Property Tax Issues in Hoboken, New Jersey: An Analysis

Introduction

The focus of this study is the city of Hoboken, NJ and the controversial property tax issues that have emerged in recent years. In December 2008, Hoboken increased municipal property taxes by a staggering 47% after discovering major shortfalls in the budget, including a $10 million gap in the FY 2008 budget. The increase was also necessary to provide $8 million as a "Reserve for Uncollected Taxes," a reserve required by law and based on a city's uncollected tax rate from the previous year. Usually, the required reserve is around $365,000; however, because the city failed to pass the 2008 budget on schedule, it sent out the final tax bills late and residents paid them after the fiscal year ended. As a result, Hoboken's tax collection rate for FY 2008 dropped from 99 percent to 83.3 percent, causing the required reserve to skyrocket. Other shortfalls that made the large municipal tax increase necessary included $1 million needed because homes that increased in value in 2008 due to new construction were not reassessed appropriately and no adjusted bill was ever issued.

To determine the current state of affairs, this paper examines how such a large budget shortfall occurred in the first place and why it required a nearly 50 percent increase in property taxes to resolve it. In addition, this paper reviews the local controversy and the resolutions that have been proposed to address the unforeseen tax problem.

With a population of about 35,000, Hoboken is a relatively small city confronted with many of the same economic problems that its larger counterparts have been experiencing in recent years. Incorporated as a city in 1855, Hoboken has emerged as a burgeoning industrial and commercial center featuring a major port, shipyards, and warehouses (Hoboken 2009). Over the past two decades, a growing number of professionals, artists, and students have been attracted to Hoboken because of its geographic proximity to New York City as well as its affordable, renovated housing (Hoboken 2009).

Introduction to Hoboken

The encyclopedic entry for the city notes that "Hoboken's reputation has grown accordingly, and it has become a cultural community with art galleries, musical events, entertainment, and developing businesses. A major riverfront development project was launched in the late 1990s, and the city became an alternative office location for companies based in Manhattan" (Hoboken 2009:22613). According to Kahn (2000), just a short trip from New York City proper, "Hoboken reveals itself as a small, mostly working-class town: tight little streets criss-cross its one-mile square, a reduced version of Manhattan's dense grid. Row upon row of three-floor walk-ups. Frank Sinatra is the city's favorite son" (44).

The definition of property taxes provided by Black's Law Dictionary states that this type of tax is "an ad valorem tax, usually levied by a city or county government on the value of real or personal property that the taxpayer owns on a specific date. The tax is generally expressed as a uniform rate per thousand of valuation" (1218). The overview of property taxes provided by Barrymore (2009) states that "today, property taxes in the United States are mostly based on real property, though some states do tax certain items of personal property. Office buildings are usually taxed according to the rental income they provide for their owners" (3).

The State of New Jersey currently has 567 municipalities and 21 counties, all of which are covered by the same state mandates concerning property taxes — a matter that has been a deeply contentious issue with the citizens of the state for years (Salmore and Salmore 1999). In this regard, Salmore and Salmore emphasize that "massive alterations in government bring massive alterations in public policy, and so they have in New Jersey. As stronger state institutions developed, bent on forceful intervention in the state's life, New Jersey became one of the last states to adopt broad-based taxes. So intense was public aversion to an income tax that only the state supreme court, backed by the governor, could mandate its passage in 1976" (8).

Property Taxes in New Jersey

Despite these initial concerns, the state enjoyed a period of healthy economic growth that helped it pass new tax legislation. Salmore and Salmore (1999) note that "when Trenton proved that the modest new tax actually lowered local property taxes (at least temporarily), New Jerseyans gave it grudging acquiescence. Hikes in the broad-based taxes as the economy took off in the early 1980s produced undreamed-of revenue, and the state budget quadrupled over 15 years" (8). As the state budget increased, so too did the corresponding property tax rates.

In response to these trends, in 2006 the New Jersey legislature created four joint legislative committees tasked with the responsibility of reviewing new ways to deliver property tax reforms, including alternatives for funding schools and the consolidation of local governments. The state legislature also sought and received approval from New Jersey citizens to increase the sales tax by a half cent in return for property tax relief (Salmore and Salmore 1999). The four committees provided their recommended courses of action in November 2006, and a tax relief law was passed in April 2007 that reduces property taxes by 20 percent for homeowners whose incomes are less than $100,000 and graduates the rate to 10 percent for homeowners with incomes less than $250,000 (Waisanen 2007). The property tax reform bill also reduces the average homeowner's property tax bill by $1,000 and mandates doubling the renters' rebate for 800,000 state tenants (Waisanen 2007:41). According to Waisanen, "the package restricts annual property tax increases to 4 percent for school districts and local governments, down from a recent average of nearly 7 percent, and requires voter approval to exceed the limit" (41). Despite these reform efforts, property tax rates in New Jersey remain the highest in the country.

Local property taxes in New Jersey remain among the highest in the nation (Salmore and Salmore 1999). The relative per capita property tax amounts for the top ten states in the U.S. are shown in the table below.

Table 1: Ten Highest Property Tax States in the United States

New Jersey — $2,098.90
Connecticut — $1,943.90
New Hampshire — $1,939.70
New York — $1,677.00
Rhode Island — $1,628.80
Maine — $1,596.50
Massachusetts — $1,531.80
Vermont — $1,530.00
Illinois — $1,407.00
Wyoming — $1,351.70

Source: Waisanen 2007 at 41.

At the state level, expenditures for public education account for almost 33 percent of the budget, and New Jersey consistently ranks first or second in terms of spending for elementary and secondary education in the nation. Despite these contributions, the state's proportional fiscal contribution to education remains below the 50-state average (Salmore and Salmore 1999). At the municipal level, the Hoboken property tax bill is comprised of three fundamental components: (a) the municipal, (b) the school district, and (c) the county (Baldwin 2009a). This reliance on property taxes to fund the city's schools is commonplace throughout the state. As Salmore and Salmore note, "New Jersey has always put unusual reliance on local property taxes to fund its public schools" (196).

Property taxes in New Jersey are collected by municipalities; however, the governing bodies of these municipalities receive and expend a relatively small percentage of these funds, with the lion's share being devoted to education (Salmore and Salmore 1999). According to Kelly and Ransom (2000), state law prohibits cities such as Trenton from increasing their annual budgets by more than 3.5% per year absent a voter-approved referendum. Kelly and Ransom note that "property taxes are not a viable source of revenue, as much of the city of Trenton is owned by the state of New Jersey and thereby tax exempt. User fees and other charges are not reasonable in a city with 20% poverty and 12% unemployment" (62). Privatization works well for the suburbs but would limit access to essential services among the city's impoverished residents. State aid remains relatively constant, but the ever-widening gap between suburb and city means the aid accomplishes less and less (Kelly and Ransom 62).

New Jersey is a home-rule state; however, the case can be made that the state's relationship with its municipalities resembles a form of state supremacy. Kelly and Ransom point out that "even though state aid is a major source of revenue for the city's operating budget, any devolution of social service responsibilities will be a local-federal issue, not a state-local matter" (62). They further emphasize that the state will continue to pursue tax reductions based on the argument that municipalities already possess the requisite authority needed to resolve these issues themselves. Based on this rationale, to the extent that cities such as Hoboken fail to achieve meaningful reform is the extent to which they are unable or unwilling to make the difficult sacrifices needed to do so. As Kelly and Ransom note, "the state is not committed to filling the gaps in block grants. For example, the New Jersey Urban Coordinating Council coordinates the focus and ability of state agencies to assist distressed cities, but without distributing new state dollars. Any increase in city property tax rates is attributable to cities' inability to make spending cuts, not state policy" (62).

Unlike private enterprises that can diversify during economic downturns to facilitate cash flow, municipalities depend on property taxes to provide services. Today, local municipalities in New Jersey rely almost entirely on local property taxes, which provide fully 98 percent of locally raised revenues, compared to about 74 percent nationally (Salmore and Salmore 208–209). Given their inordinately high levels, it is little wonder that the citizens of the state are incensed over their property tax rates. According to New Jersey Assemblyman John McKeon, "property taxes are issues No. 1, 2, and 3 for the residents of this state" (quoted in Waisanen 2007 at 40).

Conclusion and Future Research Suggestions

Barrymore, John. (2009). "How Real Estate Property Taxes Work." HowStuffWorks.

Black's Law Dictionary. St. Paul, MN: West Publishing Co., 1991.

Cammarano, Peter. (2009, July 14). "Municipal Property Taxes to Decrease by Five Percent." City of Hoboken Press Release.

"Hoboken." The Columbia Encyclopedia, Sixth Edition. New York: Columbia University Press, 2009.

Kahn, Ashley. (2000, December 18). "Let's Be Frank." New Statesman 129(4517): 44.

Kelly, Janet and Bruce Ransom. (2000). "State Urban Policy: 'New' Federalism in Virginia, New Jersey and Florida." Policy Studies Review: 62.

Salmore, Barbara G. and Stephen A. Salmore. New Jersey Politics and Government: Suburban Politics Comes of Age. Lincoln, NE: University of Nebraska Press, 1999.

Waisanen, Bert. (2007, June). "The Property Tax Shuffle: Some States Have Made Major Changes in Their Property Taxes While Others Have Zeroed in on Special Cuts for Poor and Elderly Homeowners." State Legislatures 33(6): 40–42.