During New Jersey’s legislative debate on property tax reform, politicians have avoided mentioning certain subjects. I hope they aren’t afraid to inform voters and taxpayers. We aren’t delicate, we can handle the truth, and we shouldn’t be shielded. Involving the public openly and broadly will make reform more achievable. These "top ten" underreported issues are being discussed on www.ValueNJ.org.
1. New Jersey’s total taxes are average, not high. New Jersey has high property taxes, but relatively low sales and income taxes. New Jersey’s state and local taxes total about 8.6% of income per capita, according to US Census data. This includes state income tax, sales tax, and local property tax, and compares favorably to the 50-state average, 8.4%. New York has the highest rate, 11.0%. Even after taxes and cost of living, New Jersey is one of the wealthiest states, per capita.
2. Property should be taxed, fairly. Income and property both are forms of wealth. Taxes shape financial decisions. If property taxes are too high, people are less able to buy homes, gaining less stake in their community. But if they are too low, wealth gravitates toward property as a tax shelter, and the resulting higher tax on income is a burden on gainful toil and ambition. In terms of land use, low property tax rates promote inefficiency and sprawl.
3. A property tax deferral program would help New Jersey’s seniors. Twenty-five states let qualifying homeÂowners defer property tax until they sell their home, at which time they pay the deferred taxes plus interest, from the proceeds. Seniors can enjoy their homes, by retaining use of their cash, rather than feeling forced to sell. Affordability is uncoupled from income, so the tax is no longer regressive. Deferral can be combined with other forms of tax relief.
A self-supporting property tax deferral program has zero cost to the state, municipalities, and taxpayers. The state acts as bundler, not borrower. Bonds secured on the properties, for the deferral amounts, compensate municipalities for deferred revenue. Home sellers repay in full their deferred principal plus interest including low administrative costs.
4. New Jersey penalizes frugality. Many school districts provide good value – excellent education at below-average cost. However, New Jersey caps each school district’s annual budget growth at a fixed percentage, pegged to inflation. As a result, a 4% cap, for example, permits a $360/student increase in a frugal district, but $560 in a less-frugal district.
Meanwhile, real costs outpace inflation; and typically 90%+ of spending is mandated or nondiscretionary. These factors disproportionately hurt frugal districts, forcing them to curtail educational programs; wasteful districts can cut noneducational fat.
Instead, why not eliminate the frugality penalty by spreading the spending growth equally per student statewide? The same 4% would yield a $480/student cap for all districts. New Jersey can treat all property taxes this way; equal-dollar caps per state resident would pinch overspending localities more than underspenders.
5. Consolidating school districts wouldn’t save money. New Jersey’s larger school districts have more layers of bureaucracy, not fewer administrators. A Maryland expert testified that his state’s consolidated districts have lower costs only because of larger school buildings. Since New Jersey cannot spend hundreds of billions of dollars to rebuild schools, it cannot reach the touted efficiencies of district consolidation.
Instead, New Jersey can consolidate services. Agencies like Pennsylvania’s regional Intermediate Units can market services to school districts: special education, legal, technology, family support, finance, grant writing, adult education, personnel administration, curriculum, and staff training. Districts buy the low-cost services voluntarily.
6. Wealthy communities have lower property tax rates. In general, towns with low property values must set higher rates to obtain the same revenue as towns with high property values. For example, the relatively poor city of Trenton has a tax rate of 1.83Â¢ per dollar of equalized property value, while the relatively wealthy city of Summit has 0.33Â¢. This structure is regressive.
Instead, New Jersey can partially replace local property taxes with a statewide uniform property tax rate, as in Michigan, Vermont, Alabama, and New Hampshire. Because education for all is a constitutional mandate for the state, it would be appropriate and perhaps fairer for New Jersey to fund schools via state taxes, rather than local taxes.
The uniform rate can be set to provide enough funding for thorough education, using an accurate model of the spending needed in each district. A rate of 1.8Â¢ per dollar of equalized property value could replace all local school property taxes in New Jersey. The tax can still be collected locally. School districts should retain control of the spending, and keep the right to supplement the funds through local property tax, subject to local voter approval.
7. The New Jersey Supreme Court left one escape from its Abbott spending mandate. In a series of rulings from 1985 to 2003 on the state’s constitutional and moral obligation to educate all students, the court ordered the state to spend more in the Abbott school districts. The state now gives thousands of extra dollars per student in those districts, which house some of the poorest and neediest children, to improve educational outcomes (higher test scores meeting state standards).
The only escape is success. Educators in New Jersey must continue to find, invent, try, measure, and spread programs that improve educational outcomes in the low-performing school districts. Legislators and all of us in New Jersey have an obligation to actively help them break and reverse the cycle of educational failure.
Most New Jersey school districts spend in the normal range. Substantial reductions in school spending are unrealistic until the educational needs of all students are being met. The real question is whether we want to drag the process on indefinitely, through continued inadequate funding of schools — or to eventually overtake the Abbott burden by embracing it.
8. "Teacher salary" doesn’t mean "teacher salary." Whether or not legislators realize it, the unspoken debate is about educational quality, not taxes, salaries, or benefits. Any given level of compensation attracts teachers of a corresponding level of quality. Someone who says “teachers are overpaid” actually means “reduce teacher quality.” The right question for New Jersey legislators and residents to ask is whether quality of teaching is too high or too low. The debate should be about educational quality.
9. New Jersey can give school districts their share of “interim” property tax. This is the unanticipated tax revenue from property improvements completed during the year after annual property tax rates are set. It is now delivered to municipalities. Yet the school district, county, and municipal rates are used. Municipalities receive windfalls – totaling over $200 million per year – while school districts are hurt: voters must approve higher school budgets, thus decreasing the chances of approval.
10. A flaw in the New Jersey constitution underlies the state’s problems in taxation and spending. The legislature gives voice to forty local legislative districts, but not to the state as a whole. Each legislative district elects two Assembly members and one Senator, all of whom answer only to the voters of their district. As a result, New Jersey’s budgets and laws are prey to short-sighted and narrow local interests. Only the Governor is responsible to all voters in the state.