Three New Jersey municipalities where property assessments have fallen far below market values are facing a forced revaluation by the state, something that hasn’t happened in New Jersey in at least 40 years.
The state Division of Taxation announced last week that it is sending letters to officials in Dunellen, Elizabeth and Jersey City to warn that assessments of properties within the borders of those three communities are dramatically outdated, citing state law and a clause in New Jersey’s constitution that gives the division the authority to order new tax assessments.
The division also signaled the probe is likely the first stage of a broader statewide effort to get municipal property assessments more in line with market values. More than 30 New Jersey communities have not conducted a revaluation in at least 25 years, state officials said.
Properties in New Jersey are supposed to be reassessed periodically to ensure a community’s property tax burden is spread out evenly and fairly among residential and commercial properties based on current market values. But revaluations, which are performed at the municipal level, are typically controversial in New Jersey because they can result in property tax increases for some homeowners.
Since New Jersey residents already pay the highest property tax bills in the nation — averaging $8,161 last year with little hope for relief – there’s often little incentive for local officials to order a revaluation. And they also typically mean hiring an outside consulting firm to review properties, adding another expense to municipal budgets already strained by a 2 percent cap on property tax increases.
For example, it took a lawsuit filed by former New York Giants wide receiver Amani Toomer and three other residents of newer, waterfront communities in Weehawken to bring on the township’s first revaluation in more than two decades.
Toomer and the other plaintiffs argued that due to Weehawken’s outdated assessments they were footing a disproportionate share of the property tax burden compared to homeowners in older sections of the township.
A tax court judge agreed earlier this year, ordering a revaluation be conducted in Weehawken by 2017.
But there are 32 municipalities in New Jersey where assessments haven’t been updated in at least 25 years, with the biggest problems clustered in three counties, Hudson, Middlesex and Union, state officials said.
It’s been nearly 40 years since property assessments were updated in Elizabeth, leaving properties assessed at only 13.4 percent of their actual market value, state officials said. In Jersey City, the last reassessment was conducted 27 years ago and properties are assessed at 27.63 percent of market value. The last revaluation in Dunellen was conducted 33 years ago and properties are assessed at an estimated 24.61 percent of market value, the officials said.
“Based on this and other available data, the Division will conduct an investigation and convene public hearings for taxpayers so it can determine whether to order the three municipalities to conduct a revaluation,” said Dennis Shilling, acting director of the Division of Taxation, which is part of the state Department of Treasury.
Officials from Dunellen and Elizabeth did not return phone messages seeking comment on the state’s possible intervention on Friday. A spokesman for Jersey City declined comment.
[related]Typically, the Board of Taxation in each of the state’s 21 counties will step in and order revaluations when municipalities begin to see their property assessments fall to levels that are well below market value. But in the cases of Hudson, Middlesex and Union counties that intervention hasn’t occurred.
Joseph Perone, a spokesman for the Department of Treasury, said it’s been four decades since the last time the state had to get directly involved in ordering a revaluation.
“This action is being taken in the interests of tax fairness because some residents are paying more than their neighbors and some residents are not paying their fair share of the tax burden,” he said.
Revaluations, according to the Division of Taxation, typically involve both exterior and interior inspections of properties.
And just because reassessments result in increased property valuations across a municipality, it doesn’t necessarily mean property taxes will automatically go up for everyone. That typically depends on a number of factors, including recent tax appeals and whether local officials maintain flat spending, which could cause property tax rates to drop at roughly the same rate that property values increase for many homeowners.
The old rule of thumb in New Jersey is that revaluations result in increases for about a third of the property owners, decreases for another third, and no change at all for the rest.
Marc Pfeiffer, assistant director of the Bloustein Local Government Research Center at Rutgers University and an expert on New Jersey property tax matters, said state government can usually push county tax boards to act when assessments fall too far below market values.
“This clearly is an unusual set of circumstances,” he said. “The state rarely jumps in.”
Pfeiffer, who served more than a decade as the deputy director of the state Division of Local Government Services during a long career in state government, said he has been involved in numerous high-profile revaluations, including the last one in Jersey City in 1988.
“There is always a lot of debate, and at some point superstition, about what happens,” Pfeiffer explained. “A lot of worst-case scenarios being pointed to.”
But he said the outcomes of most revaluations are generally less dramatic.
“Historically, nothing really bad happened at the end of the day,” Pfeiffer said.