Cap on Property Taxes? Fuhgeddaboudit. Let’s Have a Rollback

After slashing aid to municipalities by $445 million, Governor Chris Christie has offered them “tool kits” to cushion the blow of expectant property tax increases.  A “tool kit,” however, implies pocket wrenches or screw drivers to tinker with a problem until a professional arrives.  In essence, the Governor’s plan calls for a 2.5% cap on local property taxes.

Democrats should toss the “tool kits” and instead offer a “jack hammer” to restructure the way we fund local government services – now based on property taxes.  It begs the question, if you can’t afford to pay property taxes now, does it really matter they can only go up another 2.5%?  Citizens do not need a cap.  They need a rollback!

New Jersey property taxes are the highest in the nation.  In 2009, the average property tax bill was $7,281.  In 2008, $7,045; and in 2007, were at $6,610 while the nation’s average was $4,283.  Moreover, New Jersey is home to seven of the top ten counties in the country with the highest median property tax.  90 of our municipalities have an average levy topping $10,000, and an additional 16 exceed $15,000! 

As a local tax, the levies are collected for the support of local governmental and educational costs.  Our problem is, as the Governor proposes to cut municipal and school aid, local officials will be forced to rely even more on property tax revenue.  Homeowners in turn will have to dig deeper in their pockets.  It is no wonder many seniors are forced to abandon their homes, while many young persons flee the state to live elsewhere.

This is why the state created property tax relief programs as the Homestead Rebate, Senior Freeze, and the Veterans’ and Disabled Property Tax Deductions.  Due to tough economic times however, the Governor has cut these programs in his budget proposal.  There will be no homeowner rebates in 2010, and in 2011 they will be slashed by 75%; all while the Senior Freeze program is frozen.

So how will the Governor’s “tool kits” help us?  By holding the total tax levy within a municipality to no more than 2.5% per year.  And how does he know this is going to help?  The model program, “Proposition 2.5” from Massachusetts, significantly lowered property taxes on its citizens.

One slight problem:  New Jersey’s structure is vastly different from Massachusetts.  First and foremost, when Proposition 2.5 was passed, Massachusetts increased state aid to its local governments by 95%; a 30% increase from the national average at the time.  Needless to say, Governor Christies proposal does not offer similar boosts in local aid.

More importantly, the very foundation of raising revenue in New Jersey is different from Massachusetts.  New Jersey is the 3rd highest state to rely on property taxes, right behind New Hampshire and Vermont.  We barely scratch the surface in other revenue sources like general or selective sales taxes and are ranked in the bottom for licensing fees.  For instance, in NJ, retailers pay $50 for a license to sell cigarettes.  In NY, to sell that same pack of cigarettes, retailers pay $5,000 to the state.  

We therefore need to restructure the entire way we fund local government services, not just put a cap on it.  In this regard, I have proposed “Proposition NJ”, modeled off of California’s “Proposition 13.”  PropNJ starts with the premise that property taxes across the state would be rolled back by 25%.  In 1978, California similarly reduced property taxes across the board, but by 57%, and then limited the way municipalities could increase them. 

Proposition NJ however, would allow municipalities’ levies to float back up, and in the mean time, give the legislature two years to find alternative means for funding local services.  Moreover, PropNJ needs voter approval, who in turn would acknowledge that other funding sources will need to be adjusted, to take the place of property taxes.

These sources of revenue can be based upon other models in states like Massachusetts’ sales tax on clothing priced over $175, or North Carolina’s sales tax on gasoline, cigarettes, liquor.  Other states’ claims to lower property taxes are based upon their higher levies on goods and services. For instance, while NJ has no sales taxes on food or clothing, Florida has a 6% tax on clothes, while North Carolina taxes non-prepared groceries at 2%. 

In the end, by restructuring the entire tax system with voter approval, NJ can bring more sanity into the way we fund local government.  We all know that if property taxes are reduced, other taxes will have to go up.  At the same time, a “cap” on property taxes alone will never address the underlying cause of our distress.  Proposition NJ creates a new start by mandating a 25% cut and then giving the state time to find other sources of revenue.  And by starting out with a reduction, this forces the legislature to act, rather than creating another commission to study the problem.

But in the meantime, if the Governor, or other politician says we can put a “cap” on those taxes, you say, “fuhgeddaboudit!, we need a rollback.”

The author is a Democratic Assemblyman from Princeton

Cap on Property Taxes? Fuhgeddaboudit. Let’s Have a Rollback