By Jon Hurdle

PHILADELPHIA (Reuters) - A new agreement to cap New Jersey property tax increases at 2 percent a year is unworkable unless lawmakers pass other measures giving towns and cities more power over local spending, pensions and benefits, municipal leaders said on Tuesday.

The New Jersey League of Municipalities criticized a deal struck by Republican Governor Chris Christie and state lawmakers on July 3, setting the cap in an effort to control the state's highest-in-the-nation property taxes, which have grown by 70 percent over the last decade.

"If the momentum for reform lags in Trenton after passing new caps but before passing management reforms -- local officials will be forced to operate an unworkable engine," the league's executive director Bill Dressel said in a statement.

The reforms, which also cover collective bargaining, are included in a "tool kit" of 33 proposed laws introduced by Christie in an effort to boost local control over budgets. State lawmakers said they would consider the measures over the summer.

Dressel predicted towns and cities will be forced to cut services or raise taxes unless the measures are enacted before the new caps are signed into law.

The governor said the legislature had agreed to enact the measures "swiftly and diligently" by early Fall.

Senate Budget and Appropriations Committee chairman Paul Sarlo, a Democrat, said the panel will spend the summer reviewing the property tax system.

"Unless we release the pressure state mandates and other cost drivers place on mayors and school administrators, property taxes will never actually go down," Sarlo said in a statement.

Stephen Sweeney, president of the Democrat-controlled Senate, welcomed the new cap, which is 0.5 percentage-point lower than that originally sought by Christie. The cap will be implemented by statute, rather than by the constitutional amendment that the governor initially called for.

Exemptions to the cap will be granted for health care, pension costs, debt service, and for school districts that experience an unanticipated increase in student enrollments.

Spending over the cap would also be allowed for some emergencies such as severe storm damage, and voters would be able to override it by a simple majority vote.

"This new cap law...will give taxpayers real control over their futures," Sweeney said. "It will give local officials the flexibility they need to ensure essential services do not suffer."

(Reporting by Joan Gralla; Editing by Andrea Ricci)