For a New Jersey resident, that property taxes are less than forgiving is less than revelatory. Boasting 600 school districts, and 566 municipalities, New Jersey has earned the dubious honor of having the highest property taxes per capita in the United States. The increasing burden of high property taxes is forcing residents to move out of state, and has drawn the ire of a state government trying to contemplate how to stem rising costs of living. Property taxes are not the only area for which New Jersey has achieved distinction, its sales tax also ranks among the highest in America. At a whopping 7.0 percent, the New Jersey sales tax is surpassed only by California, and remains tied with Indiana, Mississippi, Rhode Island; and Tennessee. According to a study conducted by the Tax Foundation which accounted for all taxes, including the property tax, New Jersey topped the list for local burden at 11.8%. For New York the burden was 11.7% and Connecticut followed at 11.1%. In comparison, the states with the lowest overall burden were Wyoming and South Dakota, at 7.0 and 7.9% respectively. Nearby Pennsylvania and Delaware were lower, scoring 10.2% and 9.5%, which clustered in average with the rest of the states.
The consequences of taxes, but particularly the property tax are rather stark. According to a 2009 Star Ledger Article, since 2000 rising costs of living have resulted in a state loss of 163,000 households, or $12.8 billion in gross income as residents flock to states with lower rates. In 2000 the average property tax for a home in Holmdel, Monmouth County, was $7,496. By 2007 that number had increased 52% to $11,049, an increase of some $4,000. Teaneck in Bergen County saw an increase in the average property tax from $3,233 in 1998 to $10,612 or 228% increase. In contrast, Atlantic County saw some of the lowest increases, the average property tax bill in Folsom Borough rose to only 3,167, from a low of 2,079 in 1998. Many believe the source of high property taxes is local school spending and employee pensions. In addition, in 1985 the New Jersey Supreme Court ruled in Abbot vs. Burke that adequate funding must be allocated to struggling urban schools. As a result, wealthier districts are left wanting in regards to available funds.
Yet to put it in perspective, property taxes account for 45 percent of all tax revenue raised in New Jersey. By contrast, the national average is 29 percent. In 2010 New Jersey spent approximately $13,385 per pupil on education, up 4.3% in cost from the previous year. This is less than the 5% rise to $12,720 in spending from 2007 to 2008, but the continuing increases illustrate that the problems posed by property taxes remain unchecked. In past several years many school budgets have also been increasing. From 2008 to 2009 the Freehold school district saw a 3% increase in the local school district, from $8,165,236 in 2008 to $8,373.022 in 2009. From 1998 to 2009 Bradley Beach saw a 33% increase from 3,728,017 to $4,952,368. In the same period the Woodbridge district saw increase of some 55% in the school budget, topping out at 151,027,561 in 2009. Despite the amount of spending on education for urban districts, the SAT score average for the state has remained static at 1009 for combined reading and math scores.
As a result, many districts have been classified as “In Need of Improvement” status, despite the high degree of state funding of education. Data for the 2009 “No Child Left Behind” report, compiled by the New Jersey Department of Education, revealed that the East Orange High School district in Essex County also did not meet mandate, achieving only a 75.5% student proficiency rating for language arts in the 2008-2009 school year. For mathematics students achieved a proficiency rating of only 31.1%, a 9% percentage decrease from the prior year, and well below the state standard of 74% for the district. By contrast, wealthier school districts such as Fair Haven and Rumson were classified as satisfactory, exceeding the district proficiency standard of 59% for English. Given that the majority of property taxes fund local schools; Fair Haven and Rumson have higher property tax averages, at $12,281 and $16,526 respectively. In contrast the Neptune Township school district, which boasts an average property tax of only $5,187, was classified as “In Need of Improvement”, falling 10% behind the state standard of 85% for language arts literacy and 8% for mathematics.
Sources of the problem
Many blame the property tax situation on towns insisting upon the tradition of self governance nicknamed “home rule”. With so many different municipalities the task of governing can pose immeasurable challenges. This practice entails that each town is responsible for providing separate police, fire departments and public work crews. Governing in this way becomes problematic given the myriad of independent municipalities New Jersey has. For example, Bergen County alone has over 70 municipalities. Not surprisingly, many residents have been frustrated by the resistance of local administrators toward efforts of consolidating services with nearby towns to reduce administrative costs. This idea has been proposed by state government as a remedy to check rising costs. Documented cases of municipal consolidation have shown promise. In 1999 five fire departments merged in Hudson County, coming from the areas of Weehawken, Guttenberg, North Bergen; West New York, and Union City. In the first year alone, this new department saved about $3 million through the elimination of two fire houses, several department chiefs, approximately 30 firefighters and six captains. As a result the average property tax bill in the five towns went down $400.
The Breaking Point
Beginning with the Corzine administration, the problems of property taxes began to attract inquiry at the state level. In Governor Corzine signed the state’s first ever property tax cap of 4%. The administration also began to put pressure on local towns to consolidate or else face a cutoff in state aid. Upon winning the 2009 New Jersey gubernatorial race Chris Christie promised to make property tax reform a centerpiece of his agenda as Governor. Governor Christie initially proposed a cap of 2.5%. All towns would be allowed to vote to exceed the cap, with a 60% margin for approval. After Senate President Steve Sweeney proposed a 2.9% cap, a compromise was reached and the cap was lowered to 2.0%, with many loopholes removed. However, the cap made exceptions, without voter approval, to debt payments, as well as pension and health insurance costs, increased school enrollments and states of emergency. The governor also proposed a 33 item legislative “tool kit” to serve as a guideline for municipalities working to stay under the cap. At the same time the cap was passed, the Governor porposed steep cuts in state aid to education, slashing spending by some $800 million. These cuts included municipal reductions, privatization in government functions and aid to public colleges. These proposals followed the Governors previous reduction of $425 million for the prior fiscal year.
Sectors facing cutbacks
Skeptics wonder whether property taxes will not continue a steady increase due to the recent proposals by the state. These views are concomitant with concerns that more demands will be made on municipal governments with lesser resources. According to Ben Dworkin, an adjunct professor and director of the Rebovich Institute of New Jersey Politics at Rider University, the cutbacks in state funding are going to present significant challenges for local government. According to Dworkin, “Even if the Governor’s entire tool kit is passed, there will be immediate cutbacks in both services and personnel that will be necessary. The tool kit involves important, but long term savings” Municipal governments are likely to see considerable layoffs with cutbacks of this ilk being apportioned. An analysis of data for the Fair Haven budget in Monmouth County shows that most of municipal spending is dedicated to salary, police, and Department of Public Works. For police alone, salaries and wages made up more than $1,308,212. Salaries for public works, such as street and road maintenance made up more than $735,000. According to Dworkin, “Nobody wants to layoff a public employee, but that’s where the money is.”
Past Efforts at Reform
Regardless of whether the current ideas for property tax reform are successful, they are the most significant proposals made to date. Prior to the events of the past several years, the last significant efforts for property tax reform took place in the 1970s during the administration of Governor Cahill. In Robinson v. Cahill the Supreme Court ruled that overreliance on the property tax was inequitable, and therefore an alternative source of revenue needed to be developed. These efforts resulted in the passage of the state’s first income tax during the administration of Governor Byrne. In order to attract positive voter sentiment for the proposal, the proposal contained a provision that dedicated income tax revenues towards property tax relief. Property taxes continued to be an issue and the state implemented a series of relief programs, including the Homestead Rebate, the Veterans Senior Citizens and Disabled Citizens Property Tax Deductions, NJ-Saver, and Senior Freeze. In the 1990s legislators began to focus on the impact unfunded state mandates have on property taxes. Such programs inquired local municipal governments to exact revenue to fund programs and services imposed by the state. Upon voter approval of the amendment proposed by then Senate President Donald DiFranchesco, and Assembly Speaker Chuck Haytaian the legislature passed a bill that repealed pre-existing mandates. At the time it was thought that savings from the repeal could total up to $25 million. Though the amendment was effective, New Jersey continued to be burdened by property taxes.
Study database on Tax Foundation website http://www.taxfoundation.org/publications/show/22320.html
Fleisher, Lisa, “Gov. Chris Christie pushes for property tax cap in N.J. Constitution”NJ.com 17 May 2010 Web Dec 9 2010
Property Tax Information can be viewed on Division of Local Government Services Web Site <http://www.nj.gov/dca/lgs/taxes/taxmenu.shtml>
Statehouse Bureau Staff “Chris Christie plans to cut school aid by $800 million”NJ.com (2010 15 March) Retrived December 11 2010
Melli, Juan “Corzine Signs Property Tax Legislation” NJ.com 2007 April 3 Web December 13 2010 from Blue Jersey.com. <http://www.bluejersey.com/showDiary.do?diaryId=4430>
“N.J. school report card: Spending per pupil increases”, 2010 February 9 Web December 15 2010 from Nj.com <http://www.nj.com/news/index.ssf/2010/02/nj_school_report_card_annual.html>
New Jersey League of Municipality Property Tax Information http://www.njslom.org/property-tax-history/index.html
2009 No Child Left Behind Report <http://education.state.nj.us/rc/nclb09/nclb.html>