LIVINGSTON, NJ — Due to the volume of inquiries concerning the impact of the COVID-19 pandemic on the obligation of residents to pay their property taxes by the May 1 due date, the Township of Livingston has publicly released responses to some of the most common questions, such as whether the township or state can postpone the deadline, whether the municipality can extend “grace periods” or provide relief to residents and more.
The Township of Livingston’s official responses to those frequently asked questions (FAQ) can be found below:
Q: Can the township postpone the May 1, 2020 (second-quarter) property tax payment due date?
A: No, the township cannot legally postpone or reschedule tax payment due dates. The tax payment due dates of Feb. 1, May 1, Aug. 1 and Nov. 1 are set by New Jersey state statute, specifically “N.J.S.A. 54:4-66” which provides, in pertinent part, the following:
§ 54:4-66. When calendar year taxes payable, delinquent
- Taxes for municipalities operating under the calendar fiscal year shall be payable the first installment as hereinafter provided on February 1, the second installment on May 1, the third installment on August 1 and the fourth installment on November 1, after which dates if unpaid, after subtracting the amount of property tax credit as defined in section 1 of P.L.2018, c.11 (C.54:4-66.6), the taxes shall become delinquent and remain delinquent until such time as all unpaid taxes, including taxes and other liens subsequently due and unpaid, together with interest have been fully paid and satisfied, which payment and satisfaction may be by property tax credit as defined in section 1 of P.L.2018, c.11 (C.54:4-66.6);
- From and after the respective dates hereinbefore provided for taxes to become delinquent, the taxpayer or property assessed shall be subject to the interest and penalties hereinafter prescribed;
Because the May 1, 2020 due date is set by state statute, only the legislature can change that due date by amending the statute and the township has no ability to postpone the due date.
Q: Will the state legislature postpone the May 1, 2020 (second-quarter) property tax payment due date?
A: It appears unlikely that the State Legislature will extend the May 1, 2020 second-quarter property tax due date for one important reason: the counties and municipalities need the tax revenue to continue operations.
Even during the pandemic, the township and other municipalities have continued, and will continue, to provide essential services such as police and fire protection, water and sewer utilities, garbage and recycling collection, Health Department services, medical transportation for seniors, public assistance and many other critical services.
The continuation of these services requires the payment of salaries and wages to the employees, as well as significant contract and operating expenses, particularly those associated with water, sewer and garbage and recycling.
Unlike the federal government, New Jersey municipalities have no ability to simply “create” additional funds through uncapped debt. As such, municipalities are dependent on property tax revenue (which accounts for over ¾ of our annual budget revenue) to be able to pay for all of these essential services. If the May 1 deadline was postponed, the township would soon run out of money and be unable to continue to provide services.
It should be obvious to everyone that ceasing to provide vital police and fire protection, critical Health services, and water, sewer, garbage and recycling services to our residents is not an option. Moreover, a blanket extension of the due date would apply to everyone, including those property owners who have the resources to pay on time, as well as many banks that already have sufficient property tax escrow deposits to make the second-quarter tax payments.
Q: Can the township extend the “grace period” date after which taxes become delinquent and begin to accrue interest?
A: No. The same New Jersey statutes only authorize a municipality to “provide that no interest shall be charged if payment of any installment is made within the tenth calendar day following the date upon which the same became payable” which thus sets the “grace period” as 10 days after the due date.
Since this grace period is set by statute, only the New Jersey legislature can change it. The New Jersey Department of Community Affairs, Division of Local Government Services recently answered this specific question in the context of the COVID-19 pandemic as follows:
“At this time no authority exists that would allow a municipality to extend the grace period more than 10 days. This is only authorized during natural disasters, under present law:
“’In the case of a municipality that has experienced a flood, hurricane, superstorm, tornado, or other natural disaster, interest shall not be charged by the municipality to a delinquent taxpayer if [. . .] a state of emergency has been declared as a result thereof by the Governor less than 30 days prior to the date upon which a property tax installment payment is payable (N.J.S.A. 54:4-67).’”
As noted above, the current statutory exception applies only to natural disasters and only the legislature has the authority to expand the exception to include the current COVID-19 pandemic. Notably, even then the exception would not apply here as the state of emergency was declared more than 30 days before the May 1, 2020 tax due date.
As such, any legislative amendment would also have to amend that provision concerning the timing of the state of emergency declaration.
Q: Can the township provide any relief to residents concerning property tax payments?
A: As discussed above, the township has no ability to extend the May 1 second-quarter property tax due date or the 10-day grace period before interest is assessed.
In addition, there is another complicating factor that specifically applies to municipalities. Under the law, municipalities like the Township of Livingston are responsible for the billing and collection of all property taxes; municipal, school and county. More importantly, the township is obligated to timely pay the board of education and the County 100 percent of their assessed taxes each quarter, regardless of how much we actually collect.
In Livingston, the combined school and county taxes make up more than 80 percent of every tax dollar billed and collected. Thus, in simple terms, if the township were only able to collect 80 percent of the taxes in the second quarter, all of those taxes would have to be paid to the board of education and the county—leaving the township with no revenue to continue to provide essential services.
Thus, it is critical that any legally permitted actions to provide relief that are taken by the township be measured and conservative; to ensure at least the minimum tax collections (coupled with our limited ability to borrow against future tax payments) needed to allow us to continue operations.
Although the township cannot legally (or practically even if we could legally) postpone the May 1 due date, the township has a limited ability to provide some relief to affected taxpayers.
Specifically, under the law, New Jersey municipalities set the interest rate(s) that are applied to delinquent tax balances. Currently, as authorized by New Jersey statutes, the township’s interest rates that apply to delinquent taxes are 8 percent per annum on the first $1,500 and 18 percent per annum on any delinquent taxes above $1,500.
While these rates may seem high, they are necessary to ensure the timely payment of at least the overwhelming majority of taxes to allow us to pay the school and county and still provide the cash flow needed to provide the essential municipal services as discussed above.
Nevertheless, in light of the extraordinary circumstances due to the COVID-19 pandemic and the resulting economic strain being placed on residents and property owners, the township council is giving consideration to adjusting the interest rates that apply to delinquent taxes. In considering a lowering of the interest rates, the township council—with input from the township manager, finance department and financial advisors—must strike a delicate balance.
Setting the interest rates extremely low or approaching zero would effectively be postponing the due date, as many, if not most, taxpayers would delay paying the second-quarter taxes since there would essentially be no incentive (or penalty) to paying on time.
Notably, if the interest rate is too low, even taxpayers and property owners that are able to pay may not do so. In that case, the collections would almost certainly be under 80 percent, and the township would be unable to even pay the full amounts due to the board of education and county and would have no funds at all to continue essential operations.
Additionally, in anticipation of lower tax revenues, the New Jersey statutes authorize municipalities to issue Tax Anticipation Notes (short-term borrowing) in limited amounts to raise revenue to fund operations; with the borrowed funds repaid upon future collection of the taxes. However, the amount we can borrow is limited, includes payments to the board of education and county, and incurs interest obligations on the borrowed funds.
Depending on collections realized, the township may find it necessary to borrow funds as authorized. In that case, the interest collected on delinquent taxes should be at least high enough to offset the interest that the township will pay on funds it has to borrow to cover the shortfall created by the tax payment delinquencies. Otherwise, the interest on borrowed funds would be absorbed and paid by all taxpayers, including those who paid their taxes on time.
As should be clear, the consideration of lowering delinquent tax interest rates will require a careful balancing between providing relief to affected taxpayers while ensuring sufficient revenues to pay the board of education and county and still leave sufficient funds for the township to continue essential services.
The Livingston Township Council will be considering and deciding on this issue in the very near future, before the expiration of the May 10 grace period after which interest would be charged.