Moody's: Law Easing Property Tax Refund Burden Could Help Towns

The new ability for local governments to refund overpaid taxes on commercial properties over a 3-year period, rather than 60 days, could take the pressure off budgets for municipalities, and bode well for their credit rating down the road, according to a recent report by Moody’s.

Assembly Bill 2004, which Murphy approved in early August, increases the time that local governments have to fully refund typically larger property tax appeals for commercial properties from 60 days to three years. During the refund period, towns would pay interest equaling the “lesser of” 5 percent or a single percentage point above the prime rate, according to the bill. Those governments would still have 60 days to issue a full refund for residential projects, and any refund under $100,000.

“The longer time frame gives municipalities the option to pay appeals with internal liquidity if available, to issue long-term debt, or to take the new three-year approach to paying, whichever is the most economical,” reads the Monday analyses by the Wall Street rating agency.

Local governments would be less likely to burn through reserves typically set aside to pay property tax refunds, given how much larger the commercial property bills are, according to Moody’s.

In order to finance the tax refunds, many local governments often borrow, which can open up its own can of worms. Both Moody’s and proponents of the measure argue that towns and cities could be better off without having to undertake that practice.

Moody’s said the new law could mean a “credit positive” for local governments, which serves as an indicator of what credit ratings might be in store down the road.

Business groups, who want the timelines for residential and commercial properties to stay the same, were largely worried about the measure.

“This additional delay would come on top of a tax appeals process that is often long and tedious in its own right,” reads an Aug. 9 statement from Andrew Musick, vice president of government affairs at the New Jersey Business and Industry Association. “Requiring business owners to wait this much longer to recoup their overpayments, when some have invested years in pursuing a successful property tax appeal, is neither fair nor reasonable.”

Advocates argued that the measure could take the pressure off local governments with struggling finances.

“By extending the window for municipalities to administer tax appeal refunds, we are giving localities an opportunity to boost their budget flexibilities and potentially reduce local costs,” bill sponsor Assemblywoman Nancy Pinkin, D-18th District, said in a statement.

Original Article