A group representing cities and towns said it may sue New Jersey after the state announced it was withholding $21 million in property tax relief payments to help balance a widening budget gap.
The state has frozen the payments while Gov. Jon Corzine figures out how to plug a budget deficit projected to reach $1 billion before the fiscal year ends June 30.
The governor also may freeze or reduce up to $400 million in payments to schools, towns, colleges and universities, hospitals and the pension fund, according to information disclosed to potential investors last week. On Tuesday, he received recommendations from department heads on how to achieve an additional $400 million in savings.
Those recommendations are being reviewed. The governor said he hopes to have a revised budget in place before Christmas.
The Department of Community Affairs told municipalities in a letter Tuesday that their December aid payment is being delayed. Municipalities use the aid to offset property taxes, which average $7,045 per household, the highest in the nation.
News of the delayed payments came the day a State Commission of Investigation report showed towns, counties and local authorities across the state rewarding employees with excessive perks despite the recession. Employees who are allowed to cash in unused sick time, for example, continue to cost taxpayers millions of dollars, the report showed.
The Department of Community Affairs said the amount of withheld aid varies but will be relatively small for more than half the towns, less than 1 percent of the state aid they receive for the year.
For Trenton, the December payment is $1.6 million out of $41 million the city receives annually; for Wrightstown, it is $17,000 out of $342,000 the borough gets a year.
In all, 465 municipalities are affected. They range from Newark, which is due $2.2 million, to Corbin City, in Atlantic County, which is due 60 cents, Community Affairs data show.
The executive director of the New Jersey League of Municipalities, which may sue on behalf of the cities and towns, said the funding move was unprecedented.
"The Legislature passed the budget with these funding levels," executive director Bill Dressel said. "The governor signed the budget. The state treasurer certified the revenues. The Department of Community Affairs approved local budgets with those specific revenues, which are earmarked to offset expenses."
Dressel said any aid cuts will slow the state's economic recovery and hurt homeowners. He said towns on a calendar year budget cycle will be especially hard hit in the final month of the year.
The state, which has a $29 billion budget, needs to plug a deficit brought on by lower-than-anticipated tax collections and midyear spending adjustments to existing programs. It is required to keep a balanced budget, so when revenues fall below projections corresponding spending cuts must be made.
Assemblyman Lou Greenwald, chairman of the Assembly Budget Committee, said Tuesday he would seek to enact legislation preventing municipalities from using state aid cuts as a reason to raise property taxes.
"Trenton does not set property taxes, municipal governments do, and enough is enough," said Greenwald, D-Voorhees. "Mayors, council members and their taxpayer pension-receiving consultants must stop making excuses, pointing fingers and skirting blame for New Jersey's property taxes."