A Property Tax Disaster

Every legislator claims to favor property tax relief, but by their actions shall you know them. The present majority gave us the fraudulent “millionaires’ tax”, rebates with borrowed money, etc. But none of these rookie efforts compares with the threat posed by A-500.

Therein, Speaker Roberts and a cadre of urban legislators draw a bead on suburban taxpayers. Should this proposal pass – and be coupled with even more coercive COAH regulations – it could mean property tax increases in the hundreds of millions, of billions, of dollars.

A little history. New Jersey owes its property tax catastrophe to many causes, not the least among them a plethora of municipal entities and powerful public employee – especially teachers’ – unions. But the two primary offenders are the Supreme Court decisions in Mount Laurel and Abbott v. Burke.

In Mount Laurel, the Court discovered that the New Jersey Constitution compels localities to get into the subsidized housing business. Unhappy with simply removing asserted barriers to construction of low cost housing, the Court authored the mother of all housing mandates, determining that unless municipalities employ affirmative action to ensure construction of low and moderate income housing, a developer could overturn the zoning ordinance to do so. The entirely predictable result? Massive sprawl. (Oh, and the poor – the alleged beneficiaries of this exercise in judicial social experimentation – remain clustered in the cities.)

In the Robinson/Abbott line of cases, the Courts, while inventing a right to a “thorough and efficient education” (a profoundly meaningless term and a bastardization of the actual constitutional language) seized control of taxing and spending authority from a spineless (or complicit) Legislature, compelling massive spending in a handful of assertedly “poor” districts. Over the years, at a cost of tens of billions of dollars, teachers, administrators and builders have prospered; the students continue to languish. And suburban taxpayers get the bill.

In the 1950s, many communities proudly referred to themselves as bedroom communities, but the twin banes of Mt. Laurel and Abbott created a dynamic in which municipalities became housing-phobic. Additional housing means additional kids, and kids cost an unholy fortune. Because, under Abbott, the lion’s share of property tax relief spending goes to urban areas (the residents of which don’t pay much property tax), new children – especially in modestly priced homes – massively increase property taxes for existing residents.

Unsurprisingly, municipalities attempt to evade the judicially-created obligation to construct such homes, cutting deals with urban neighbors to send a few million bucks – cheap at the price – pursuant to regional contribution agreements, so as to avoid the construction mandate. RCA’s represent the Tony Soprano theory of government, with COAH approaching a municipality and demanding protection money: “Nice little zoning ordinance you got there. It would be a pity if anything was to happen to it.” Other dodges include age restricted housing, rehabs, etc. ANYTHING to keep new families with kids out of town.

COAH’s recently adopted regulations, and A-500, make matters infinitely worse. Consider the scenario for (say) Bridgewater, a cozy Somerset County town of approximately 45,000 souls. COAH recently sent it a note: “congratulations: you need to build (approximately) 1000 new units of “affordable” housing.”

Now, assume that DEP will actually allow construction; not being in the Highlands, that’s a possibility. In waltzes a developer with a site, upon which he proposes to build 5000 units: 1000 “affordable” units and, per standard, 4000 market rate units.

Will the developer upgrade the local water treatment plant – again, assuming that DEP would permit it? HA! It is to laugh. But let’s even take that out of the equation, and concentrate entirely on schools.

5,000 units; let’s assume 1 kid per unit = 5,000 new students. That’s, what, 10 new schools? Not being an Abbott district, the entire cost of that construction would fall on the shoulders of the existing taxpayers. Let’s be generous and assume that each unit pays $7,000 in annual property taxes. Bridgewater presently spends (roughly) $12,200 per kid, which means that present taxpayers will see their taxes increase by $26 million (5000 new kids at $5,200 deficit each), not including the costs of school construction.

But wait, there’s more. If the Abbott folks are correct – students from poor families need spending of roughly $25,000 per year to compensate for their poverty – that makes the deficit for 1000 of those kids roughly $18000 per annum. Oh, and the state contributes a princely 8% of the costs of educating a child in Bridgewater.

This development, then, would be an unmitigated property tax disaster for the local residents.

Kewl, ain’t it? In one fell swoop, the poor taxpayers in Bridgewater see their taxes increase by about $35 million. And that’s just for schools, never mind additional services necessary for a town which increased by 25% in population overnight.

Have some fun; estimate the odds that an urban legislator will propose foregoing full state-funded construction of 347 new schools in Abbott districts to help out Bridgewater. Or estimate the odds that any one of them would support cutting a nickel’s worth of state boodle to their own districts to send additional funds to a “rich” Somerset County town.

Given the schizophrenic nature of state government, we witness COAH insisting that we construct something like 575,000 new housing units, while DEP permits not a stone to be turned or a tree felled in the Highlands (never mind venerable protected areas like the Pinelands, CAFRA covered municipalities, etc.). A-500 proposes a 2.5% tax on all non-residential construction, which will, of course, make NJ look so much more attractive and competitive compared to PA or DE.

(One might also ask who the state anticipates will be living in all this new housing. New Jersey hemorrhages citizens at a 75,000-100,000 per annum pace; only through immigration, legal and otherwise, does our population remain stable. Does COAH anticipate that immigrants will live in this new subsidized housing? It’s all well and good to welcome (legal) immigrants with open arms, but it’s quite another matter to demand that existing residents subsidize their trip.)

Of course, it doesn’t have to be this way. We can address the housing problem by addressing the school funding problem: give each child an equal, state funded voucher.

If each kid came with a voucher, municipal opposition to housing construction would abate, because they’d be assets, not liabilities. A fair number of them would attend private schools, making their parents’ property tax payments pure municipal profit. And those who attend public schools would, now, pay their own way. The need for tens of billions of new construction spending on Abbott district schools would vanish. The incentive – and the ability – for Newark or Keansburg to lavish excessive salaries or reward employees with sweetheart deals would evaporate.

In short, kids, their parents, and the property taxpayers would benefit massively. Only those with a financial stake in the present, hugely expensive and horribly unfair system would suffer.

So, instead of further, tremendously expensive mandates from Trenton, turn things around. Treat every child equally; repeal Abbott and Mount Laurel and abolish COAH. If one wishes to curtail municipal power to “exclude”, add a provision to the constitution which reverses the presumption in favor of the validity of zoning ordinances to one which compels municipalities to justify any restriction they impose. Property rights would ensure against unreasonable local enactments.

Trenton – especially the courts – created the property tax monster and, now, they propose to make it progressively worse. The correct solution is – as it almost always is – fewer mandates and more freedom. Getting government out of the housing business constitutes a mighty step in the right direction.

A Property Tax Disaster