New Jersey’s Inverted Property Tax Pyramid

Murphy and Sweeney

It would be reasonable to assume that a public policy issue which has been identified year in and year out as the most troubling to New Jersey voters and taxpayers would draw the attention of the state’s elected leaders as well as pledges to act with dispatch to address it.

As it applies to the property tax structure — a system which produces more than $30 billion a year in revenue to finance the operations of more than 1,200 government entities — though, the assumption is flawed and has been for years.

New Jersey has consistently led the nation in average property taxes paid — $9,112 in 2020, an increase of $160 — and there is little indication that the year-to-year increases will end anytime soon; they’re baked into the system.

It is an issue cited more than any other in poll after poll as the most serious facing the state and has been cited as a driver of outmigration, retirees leaving lifelong homes, and as a major factor considered by corporate decision-makers seeking to re-locate or expand operations here.

In the often-cutthroat competition for tax ratables and the employment opportunities that accompany it, New Jersey’s attributes — market location, transportation network, quality education system, etc. — have been offset by its high property tax rates.

Homeowners accustomed to opening the bad news mail from their local tax collectors’ office have been overtaken by a weary resignation to the inevitable and unavoidable, falling victim to a sense of powerlessness and that nothing of consequence or lasting impact will stem the tide.

In fairness, the issue arises periodically, usually as grist for political campaigns as candidates promise beleaguered homeowners that relief is a phone call away.  In nearly every case, the phone call ends in a busy signal.

The issue doesn’t lack for ideas, but a lack of legislative will brought on by a belief that it is the governor’s responsibility to recommend tax reform and a concern that legislative tinkering with the tax could adversely impact one faction or another and imperil a career in elected public service.

Among the suggestions floated over the years to confront what is arguably an unfair and broken system have been:

       *Convening a constitutional convention similar to that which produced the state’s constitution in 1947 but confined to an examination of the entire tax structure from local to state level and submit its findings and recommendations for legislative approval.

       *Amend the current Constitution to cap property taxes at a percentage of assessed value or re-sale price, similar to the famous Proposition 13 in California in 1978.  It also provides a restrictive two percent ceiling on annual increases.

       *Amend the Constitution to permit property tax classification; that is to allow primary homes and large scale commercial developments to be taxed at different rates.  The current Constitution requires all property to be taxed at a uniform rate.

       *Examine the impact of allowing municipal governments to impose a local broad-based tax — sales or income — in return for dramatic reductions in property taxes, based on the concept that income is a fairer and more accurate measure of personal economic circumstance and ability to pay.

       *Replace the current state aid to school districts formula with one to provide an equal dollar amount for each pupil, regardless of place of residence, a proposal which would represent a windfall for a great many suburban districts.

       *Conduct a statewide audit of school districts as well as municipal and county governments to determine which are administratively top heavy and could be reduced at substantial savings.

       *Mandate that school districts which fall below a certain enrollment level merge with neighboring districts potentially achieving savings of scale.

Consuming 50 to 60 percent of every property tax dollar, public education is the principal driver of the levy and is but one of the 1,200 government entities (565 municipalities, 610 school districts and 21 counties) to rely on it for everything from crayons for kindergarteners to jail cells for lawbreakers.

As the largest recipient of property tax revenues, school districts occupy the center of tax relief debates, most often involving proposals to redraw the aid distribution formula.   Critics, including Republican gubernatorial candidate Jack Ciattarelli, for instance, argue that the current formula is so badly skewed that 60 percent of the aid is allocated to five percent of the school districts.

The issue of state aid is anything but new, having bounced around in the court system for nearly a half century, originating with a lawsuit brought against former Gov. William Cahill in 1971 challenging the constitutionality of the aid program. It’s remained in one iteration or another through eight of his successors.

The usual response has been to take the path of least resistance by including aid increases in the state budget year after year and tout it as property tax relief, a position taken by Gov. Phil Murphy who is fond of claiming that each dollar in aid represents a dollar not drawn from the property tax.

His point is somewhat disingenuous since there exists no requirement that state aid funds be utilized locally to effect property tax reductions, leaving it to local school boards to determine how the funds should be spent.

While voters and taxpayers have consistently cited the property tax burden as the most serious problem they face, efforts to take it on in a comprehensive fashion have never gained significant traction in successive legislatures.

The homestead rebate program, designed in the 1970’s as a relief mechanism, has been underfunded or not funded and eligibility so restricted that it benefits a narrow fraction of homeowners.

Likewise, the senior freeze program is age-restricted and omits the vast majority of taxpayers from its provisions.

It’s not a dearth of ideas that has hampered a broad approach to tax relief; rather, it is a concern that such an approach presents political repercussions from those who would argue that an overhaul of the tax structure is a cover for tax increases.

While the various proposals offered over the years have drawn adherents as well as detractors, they’ve never been subject to intense scrutiny and debate.  It is less risky to continue to live with an unfair and onerous system and nibble at the margins than it is to take it on as the serious issue it is.

Then property tax system has become an inverted pyramid with taxpayers struggling on the ground to maintain balance of its pointed end while watching the structure grow in height and width.

It may be only a matter of time before it all keels over.

Carl Golden is a senior contributing analyst with the William J. Hughes Center for Public Policy at Stockton University.

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