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Opinion: Focusing Strictly On Education To Cure NJ's Soaring Property Taxes Contains Huge Risks

The property tax burden needs to be reduced but not by simplistic solutions that concentrate on one part of the problem.

New Jersey’s property tax burden is a massive barrier to growth that borders on being confiscatory. But the discussion about changing the tax is filled with political bluster without much economic thinking.

Before any solutions are proposed, it would be nice if we knew why New Jersey’s property taxes are so high compared with other states. If you don’t know the root causes of the high taxes, solutions become guesses not answers. High property taxes result from spending decisions and thus are a symptom not the illness.

Currently, education, which makes up so much of the tax bill, bears the largest part of the blame for high property taxes. But saying that education costs are too high is meaningless. We don’t even know what is meant by “too high.” Too high compared with returns on the investment in education or other states’ spending levels? Do we want to look like low-spending, low-attainment states? What is the relationship between spending and quality and how much is New Jersey out of line?

Spending levels are like so many other things: Where you sit determines where you stand. Many people with schoolchildren believe that no amount of spending on education is too much. In contrast, those families without students frequently feel that anything but minimal spending is too much. When times are good, we like to lavish funds on education. When we don’t have the money, it’s time to cut.

Worse, we don’t know why costs are too high. Do we get a fair return for expenditures and if not why and where? Are high costs due to teacher salaries, pensions, union rules, administrative expenses, and/or inefficient sizes of school districts? Can anyone say that state-mandated expenditures are not excessive, especially in comparison with other states? Has New Jersey funded its responsibilities for federal and state mandates at levels comparable with other states or called for by law?

Until we know the real reasons that education costs are too high, “solutions” could turn out to be no more than short-term palliatives. They might exacerbate the problem instead of reducing costs and raising educational performance. I have not seen a cost-benefit analysis of any suggested solutions. Those of us who are researchers know that just because a program sounds good doesn’t mean it will work the way it sounds in the real world.

An example of a potentially disruptive solution is the popular idea of ranking workers by performance and then providing merit pay. On the surface, that idea appears to be a totally logical approach -- especially since it has been used in the private sector. However, recent experience indicates that this may be exactly the wrong way to go.

Companies have found that the forced ranking of performance for merit and termination decisions is a poor way to create cohesiveness and inspire imagination, since it discourages teamwork. The percent of so-called high-performing firms using this reward/penalty system has dropped by 70 percent in two years.

Improving educational attainment while controlling costs requires more than a one-size-fits-all approach that the private sector is abandoning. It requires multifaceted solutions that few are willing to even talk about because complexity is not easy to explain. Simplicity, though, is not necessarily the best way to go.

I am not saying that education costs are not a cause or even the major reason for high property taxes. I am not arguing that we are efficiently and effectively using school tax revenues or that there are no failing schools. I am not saying a restructuring of the education system, especially in those places where attainment does not match expenditures, would not be beneficial.

I am saying that we don’t know why our schools are failing. Thus, we don’t even know what to correct. I am saying that we don’t know what is the optimal level of student spending for different types of school populations. I am saying we don’t know the benefits from alternative education models. I am saying that one-size-fits-all mandates may create huge costs and minimal returns, and we need to know what the benefits would be to having flexible rather than restrictive state and federal mandates. And most importantly, I am saying we should not implement something because it sounds good.

Education is the key to world economic competitiveness and we could sacrifice significant future economic growth if we choose the wrong method of controlling public school costs. The laser-like focus on education contains not just potentially major cost-control benefits but also huge risks to the economy. Therefore, the property tax debate has to move past just blaming and then randomly cutting education spending and start adding other approaches into the mix.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. In 2011, he received the National Association for Business Economics Outlook Award as the top economic forecaster. His email address is Joel L. Naroff.

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