New Jersey Lawmakers Aim to Cut Property Taxes

Published February 1, 2007

After three months of extensive and intensive study, the New Jersey Legislature has begun considering 98 policy initiatives aimed at reducing the state’s reliance on local property taxes.

The initiatives have been greeted with skepticism and ridicule by critics who note the proposed measures don’t address high spending. To veteran State House observers, the proposal, announced in November, resembles previous tax relief programs that proved short-lived and ineffective.

“A slipshod reform effort,” opined the Star-Ledger, New Jersey’s largest daily newspaper. The Express-Times editorialized, “Once again, the tax-reform momentum is sliding in the wrong direction–higher fees, more spending, and an unwillingness to address the size of government.”

Who Gets Break?

Editorial writers were reacting primarily to the central recommendation, which calls for a 20 percent reduction in the local property tax paid by homeowners.

It is not clear which homeowners would qualify for the program, and legislative leaders did not specify the proposal’s cost or identify the revenue sources to pay for it.

To construct a more substantial and durable property tax relief program and reduce the pressures that cause local spending to increase, the legislature in 2006 established four bicameral and bipartisan committees to examine such issues as consolidating local jurisdictions, regionalizing local services, taxing commercial property at a higher rate than residential property, restructuring public employee pension and medical benefits, and writing a new school funding formula.

Funding Shortfall?

In November, the four committees issued reports which recommended, among other things:

  • increase the pension retirement age for government workers from 55 to 62;
  • require public employees to contribute to their medical benefit premiums;
  • move school board elections from April to November;
  • impose county-based management on some school district administrative functions; and
  • cap property tax increases for education spending.

While many of the recommendations are far-reaching and challenge powerful special interests, they appear to fall short of paying for the expensive direct property tax relief proposal.

Tom Moran, a respected Star-Ledger columnist, wrote on November 17, “The 98 reforms in the Democratic package … will not finance the 20 percent credit Democrats are promising. If you ask 10 Democrats where they hope to get that money, they give you 10 different answers. Ask [Assembly Speaker Joe] Roberts (D), and he acts like a game show host with a hidden price behind a curtain.”

Another $1 Billion to Schools?

Jerry Cantrell, president of the Silver Brigade, a grassroots taxpayer advocacy group, noted, “The school funding committee is writing a new school funding formula that will give maybe $1 billion more in state aid to school districts. Due to the lack of tax dollars, the current formula is not fully funded. How do legislators expect to pay for a more expensive aid formula when they haven’t funded the existing one?”

Cantrell noted that in July lawmakers increased the sales tax from 6 to 7 percent and earmarked one-half of the increase to be used for property tax relief.

“Even before they had devised the 20 percent property tax relief program, lawmakers were raising taxes to pay for it,” Cantrell said. “We should expect more of the same.”

The property tax relief proposal and related recommendations aimed at reducing local government spending were prompted by the public’s demand for action. Surveys consistently show property taxes are New Jersey voters’ number one concern.

Nation’s Highest Tax Burden

Garden State residents pay the highest per-capita property taxes in the country, according to the Washington, DC-based Tax Foundation. The Star-Ledger calculated the average 2005 property tax bill in New Jersey was more than $5,800.

New Jersey’s high property taxes result primarily from two facts.

First, the property tax is the only broad-based tax available to counties, municipalities, and school districts to fund the services they provide.

Second, local government spending is high. New Jersey’s per-pupil school spending may be the highest of the 50 states, at $12,981 a year in 2004, according to the latest Census Bureau report on public school funding. The heavy reliance on the property tax coupled with high spending means New Jersey residents shoulder heavy property tax burdens.

Prior Failures

Previous attempts at providing property tax relief did not actually reduce tax bills but instead provided only limited, temporary rebates.

When tax revenues were available, the state government sent checks to selected residential property taxpayers. Sometimes these rebate programs were funded by raising other taxes. In good economic times, the programs were expanded. In bad times, they were reduced or eliminated.

Equally important, the programs did not reduce the growth in property tax increases. From 2002 to 2005, the average property tax bill increased by 29 percent, according to a Star-Ledger analysis.

Gregg Edwards ([email protected]) is president of the Center for Policy Research of New Jersey.