ALLENTOWN: Council adopts budget with average $174 tax increase

Mayor blames Verizon tax dispute for part of fiscal woes

By Joanne Degnan, Managing Editor
   ALLENTOWN — The Borough Council has adopted a $2.19 million budget for 2012 that cuts spending by 10 percent, but still requires a tax increase of about $174 per year for the average assessed home.
   The spending plan was approved, with minor technical amendments, by a 6-0 vote at the July 10 council meeting. The budget calls for a 5.9-cent increase in the municipal tax rate to 67.7 cents per $100 in assessed value.
   ”We cut spending from last year by 10 percent, we eliminated basic things from the budget that we felt could be put off,” Mayor Stuart Fierstein said.
   The 2012 budget contains no salary increases for any employees and postpones major purchases, such as replacing a 10-year-old police car that spends more time in the shop being repaired than on the road, Mr. Fierstein said.
   ”The budget in all categories is austere to the point where we went down to $10, $15 and $25 items and made cuts,” he said.
   Despite the belt-tightening, the budget still requires a 9 percent increase in the tax rate that the mayor attributed to a number of factors. These include a tax dispute with the borough’s second-largest taxpayer that accounts for 2.7 cents of the 5.9-cent increase; 2011 emergency costs, such as Hurricane Irene-related repairs, that were deferred to the 2012 budget; and higher fixed costs, such as pension obligations.
   The $1.3 million tax levy, which is the amount of taxes that needs to be raised to support the budget’s 2012 operating costs, complies with the 2 percent cap levy increase law despite the 9 percent tax rate increase because certain categories of spending are exempt from the cap. Exemptions include increases in state-set pension fund obligations, allowable debt service and capital leasing increases, and deferred charges related to emergencies from the prior budget year.
   A total $73,596 of the roughly $100,000 increase in the borough’s tax levy was exempt from the state cap, according to the budget documents.
   What this all means for residents is that a home assessed at the borough-wide average of $294,000 will pay $1,990 a year in municipal taxes, an increase of $174 from 2011. There will be no increase in sewer or water fees in 2012.
   During the council meeting, North Main Street resident Ted Devillafranca asked about the borough’s dispute with Verizon over the company’s $46,190 business personal property tax assessment. The mayor said the lost tax revenue had created significant problems in the 2012 budget.
   ”At this point, that ($46,190) tax impact has to be distributed among other taxpayers in order to compensate for the loss,” Mr. Fierstein said.
   Verizon is assessed $18,439 a year in property taxes for its small building at 5 Waker Ave. It is also assessed $46,190 in business personal property taxes for its poles, wires, cables and other equipment. This so-called “pole tax” is authorized by state law that dates to the 1940s and it applies to only three companies.
   Although Verizon continues to pay the property taxes on its Waker Avenue commercial property, it filed a complaint in New Jersey Tax Court earlier this year to have the separate $46,190 business personal property tax assessment invalidated.
   Verizon contends the business personal property tax is unfair because it’s applied only to three phone companies that dominated the market back in the days of rotary phones. Although the market has changed dramatically since that time, the Legislature never expanded this tax, which is collected by municipalities, to other telecommunications companies such as Internet and cable TV providers.
   ”The monopoly that Verizon or its predecessor companies operated under, and under which the business personal property tax was developed, no longer exists,” Verizon’s director of media relations, John Bonomo, pointed out Monday.
   Attorneys for Verizon have based legal challenges in 68 communities on a 1997 amendment to the state law that allows a phone company to stop paying the tax if it is no longer providing landline service to 51 percent of the community. As more people switch to cell phones and Internet or cable TV-based phone service, the list of towns affected by the 51 percent landline rule is expected to continue to grow.
   Last month, a tax court judge handed Verizon a significant victory in a long-awaited ruling involving Hopewell Borough that was viewed as a test case on the issue. The court disagreed with Verizon’s claim that the tax itself is unconstitutional, but, nevertheless, agreed with the company’s interpretation of the 1997 amendment that allows it to stop paying the tax if it no longer provides service to 51 percent of local telephone exchanges.
   At the July 10 Borough Council meeting, Mr. Fierstein reiterated his frustration that the law allows the company to claim an exemption without providing any proof that it qualifies for it. He noted that the 259 and 208 telephone exchanges serve residents in several communities, not just Allentown, and that Verizon has refused to provide the data proving it qualifies for the 51 percent rule exemption, contending it is proprietary information.
   ”The state court has ruled for Verizon and it’s now up to the rest of the towns and the League of Municipalities to determine what they’re going to do,” Mr. Fierstein said at the council meeting.
   Although it’s possible that the Legislature and the governor’s office could step in to work out a solution, such as a repeal of the 1997 amendment or a reform of the business personal property tax to include other types of telecommunications companies, Mr. Fierstein did not express optimism.
   ”I did go to our legislators and implored them to take this law and reverse it and I was told directly that Verizon is that much of a powerhouse in New Jersey that nobody in the Legislature wants to really take it on,” Mr. Fierstein said.