Proposed Cap on Tax Increases Spurs Debate on Services

Lee Keough | June 16, 2010
Proponents say a 2.5 percent limit on property tax increases is vital to the state's fiscal health; others fear impact on schools, police and fire

Will an amendment to the state’s constitution limiting local tax increases to 2.5 percent a year solve New Jersey’s seemingly intractable property tax problem without negatively impacting services such as schools, police and fire?

That’s the question on many people’s minds as Gov. Chris Christie travels the state promoting just such a proposal. The administration has lined up 201 local mayors behind it and even released a video of Linden Mayor Richard J. Gerbounka declaring such a cap would be the only way to address the issue of his blue-collar city’s declining tax base and the resulting property taxes hikes that are strangling the city.

Meanwhile, dueling reports examining the effect of Massachusetts’s Proposition 2.5 — on which the governor is modeling his proposal — are being circulated. Proposition 2.5 was adopted in 1980 and limits local tax levies to 2.5 percent a year unless voters pass a referendum allowing a greater increase.

The first report, from the Manhattan Institute a New York-based conservative think tank, points to Massachusetts’s well-regarded school system and results on the National Assessment of Educational Progress (NAEP) as evidence that taxes can be tamped down without destroying services. For the most part, Massachusetts has outperformed New Jersey on the NAEP since 1992.

“The Bay State has shown that it is not necessary to be the leader in school spending to be the national leader in school outcomes,” says the report’s author, Josh Barro.

The report also cited statistics showing real-dollar growth in property taxes between 1980 and 2007 was just 22 percent in Massachusetts, while it was 102 percent in New Jersey with an average of 68 percent nationwide.

In response, the Center on Budget and Policy Priorities, a left-leaning Washington-based think tank, put out a report showing that a cap is likely to reduce essential educational programs and services while negatively impact other public services, as it has in Massachusetts.

The first argument in the Center’s report is that Massachusetts’s success in education has more to do with a set of state-level education policies than with efficiencies due to a property tax cap. What’s more, it argues that lack of regionalization and the “extremely high number of school districts and municipalities” is responsible for New Jersey’s inefficiencies.

The report says the biggest difference in education spending between the two states revolves around how special education spending is treated. In New Jersey, more students are classified as needing special education services, which tend to be delivered through expensive private schools because so many districts in New Jersey find it difficult to fund a full range of services. That won’t change because of a property tax cap, since special education is federally mandated.

The Center’s report does note that New Jersey has smaller class sizes, as a rule, and that it also pays more for school administration and operations and maintenance. The pay scale of teachers is relatively equal — averaging $62,769 in Massachusetts versus $63,018 in New Jersey.

The Center’s second argument with the Manhattan Institute is that the latter’s report focused only on education costs. It points to Massachusetts having eliminated police and fire positions and stations; cut back on facilities for senior citizens and recreation; closed public libraries; and reduced road maintenance. With a cap, these same services will be at risk in New Jersey, it says.

The debate will continue through much of the summer, as the legislature must determine whether to put the measure on the ballot for November. The Democrats have yet to take a position on the issue.