New Jersey, Property Tax, and a Way Out

Once again, in 2006, property taxes are at the forefront of political angst and citizen anger in the Garden State [1]. Also jostling for position for the public's attention are schools, sprawl and the sad state of New Jersey's formerly grand cities [2]. We believe these issues are interconnected. How can property tax reform play a major role in addressing these issues?

New Jersey does indeed have high property taxes, when compared to the rest of the nation. Yet, like most property tax intensive states, its economy as a whole is going fairly well.

Reliance ON the property tax is a prime factor in maintaining economic strength in older US states. Although the traditional property tax does cause an insidious drag on economic activity and can be burdensome to those that can least afford it, there is an existing method to transform the property tax into something very different indeed. That's where Land Value Taxation comes in.

Right now, the conventional wisdom says the only issue is the fight to reduce property taxes. The face of this is the angry, retired senior citizen. Unbound by former ties to place and community, they see taxes increasing to pay for schools they don't use. They get angry, and they attend meetings.

Swayed by the voices of seniors -- who both tug at our hearts and who vote -- we try to assuage them, with the assumption that all will benefit. Maybe. Seniors in distress -- often very real distress - are an effective image to portray the property tax as some sort of corrosive evil, never mind that our nation, from its inception, used property tax as the main resource for local tax dollars during its unprecedented climb to prosperity.

Yet, New Jersey has some of the more robust senior citizens property tax relief programs going. Currently, there are substantial tax caps[3] that have significantly cut seniors property taxes. That then begs the question: what about everyone else's taxes? Although the average property tax bill is $6,000[4] annually (local, school, county) the average rebate is about $350.

What Happened?

In a nutshell, New Jersey's problems began just after World War II. The sprawling of suburbs, made possible by cheap land, cheap loans and cheap roads and gas led to loss of investment. The people that moved were the ones that hold cities together: families, workers, and the middle class.

Retail and other commercial support left. Industry closed and left, first to the South, then overseas. Emptied cities meant poor people without jobs, struggling to pay the tax bills previous shared by fellow citizens. New suburbs meant higher and higher taxes to pay for the services demanded by the middle class. When an older suburb became too expensive, those that could moved on, filling up the Garden Sate[5].

There is not enough space here to trace the web of band-aids, dead ends and stopgaps that block the door to the way out of New Jersey's tax and other troubles.

Past Efforts

There have been attempts in the past to get a handle on the tax issues facing New Jersey. The 1972 Cahill Commission made over 100 recommendations, including a state-wide property tax to replace local education funding, state assessment bureaus, and a land value tax[6].

The Glaser Commission of 1988 again hammered home the reality that assessments have to be addressed; they also urged state control of assessments. For example, in Passaic County the city of Paterson has not re-assessed since the early 1970s. This results in Paterson having a tax rate of 24.99 mills with the next highest jurisdiction (North Haledon borough) at 5.16 mills[7]. In reality, the effective tax rates are similar, but a shortsighted city administration doesn't see the terrible image and publicity that such a high tax rate communicates. The Glaser commission also made a pitch -- a complicated one -- for differential tax rates among land, old construction, and new construction.

The Whitman Commission of 1998 did not recommend much; much recommends the report. Its stark analysis of the available options muted, for a time, the mad dash to sales and income taxes as a replacement for property taxes. Not only did they acknowledge the danger to the economy with high taxes on labor, commerce, and economic activity, they explained it simply.

"To raise the additional $7 billion required to replace the local school tax solely through the sales tax, which generated $4.75 billion in Fiscal Year 1998, the State would have to increase the tax from 6 cents per dollar to more than 14.5 cents per dollar -- more than double the current sales tax rate.[8]"

As for income taxes: "The state income tax generated $5.59 billion in Fiscal Year 1998. As indicated above, the income tax would have to yield an additional $7 billion per year to compensate fully for the elimination of the local school tax. To reach this increase, the State would have to generate 221 percent of the current amount raised by the income tax. If the rate schedules were simply increased proportionally, the lowest rate would increase from 1.4 percent to 3.09 percent, while the top rate would increase from 6.37 percent to 14.08 percent.[9]"

The report also cautioned against over-enthusiastic acceptance of "circuit breakers" to provide tax relief for seniors at the expense of young home owning families and renters.

In 1999 and 2000, New Jersey's Local Government Committee of the Assembly attempted to permit land value taxation for New Jersey's cities. Political opposition was narrow but powerful[10], led by developers who depend on tax abatements for their own projects.

Current Efforts Have Land Value Tax in the Mix

Now, the Regional Plan Association, a highly respected research foundation in the New York Metro area has delved deeply in the various options for tax reform in New Jersey[11]. LVT is given its due, and the subject has been broached at the state level.

RPA's report notes that LVT rates highly in such factors as progressivity, stability, and accordance with the State Plan on land use and smart growth.

How far will LVT get this time? It's hard to say. The usual suspects, developers who depend on private land banking and tax breaks to do their work will oppose. The New Jersey Sierra Club inexplicably opposes LVT, support by the National Sierra Club, other anti-sprawl, Green Parties, and environmental groups not withstanding[12]. Yet, the new Newark reform team led by Corey Booker seems to have at least some interest, and politics dictate they'll get at least some of what they want to turn around that great city.

Why NewJerseyLandValueTax.org?

Misconceptions about LVT are rife in New Jersey. Interests pushing for one size fit all solutions mislead the public into believing that the solution is simple. LVT, while easy to implement and understand, affects different types of towns, properties and land uses in different ways. The Search and Query functions can let the casual user observe how LVT works.