New Jersey Gubernatorial Election: Tips for Restructuring Property Taxes
Property taxes fund our way of life in New Jersey, financing infrastructure improvements, local government, emergency services and our children’s educations. In the latest installment in our series on the New Jersey governor’s race, Darren A. Spielman, managing director of the Walter Rand Institute for Public Affairs at Rutgers-Camden, explains why New Jersey’s property taxes are the highest in the nation and offers our next governor solutions for reining them in.
Why are New Jersey’s property taxes the highest in the country?
Spielman: There are a good number of reasons; let’s look at a few of the main ones.
Education: Slightly more than half of all property taxes collected in the state go toward education. Consequently, New Jersey usually ranks third or fourth nationally in education spending per student (just under $18,000) and ranks in the top three in K-12 education achievement.
Reliance on property tax: Local governments, counties and municipalities depend largely on property taxes to pay their expenses. Municipalities in the state cannot levy local income or sales taxes (in contrast to cities and towns in most other states).
- Too many municipalities: There are 565 municipalities and 600 school districts in the relatively geographically small state of New Jersey. Municipalities’ reluctance to share services or consolidate altogether adversely affects taxpayers.
There are various other factors that drive high property taxes including tax ratable chase, which leads to irrational zoning practices, public worker pensions and high labor costs.
How does our property tax system impact New Jersey’s economic health?
Spielman: Broadly, property taxes are considered one of the most efficient kinds of taxes, which means they have a less adverse impact on taxpayers’ behaviors or economic growth than income, employment or other consumption taxes. Research suggests property taxes have not driven population decrease in the state.
What are some viable ways to significantly reduce property taxes? What is preventing lawmakers from implementing those solutions?
Spielman: There are possible solutions to rein in property taxes, but each comes with a set of challenges that either legislators, residents or both have yet to overcome.
Solution: More shared service agreements and the consolidation of smaller municipalities.
Barrier: “Home Rule” is the largest roadblock to the development of shared service agreements and the consolidation of municipalities. The solution requires political will from residents and political courage from legislators; both have been lacking on this subject.
Solution: The ability for counties and municipalities to levy taxes.
Barrier: It would take major changes to current laws. Additionally, allowing counties and municipalities to levy income and/or sales tax arbitrarily could lead to unproductive competition between economically healthy municipalities and struggling municipalities.
Solution: Increasing funding from the state to municipalities.
- Barrier: It would take changes to certain funding formulas, and it would mean the state would need additional revenue sources or substantially reduced expenses elsewhere.
How do other states fund their services? Why hasn’t New Jersey adopted one of those models?
Spielman: Depending on the state, there are a number of different revenue streams, but it is important to recognize that while residents of New Jersey pay the highest property taxes, we rank seventh in overall tax burden in the country. Additionally, New Jersey has the 11th largest population in the country, which influences cost of services. However, out of the 10 states with a larger population than New Jersey, only New York has a higher tax burden.
It is hard to identify an ideal model. New Jersey might consider the solutions mentioned above. In addition, the state could examine the rate on high-income households and consider identifying excise taxes (taxes paid when purchasing a specific good) to levy. Excise taxes should be geared toward recreational goods or activities. Other states have legalized marijuana or raised taxes on alcohol (NJ ranks 26th), tobacco (10th) and gasoline (8th). The biggest obstacle to changing tax codes is lack of political will.
– Lisa Intrabartola