What NJ School Districts Should Know About the Possible Delay in Municipal Tax Payments

What NJ School Districts Should Know About the Possible Delay in Municipal Tax Payments

On May 15, New Jersey Governor Phil Murphy signed Public Law 2020, chapter 34 (A-3969/S-2392), which now gives local governments greater flexibility with regard to various timeframes, deadlines, and other statutory requirements during the ongoing COVID-19-related state of emergency.  Of particular concern to school districts is a provision in the new law which gives local municipalities the discretion to delay tax payments to schools.

Delay in Tax Payments to NJ School Districts

Under the law, the Director of the Division of Local Government Services (Director) is authorized to extend the “dates for payment of taxes by a municipality due to a county, a school district,” and other taxing districts; however, the Director must require the municipality to pay a percentage of the total installment of taxes due by the original statutory date. In addition, the extension with respect to school districts must be equal to the number of days of the extended grace period granted by the Director to the municipalities under the section.

In determining the percentage paid, the Director must consider the amount of property taxes collected by a municipality, fiscal condition of the municipality, fiscal conditions of the school, and other budgetary, fiscal or economic factors the Director finds appropriate in making the determination. With regard to school districts, the law specifically states, “The director shall consult with the Commissioner of Education when considering the fiscal condition of a school district pursuant to this subsection.” Based on the foregoing, school districts should check with their municipal officials to see the current status of their tax collections and the Town’s intent with respect to any possible delay in tax payments to school districts.

Borrowing in Response to Delayed State Aid Payments

On a separate note, in response to the delay in the June 2020 state school aid payments, the New Jersey Department of Education (NJDOE) has provided information for school districts seeking to enter into short-term financing, pursuant to N.J.S.A. 18A:22-44.2. The application, which is posted on the NJDOE’s School Finance webpage, must be submitted to the Executive County Superintendent (ECS). It includes a one-page form for pertinent banking and borrowing information, a cash flow worksheet to demonstrate the need to borrow, and instructions on completing the cash flow worksheet. A sample promissory note for use by districts, as well as other related borrowing documents, is posted on the NJDOE’s Finance webpage.

Approvals will be granted by the ECS upon written application and demonstration of need by the board of education. All approved loans will be paid by the NJDOE to the district’s regular state aid account, while the district will be responsible for repayment to the bank. As detailed by the NJDOE, the district’s state aid payment is expected to be made to the district’s regular state aid bank account on July 10, 2020, but will be made no later than July 13, 2020. This payment must be used to pay off the principal amount borrowed, as approved by the ECS. The state will also pay the interest cost approved by the ECS, with any interest payments being added to the district’s regular state aid payment.

For school districts that plan to borrow funds, time is of the essence. Applications for borrowing for the June 8, 2020 payment, with the requested supporting documentation, must be submitted to the district’s ECS by May 27, 2020. Complete applications received by the close of business (COB) on May 27, 2020 will have decisions rendered by the ECS by June 4, 2020. Applications for borrowing for the June 22, 2020 payment, with the requested supporting documentation, must be submitted to the district’s ECS by June 11, 2020. Complete applications received by COB on June 11, 2020 will have decisions rendered by June 18, 2020. Due to the tight timelines, the NJDOE has stated that it can’t guarantee review and approval of any application and/or supporting documentation for borrowing submitted after the deadlines above.

For more information about the new law authorizing tax payment delays, or the legal issues involved, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group at 201-896-4100.