Passing the buck

Council approves payroll tax for non-residents

State Senator Sandra Cunningham explains her logic for introducing payroll tax legislation, calling it the most important legislation she ever introduced.
State Senator Sandra Cunningham explains her logic for introducing payroll tax legislation, calling it the most important legislation she ever introduced.

In a move designed to partially avoid a massive tax increase to fund local schools, a unanimous City Council voted 9-0 on Nov. 20 to establish a payroll tax that would affect only private employees who work in but do not live in Jersey City.

Before passing the ordinance, the council faced heavy pressure from the Jersey City school board, teachers’ union, and parents.

School Superintendent Dr. Marcia Lyles said the state intends to cut $175 million from Jersey City school aid over the next seven years. This comes on top of the state under funding the school district for the last ten years by about $100 million.

“The one percent payroll tax is the only solution currently on the table,” she said.

The payroll tax amounts to one cent out of every dollar earned by an employee in the city. It is up to employers to forward the tax to the city. They can decide whether their businesses pay the tax on the employee’s behalf, or let their workers foot the bill.

Employees of the municipality, school district, and those who live in Jersey City are exempt from the tax, but not subcontractors for the city or schools.

While the payroll tax will only account for about $70 million of the expected gap, it is expected to face serious legal challenges from the business community, which protested the proposal at an October council meeting and threatened to take the matter to the voters via referendum if passed by the City Council.

A last minute compromise plan proposed by Council President Rolando Lavarro – which the business community said it would support – was rejected by the rest of the council in favor of the original proposal that imposed the tax on small businesses and well as large.

Lavarro’s plan would have exempted small businesses and would have included a two-year sunset clause that would have allowed businesses, city officials, and the school board to seek alternative funding sources and possible changes in state law that presently does not allow the city to share funds from developer’s tax abatements with the school district.

Bowing to the will of the council, Lavarro cast his vote in favor of the original payroll tax ordinance.

Although the Nov. 20 meeting was dominated by teachers, students, parents and other supporters of the payroll tax, members of the Hudson County Chamber of Commerce and other business groups from New Jersey made a last ditch appeal to scrap this plan or adopt Lavarro’s.

These business representatives said the payroll tax that the council eventually passed would have an adverse affect on business investment in the city, and in particular on small businesses which city officials have ironically vowed to protect.

While a number of business groups opposed the payroll tax, representatives from the McGinley Square Special Improvement District – which is comprised of a number  of small businesses – went on record to support the tax.

The ordinance will become effective 30 days after adoption, or a few days before Christmas.

City officials were warned 

The cut in state aid comes more than a year after administration critics raised the alarm about such potential action from the state.

Former Councilman Chris Gadsden, who is currently principal of Lincoln High School, warned the council in December 2017 that the city’s failure to share funds from tax abated properties with the school would lead to drastic cuts in state aid.

State government has for decades supplied massive aid to Jersey City schools as part of requirements for providing “a thorough and efficient” education to poor urban school districts.

Jersey City, Newark, Paterson and other major urban areas saw a major loss of industry and flight of middle class families to the suburbs in the 1960s through 1990s, leaving behind the poorest – often minority – population with aging schools and a significantly reduced local tax base.

But starting in the late 1980s, Jersey City’s population demographics shifted and some areas became more affluent. Abatements for developers – an alternative to local taxes that does not require a contribution to schools – became a significant tool for redevelopment. But it also became the excuse for legislators elsewhere in the state to cut aid, saying that Jersey City should be paying more of its fair share and not rely on aid from the state.

“Even when we were getting state aid, we were only getting 86 percent of the funding we were supposed to get.” – School Trustee Lorenzo Richardson

In several instances, state legislators said Jersey City should raise revenues locally, suggesting a possible increase in school funding through property taxes.

With legislation pushed through the state legislature by State Sens. Sandra Cunningham and Brian Stack, the council was given the authority to establish a payroll which would make up for some of the lost state aid.

But the city, instead of taxing all employees, opted to exempt employees of Jersey City businesses who are also residents of Jersey City. This put the burden of raising funds for local schools on residents of other municipalities who work in Jersey City.

Cunningham said the Jersey City payroll tax mirrors a similar tax in Newark, except the funds would go directly to the school district.

Ironically, many of the affluent families who now send their kids to Jersey City public schools are confronted by the same issues poor families faced that justified the aid in the first place: deteriorating school buildings, a third of which are a 100 years or older, another third, 80 years or older, with lack of drinking water, poorly maintained restrooms, lack of contemporary educational tools, and such.

One student from McNair Academy – rated as one of 50 best high schools in the nation – told the council the school is in such deplorable shape that incoming students may opt to attend the newly-opened Hudson County Schools of Technology, depleting McNair of Jersey City’s top students.

But the public hearing also raised other issues such as a disparity within Jersey City itself, where the poor and largely minority-populated south side of the city appears to have fewer up-to-date resources than the wealthier downtown and Heights areas.

Even before the council passed the tax, some of those supporting the poorer portions of the city urged the dividends of the tax to be given primarily to the poorer areas, thus living up to the original concept that justified state aid in the first place.

Immediate solution

Perhaps the most compelling argument for passing the payroll tax came from a number of city and school officials, who claimed this was the only tool currently ready to provide immediate funding relief.

Among other options included a complete audit of the school district to determine if there are additional areas of spending that can be cut.

The school district is facing a $100 million shortfall in its upcoming budget.

Many other proposals for sharing of city and abatement funding would require changes to state law, which would take time to implement if the state legislature goes along with the changes as all.

But even proponents of the payroll tax admit that this will not make up completely for the loss of aid, and that there have to be other options which include redistribution of municipal taxes and an increase in school taxes.

School Board President Sudhan Thomas, who also supported the payroll tax, said the impact on the district is even more severe than the mere cut in $175 million in state aid. He said historic under funding of the district of $100 million over the last ten years as well as the 2.5 percent contractual increase each year means that district actually faces of $400 million shortfall over the next seven years.

To comment on this story on-line, go to our website, Al Sullivan may be reached at