40A:21-11) is amended to read as follows:

11. a. All tax agreements entered into by municipalities pursuant to sections 9 through 12 of P.L.1991, c.441 shall be in effect for no more than the five full years next following the date of completion of the project.

b. All projects subject to tax agreement as provided herein shall be subject to all applicable federal, State and local laws and regulations on pollution control, worker safety, discrimination in employment, housing provision, zoning, planning and building code requirements.

c. That percentage which the payment in lieu of taxes for a property bears to the property tax which would have been paid had an exemption and abatement not been granted for the property under the agreement shall be applied to the valuation of the property to determine the reduced valuation of the property to be included in the valuation of the municipality for determining equalization for county tax apportionment and school aid during the term of the tax agreements covering the properties, and at the termination of an agreement for a property the reduced valuation procedure required under this section shall no longer apply.

d. Within 30 days after the execution of a tax agreement, a municipality shall forward a copy of the agreement to the Director of the Division of Local Government Services in the Department of Community Affairs. In accordance with P.L.1963, c.73 (C.47:1A-1 et seq.) and for the purpose of conducting a municipal audit pursuant to N.J.S.40A:5-5, a copy of the tax agreement, along with other tax agreements in effect, shall be compiled and maintained in a book by the municipal clerk.

(cf: P.L.2007, c.268, s.4)

4. Section 21 of P.L.1991, c.441 (C.40A:21-21) is amended to read as follows:

21. The governing body of a municipality adopting an ordinance pursuant to this act shall report, on or before October 1 of each year, to the Director of the Division of Local Government Services in the Department of Community Affairs and to the Director of the Division of Taxation in the Department of the Treasury the total amount of real property taxes exempted and the total amount abated within the municipality in the current tax year for each of the following:

a. improvements of dwellings;

b. construction of dwellings;

c. improvements and conversions of multiple dwellings;

d. improvements of commercial or industrial structures;

e. construction of multiple dwellings under tax agreements; and

f. construction of commercial or industrial structures under tax agreements.

In the case of e. and f. above, the report shall state instead the total amount of payments made in lieu of taxes according to each formula utilized by the municipality, and the difference between that total amount and the total amount of real property taxes which would have been paid on the project had the tax agreement not been in effect, for the current tax year.

In accordance with P.L.1963, c.73 (C.47:1A-1 et seq.) and for the purpose of conducting a municipal audit pursuant to N.J.S.40A:5-5, the report created by the governing body and provided to the Division of Local Government Services shall be maintained in a book by the municipal clerk.

The Director of the Division of Taxation shall include a summary of the information provided in the annual reports in the annual report of the division.

(cf: P.L.1991, c.441, s.21)

5. This act shall take effect immediately

STATEMENT

This bill requires municipal auditors to review a random sample of documentation with respect to properties receiving a tax abatement or tax exemption within a municipality for the purposes of determining whether that property continues to be eligible for such an exemption or abatement. This bill does not require the production or maintenance of any material by a municipal clerk which is not already statutorily required to be maintained as a government record. The bill only requires that the existing material now be maintained explicitly for auditing purposes.

This bill requires the Commissioner of Community Affairs to establish procedures for the random selection of initial statements and abated properties to be reviewed by municipal auditors. For purposes of transparency, a list of properties selected randomly for review will be prepared annually and available to the public.

The Office of the State Comptroller released a report on tax exempt property in July 2013. The report indicates that significant losses are being incurred by municipalities by failing to reexamine the tax exempt status of certain properties. Current law does not require this review, though it may be undertaken by auditors in certain situations, especially where auditors have reason to believe that the municipality has not properly monitored the status of these properties. This bill would require the municipal auditor to review documentation already required to be produced and determine whether properties remain eligible for tax exemption or tax abatements. This review will include exemptions granted pursuant to section 4 of P.L.2004, c.139 (C.54:4-160) and section 5 of P.L.1995, c.413 (C.54:4-154).