New Jersey is a small, densely populated state carved into 566 municipalities.
Spend some time in New Jersey and you will discover that it is hard to drive for more than a couple of minutes without passing through several towns.
The state’s many municipalities were born over the course of 200 years due to a variety of factors. Some towns wanted greater control over school budgets (The reason for Bergen County’s split into dozens of small towns at the end of the 19th century), others were carved out of road maintenance disputes, around railroads and factories, over tensions concerning the distribution of revenues to rural and urban areas, and prohibitions on the sale of alcohol. Though the logic for their creation has long since passed, many towns have strong identities and resist efforts to consolidate. Arguments have been made for decades that consolidation would bestow greater efficiency in the provision of public services. But those advocating consolidation and towns resisting mergers to maintain, “home rule” have a common enemy: intergovernmental aid.
Since the 1930s, the state government gradually gained control over the management and redistribution of revenues on the local level. (with the exception of the locally levied and distributed property tax). With the Abbott decisions in the 1970s and 1980s, the state created an income tax and redirected the entirety of that revenue stream to the municipalities, and residents, mainly as school aid. (this portion of the state’s budget is called the Property Tax Relief Fund)
These fiscal mechanisms eroded local control. And the presence of state aid in local budgets has created dependency on these streams. Take away aid, and localities must raise property taxes, which are already the highest per capita, in the nation.
As Alan Karcher notes in his detailed history New Jersey’s Multiple Municipal Madness, between 1873 and 1897 – the years of the municipal boom – New Jersey’s communities were self-sustaining, “and not dependent on state aid to support their local services.”
Of course much has changed since then. But if efficiency is the goal of the state government, and independence the aim of some of New Jersey’s municipalities, then competition is key. In other words, reducing state aid is the only path to true home rule, but with the stimulus working its way through municipal budgets, dependencies on external revenue streams are likely to grow stronger.