STIRRING THE PROPERTY TAX REFORM POT

by David P. Rebovich With its paltry, twenty-percent approval rating, the Democratic-controlled legislature needs to show New Jerseyans that it has the best interests of the state, and not just the political survival of its members, at heart. His quest for fiscal integrity compromised by his fellow Democrats, Governor Jon Corzine wants to reassert himself by showing that he is the leader of his party and has a vision for the state that deserves support. After the embarrassing eight-day shutdown of state government, the Democrats in Trenton now have a much needed opportunity to redeem themselves. The legislature is holding a special session on the state’s most important issues, property taxes. The session will begin with an address by the Governor on Friday, July 28th. Will the session be productive and result in meaningful recommendations to change the state’s high reliance on regressive property tax taxes to pay for schools and local and county governments? Well, New Jerseyans have heard candidates and public officials promise property tax reform for years but haven’t seen much action. Thus, they are understandably skeptical about what the summer may bring. However, this time just may be different. Besides supporting reform in principle, the Governor, key legislative leaders, and lawmakers from both parties believe that the political consequences of not acting may be worse than making the bold decisions that comprehensive reform will require. Even before the debacle over the new state budget, Assembly Speaker Joe Roberts called for a special session this summer and the creation of task forces that will study government employee pensions and health benefits, regionalizing and sharing services among municipalities and school districts, revising the controversial school funding formula, and planning for a so-called citizens convention on property tax reform. Anticipating that any property tax reform plan will require a shift to some other revenue sources, Roberts insisted during the government shutdown that if the Assembly was to approve the one-cent increase in the sales tax the Governor proposed, all of the $1.2 billion in revenues from the measure would have to go toward property tax relief. Assembly Majority Leader Bonnie Watson-Coleman admitted on New Jersey Network what most folks following the budget negotiations already assumed. Democrats in the legislature were worried about losing their seats, and perhaps even their slim, 22-18 majority in the Senate, if they voted for a sales tax hike in the name of an abstraction like “fiscal integrity” as opposed to something tangible like property tax relief. Roberts, Watson-Coleman and their many allies in both chambers got half of what they wanted. Now, with low ratings in the polls, they want to give citizens more property tax relief or at least a process, like a constitutional convention, to achieve that goal. For his part, Corzine will open the special session by offering his own ideas on property tax reform. As it turns out, these ideas are not so different from Roberts’! The Governor wants to study the school funding formula, encourage the consolidation of school districts and municipalities and the regionalization of services, save state funds by rooting out waste and inefficiency and putting public employee benefits and retirement plans more in line with those in the private sector, and discussing the taxes that can be used to replace the revenues that would be lost by reducing property taxes. New Jerseyans may still be weary from the eight-day government shutdown and skeptical about lawmakers’ commitment to providing meaningful property tax reform. But they do need to pay careful attention to what the Governor and legislators from both parties are saying about property tax reform and what those task forces recommend. And, lawmakers themselves should ponder some important questions that average folks will likely have about property tax reform, questions that aren’t often raised publicly on West State Street but are on Main Street, around water coolers and at kitchen tables throughout the Garden State. Here are a few of those questions. Why can’t the legislature and the governor approve a property tax reform plan and put it into effect as soon as possible? They can! So, too, could have Governor Jim McGreevey and the Democratic-controlled legislature and Governor Christie Whitman and the Republican-controlled legislature. According to conventional wisdom, they didn’t do so because they did not want to have to hike other taxes – most likely the income tax – on some residents in order to reduce property taxes. This helps explain the support by lawmakers today for the so-called “people’s” constitutional convention plan, whereby citizens will elect delegates who will study reforms measures and then recommend a plan for the public to vote on. The plan would be an amendment to the State Constitution, making it difficult to change if approved. If some people are hurt by a shift in greater reliance on other taxes, they only have their fellow citizens to blame, not their elected officials. What if the delegates to the convention recommend a reform plan that is attractive to the majority but grossly unfair to some residents or harmful to the state as a whole? Yes, this can happen. In fact, there are concerns that some folks who run to be delegates to the convention will primarily be concerned about protecting the interests of specific groups, e.g., teachers, municipal employees, businesses, urbanites, suburbanites, and not be devoted to producing a good reform plan. And once elected, these delegates are not accountable to the public or even those people who voted for them, since delegates serve only as long as the convention lasts. Legislators, however, do have to answer to their constituents in the next election, which is an argument for having them work on a property tax reform plan. In addition, what’s to prevent a convention from simply deciding to increase business taxes even if this undermines the state’s economy or to low-ball state aid to needy school districts who really do need the money? Not much. How much property tax relief is worth a reform effort, much less a constitutional convention? According to THE STAR LEDGER’s Tom Moran, the Governor thinks 20 percent. Assemblyman Joe Malone, the ranking Republican on his chamber’s Budget Committee, believes that relief should be in the $3,000 to $5,000 range, which would be fifty percent and more for most homeowners. In my own informal survey of legislators at the State House during the extended budget negotiations, 30 percent and 33 percent were the most mentioned figures. That would mean a $2,000 reduction for the average homeowner, a nice piece of change. But is it enough to help those citizens, mostly seniors, who complain that they have to sell their homes and move out of the state because of the high property taxes? Who should pay more taxes to offset the revenue lost by reducing property taxes? Governor Jim Florio, the gutsiest chief executive the state has seen on the property tax issue (and the main reason why legislators today prefer a people’s constitutional convention) concluded that individuals who earned more than $35,000 a year and families who brought in more than $70,000 a year should have higher marginal income tax rates to pay for additional school aid and municipal aid, a form of property tax relief. Many of these folks thought, “The Governor assumes I’m well-to -do. How dare he!” Well, in any reform plan someone, probably lots of someones, will be considered able to pay more income taxes. Individuals and families making $200,000 to $500,000 are a likely target. Interestingly, these people probably already pay exorbitant property taxes. It is also noteworthy that wealthiest one percent of New Jerseyans provide 40 percent of the revenues gained from the property tax. The wealthiest 20 percent provide 80 percent of that revenue. In addition, Governor Corzine is concerned that increasing taxes on the well-to-do may add to New Jersey’s reputation as being unfriendly to business and discourage high wage firms from locating or expanding operations here. Another undesirable consequence of shifting all or most of the property tax burden to the well-off is that average New Jerseyans may be less concerned about efficiency and cost-cutting measures in their own town and school districts because someone else is paying the bills. That’s a sentiment that lawmakers need to remember this summer and not succumb to! Passing the buck on property tax reform to preserve the established arrangements and current spending practices may be the path of least resistance and the politically popular thing to do. But meaningful reforms usually make most people at least a little unhappy as they get used to new ways of paying for and delivering government services. As the special legislative session approaches, New Jersey’s legislators and the Governor should ask themselves if they have the political will to make their constituents a little unhappy in the name of a greater good. David P. Rebovich, Ph.D., is Managing Director of the Rider University Institute for New Jersey Politics (www.rider.edu/institute). He also writes a regular column, “On Politics,” for NEW JERSEY LAWYER and monthly reports on New Jersey for CAMPAIGNS AND ELECTIONS Magazine. He is a member of CQPolitics.com’s Board of Advisors that provides weekly commentary on national political developments.

STIRRING THE PROPERTY TAX REFORM POT