Explainer: Why Property Taxes Are So High . . . and Reform Efforts Fall Short
Abundance of local governments and school districts, state mandates, and relatively little state funding are among biggest factors
It is the perennial complaint of New Jersey homeowners: Property taxes are too high.
Thedates back to colonial times, with a half penny per acre tax on property first imposed in 1670, according to the New Jersey State League of Municipalities' “A Short History of the New Jersey Property Tax and the Long Road to Reform.”
Commissions have studied the issue for decades and made recommendations that largely were ignored. Most of the efforts made by lawmakers and governors have had little effect on the amount New Jerseyans pay -- $8,161 last year. And then there's the matter of rebates.
New Jersey's highest-in-the-nation property taxes are a problem with no easy solution.
Why are taxes so high?
New Jersey relies heavily on the property tax to fund local governments and schools. The tax pays for municipal services -- police, roads and the like. It pays for local and, sometimes, regional public schools. And it pays for county government -- roads, parks, elections and more. Depending on the municipality, there may also be open space, library or fire service taxes.
Last year, local governments levied more than $27 billion in local property taxes. The bill is so high, in part, because New Jersey is a high-cost state.
The state has 565 separate municipalities and even more school districts, nearly all of them led by their own administrators and support staff – who are often doing similar jobs in very close proximity. Oofficials say state mandates add to municipal costs, as well.
At the same time, exclusive of federal aid, the amount of assistance the state gave to municipalities to defray their expenses represented just 15 percent of total spending,. What’s more, only about one-third of school spending is covered by state aid.
According to the Tax Foundation, a Washington, DC-based think tank focused on tax policy, New Jersey raises the second highest percentage of state and local taxes from the property tax – representing 48 percent of all taxes. Only New Hampshire raises a higher percentage -- 63 percent -- but the state has no sales tax. The national average is 33 percent.
How to fix this?
What’s the solution? Some argue that the state should pay a greater share of local costs, shifting the burden off homeowners and onto other taxes.
The state has made numerous attempts at encouraging -- but not forcing -- municipalities and schools to regionalize in order to reduce staff and redundancies, and save money.
A constitutional amendment requires that new state mandates should come with additional funds to carry them out -- but there are exceptions and a state council has the final say. Spending caps have met with varying degrees of success.
When New Jersey enacted its first income tax in 1976, the Legislature also enacted the property tax rebate program. It is intended to be a way to deliver tax relief directly to taxpayers. The program has been popular with voters who get receive a check in the mail from the state each year. The amounts and who is eligible have changed over time.
A 2006 special legislative session called by Gov. Jon Corzine resulted in a number of reforms, including the elimination of non-operating school districts, greater state control over school spending, additional aid to efficient municipalities, a 4 percent local property tax levy cap and a more generous rebate program. Under that revamped rebate program, homeowners with less than $100,000 in income got rebates of more than $1,100, with seniors getting checks averaging $1,250. The average Homestead Rebate was $1,037 in 2009.
But the legislative session did not produce a way to generate he additional revenues needed to pay for the changes.
What it looks like today
Gov. Christie took some similar steps, and some different steps, in attempting to tackle the property tax problem. He proposed a 33-bill "tool kit" of, not all of which were enacted.
Christie imposed a cap on school superintendent salaries, an action some legislators are trying to repeal because it has driven some school administrators out of state. The governor also lowered the property tax cap to 2 percent, although some exemptions have let to slightly higher tax increases -- property taxes statewide rose 2.2 percent from 2013 to 2014.
Christie changed the rebate to a credit that is automatically deducted from homeowners' bills. But he also drastically cut the program. Today's Homestead Benefit Program provides a tax reduction only to homeowners with incomes of up to $75,000, or seniors and the disabled with up to $150,000 in income. He has also based payments on the overall health of the state budget, delaying the benefit three times in his five years as governor. The last credits were given in August 2013. Last year, no one in New Jersey got a tax credit -- those credits are delayed until May.
This has effectively meant larger property tax increases. Without an estimated average rebate of $474 in 2014, the average change in property taxes from 2013 was 8.6 percent, because of last year’s yet-to-be-paid rebate/credit.
The question of property tax increases continues to be politically charged. Proof: After an analysis of the change in property taxes showed that net taxes rose more during the Christie years because of his drastic cuts in the rebate/benefit program, the state Division of Local Government Services stopped reporting average benefit data and even removed several prior years of data -- including figures from the final Corzine years -- from its website.