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Can Guadagno’s ‘Circuit Breaker’ Short-Circuit Rising Property Taxes?

The lieutenant governor’s plan faces two immediate hurdles: inherent complexity and voter skepticism

Kim Guadagno
Lt. Gov. Kim Guadagno

Kim Guadagno, the state’s lieutenant governor and a leading Republican gubernatorial candidate, has come up with a novel “circuit-breaker” approach to providing New Jersey residents with relief from the state’s ever-rising property tax bills. But her proposal has also met with skepticism and claims of irresponsibility, since she hasn’t identified a sure source of revenue to pay for it.

While Guadagno credits a 2 percent cap put in place by Gov. Chris Christie for slowing the growth of the average New Jerseyan’s property tax bills, her proposed circuit-breaker would go a step further. It would use state dollars to help offset those bills for many low- and middle-income homeowners.

Just as a circuit breaker is used to prevent an electrical system from overloading, Guadagno’s proposal would see the state pick up the slack and cover the remainder of homeowners’ school-tax bill once it grows to more than 5 percent of annual income. The plan could save a New Jersey family making the annual median income of $72,000 about $895.

Guadagno estimates the cost of the program to be $1.5 billion, and she believes savings from a strict government audit, projected revenue growth, and a repurposing of current property-tax relief dollars from programs like Homestead and Senior Freeze will cover much of the bill. The new tax credit would also be capped at $3,000, a limit Guadagno says will ensure the relief only goes to those who need it most.

“This is an immediate fix that I think everybody can wrap their arms around quickly,” Guadagno said in an interview with NJ Spotlight.

Property taxes on the rise

Guadagno’s proposal comes as New Jersey property taxes remain on the rise, with the average bill increasing by nearly $200 in 2016, up to a record high of $8,549. She’s also putting it forward as other candidates from both parties have started floating their own ideas to address the property-tax issue, including by boosting funding for existing state relief programs and redoing or better funding the state school-aid formula.

Though it’s sure to get voters’ attention, Guadagno’s plan could also present some challenges if she gets the chance to implement it. On the technical side, it will involve multiple state departments and local governments having to track and share complicated tax data, creating a new headache for tax administrators. And it could also bring with it some political risk, said Patrick Murray, director of the Monmouth University Polling Institute. That’s because voters here have heard gubernatorial candidates make a number of big promises on property-tax relief before, leading to a high level of skepticism.

“It will be interesting to see if she can break through that skepticism,” Murray said. “There is a potential that this could actually backfire on Guadagno.”

In New Jersey, property taxes are levied and collected at the local level to help fund municipal and county governments, as well as public schools. And school taxes typically make up the largest portion of a homeowner’s property-tax bill. For example, the total property-tax levy in New Jersey last year was $28.3 billion, according to data collected by the state, with $14.8 billion going to fund schools. Another $8.4 million went to municipal governments, and $5.1 billion to county governments.

Powerful driver of tax bills

A big driver of property tax bills in New Jersey is costs tied to the employees of the local governments and school districts, including wages and healthcare, said Marc Pfeiffer, assistant director of the Bloustein Local Government Research Center at Rutgers University and an expert on New Jersey property-tax matters. Those costs typically rise each year, and they are ultimately covered largely by the property taxpayer.

“That’s part of the problem we’re dealing with,” he said.

After property-tax bills rose by rates as a high as 7 percent annually a decade ago, Christie convinced lawmakers in 2010 to pass legislation that now prevents local governments and school boards from increasing the property-tax levy by more than 2 percent annually, with some exceptions. Changes to employee health benefits and the interest-arbitration process for police officers and firefighters have also helped to limit the growth in bills, which have ranged from 1.3 percent in 2013 to 2.3 percent last year.

But funding for direct property-tax relief programs like the state’s Homestead benefit has also suffered under the Christie administration in recent years. Ten years ago, the direct-relief programs received more than $3 billion from the state budget, but Christie’s proposed spending plan for the 2018 fiscal year calls for $1 billion, or less than 3 percent of total spending.

Guadagno — who has served alongside Christie as lieutenant governor since he took office in early 2010 — said her circuit-breaker plan would immediately address an affordability issue that remains in New Jersey, one that has been forcing people to leave, including seniors who have been here for decades or millennials who are just starting out.

“It’s designed to help people immediately,” said Guadagno, who also sees school-funding changes and limits on employee compensation for unused sick and vacation time as part of the solution.

Guadagno pushes back

She also pushed back against the notion that her proposal would effectively be another attempt to shift a bigger portion of school taxes onto the state budget, which gets most of its revenue from the income, sales, and corporate taxes.

“It’s not a cost-shift because we’re going to have to cut $1.5 billion from somewhere,” Guadagno said.

But that lack of a clear source of funding to pay for the program has been seized upon by Guadagno’s top rival in the GOP primary, state Assemblyman Jack Ciattarelli (R-Somerset). Relying on revenue to materialize through annual growth and savings discovered in future audits is “the height of irresponsibility,” Ciattarelli said in an interview with NJ Spotlight.

His own plan to address property taxes relies heavily on redoing the state’s approach to funding local schools. Right now, the state is spending roughly $9 billion on aid to school districts, including direct aid and other allotments. But the current approach has left schools in many communities underfunded, according to the state’s own school-aid law, while at the same time many other districts have been getting more than they should be receiving under the law. Places like Jersey City have also unfairly benefitted from tax abatements and are being rewarded when they intentionally siphon revenue away from their school systems, Ciattarelli said.

“Distribute (school aid) in a much more equitable way,” Ciattarelli said. “That’s the way to solve the property tax crisis.”

“It does not require more funding,” he said.

But on the Democratic side of the primary contest, several candidates are calling for the current formula to be left in place, and for it to be fully funded as part of their property-tax relief platforms. Under Christie, the school-aid law has been underfunded by an estimated $1 billion to $2 billion annually.

Picking up the slack

“Year after year, as Gov. Christie has underfunded education, our school districts have had to pick up the slack,” said state Assemblyman John Wisniewski in an address given on the same day Christie rolled out his fiscal year 2018 spending plan.

“The fastest way to immediately provide property tax relief in New Jersey is to fully fund our public schools,” said Wisniewski (D-Middlesex).

Other Democratic candidates, including Phil Murphy, a former U.S. ambassador to Germany; Jim Johnson, a former U.S. Treasury official from Montclair; and state Sen. Ray Lesniak (D-Union), have also called for full funding of the school-aid law. Murphy and Lesniak would also increase funding for existing relief programs, with Lesniak calling for a doubling of the current funding for the Homestead program. That would cost about $325 million, something Lesniak said could be covered by closing a corporate tax-filing loophole that allows multistate companies to shift profits to states with lower corporate tax rates.

But Murray, the Monmouth University pollster, said elected officials like Guadagno could have a hard time convincing voters that they can make a difference on property taxes due to the skepticism that’s been fueled in the past by politicians making similar promises.

For example, in 2005 GOP gubernatorial candidate Doug Forrester promised a “30 in 3” plan that guaranteed voters they would see a 30 percent reduction in their tax bill — with the state picking up the balance — by his third year in office. Jon Corzine, the Democrat in that year’s gubernatorial contest, countered with a similar plan that promised property-tax rebates would increase by 40 percent in four years.

Corzine went on to win the election, and rebates were eventually increased, but the changes ultimately weren’t sustainable. Nowadays, there’s a risk and a reward for candidates when they float ambitious property tax relief plans, said Murray, who’s tracked voter opinions on issues like property taxes for years.

“The reward is it’s still the No. 1 issue in New Jersey,” Murray said. “(Property taxes) are high and they are inequitable so people can point to them as the thing that is the canary in the coal mine for why people are leaving New Jersey.”

But after that 2005 election, he said many voters “don’t believe you if you say you’re going to fix it, particularly if you’ve been on the inside.”

“That’s the risk. Getting over that skepticism is not an easy task,” he said.

Read more in Budget, Elections 2017
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