Property the Difficulty of Reforming

Property

The difficulty of reforming property tax laws: A New Jersey example

New Jersey homeowners pay some of the highest rates of property taxes in the nation. This fact is troubling, not simply for the individuals who are paying exorbitant sums, and for the real estate industry but for the future of the state as a whole. The rate of property taxes has had a negative impact on the state's ability to retain talented graduates and other young professionals. Many residents feel forced flee an area where they can ill-afford to buy or maintain a home. Senior citizens and middle-class homeowners have long complained about how the costs of living have vastly exceeded inflation in New Jersey. The recent economic downturn has reduced many retirement funds, and left homeowners with the values of their residences decimated. 'For Sale' signs dot the lawns of many communities, yet selling a home in an area where taxes are high is virtually impossible in the current market. Even if houses are competitively priced, the threat of high taxes keeps potential buyers away. However, the fact that under law, New Jersey municipalities must (1) balance their budgets (2) provide specific mandated services, including fund pensions of state employees and (3) are mainly reliant upon property taxes to do so has made change a challenge.

The reason for high property taxes, even as home values continue to plummet, is partially systemic -- local governments have become addicted to the revenue to they use to finance regular operating costs for services, employee wages and benefits (Short and simple, 2009, NJLM). Furthermore, "unfunded federal mandates" have also forced state and local municipalities to assume additional responsibilities (NJ NY, 2006, CNN). To provide a source of relief for New Jersey the independent candidate for governor Chris Daggett has suggested that homeowners should receive a 25% property tax cut (Lu 2009). The counties, municipalities and school districts "would only receive the revenue funding the cut if their budgets and employee contract increases were kept at or below the rate of inflation," forcing state governments to "trim future costs for the pension funds" and cut waste in general (Pizzaro 2009).

Daggett is unlikely to get elected, as he is not a member of either major party in the state. However, his proposal is worthy of consideration. Local governments are inclined to raise property taxes high, to provide popular services (such as high-quality, technologically-equipped schools), as well as to meet federal mandates (ensuring a high rate of students pass state proficiency exams), and provide routine, necessary services as trash collection. They have little incentive to cut their budgets, unless forced to do so by the governor, who must use creative strong-arm tactics to do so. Although Daggett's proposal is harsh, the next governor should consider instating this measure, or a similar type of proposal.

The reason for high property taxes in New Jersey is multifaceted. In theory, property taxes are supposed to be equal in the aggregate: "Equalization as between individual properties within a municipality is an ongoing function. It is an important concern since its aim is to stimulate a continuous striving to ensure each individual parcel of property bears its just share of the property tax burden," but the rise of high-cost properties in districts with a substantial middle class population have made this goal of proportionality elusive (Short and simple, 2009, NJSLOM). In recent years, the poor and middle class have assumed a disproportionately large burden of supporting local budgets relative to the value of their property in the state.