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TO: CHAIRMAN SENATOR ROBERT SMITH AND
CHAIRMAN ASSEMBLYMAN JOHN S. WISNIEWSKI
OF THE JOINT COMMITTEE FOR GOVERNMENT CONSOLIDATION AND SHARED SERVICES
FROM: WILLIAM G. DRESSEL, JR., EXECUTIVE DIRECTOR,
NEW JERSEY STATE LEAGUE OF MUNICIPALITIES
DATE: DECEMBER 7, 2006
RE: A-14/S-39 – THE PROPERTY ASSESSMENT REFORM ACT
___________________________________________________________________________
We salute the sponsors for introducing, and the Members of this Committee for recommending, one of the few bills coming out of the special session that could actually shift a portion of the burden currently born by our beleaguered municipal property taxpayers to the more general and less regressive State General Fund. If we could be sure that that would actually be the case, a number of our objections would be eliminated
We cannot, however, be sure about that and so we must oppose A-14/S-39 in its current form.
This is major change in public policy, which merits careful and thorough analysis. It is complex legislation that significantly impacts the administration of property valuation and tax assessment, which as you well know is the heart of each municipality's revenue. Its importance to sound municipal financial management cannot be overstated.
It appropriates $4 million and so will need to be reviewed by both Appropriations Committees, in accordance with Rule 10:18, in the case of the General Assembly, and in accordance with Rule 12:11, in the Senate’s case. But that should only occur after the members of this Committee are convinced that this bill is in the best possible form to advance the interests of the property taxpayers of our Garden State.
As the members of this Committee are aware, the Joint Committee on Constitutional Reform took extensive testimony on regional assessments. Mr. Bernard C. Haney, the President of the Assessors Association, was asked, by that Committee, to analyze how different states handle property assessment. He presented a detailed study of the Maryland system, which is state administered, but county based. That system could well have been an inspiration for this bill.
Among the most significant differences between our system and Maryland’s are these. Maryland uses a property classification system. Maryland does not equalize assessments. And Maryland’s constitution does not include a uniformity clause. As a result, market value assessment in Maryland is never achieved.
But that’s Maryland. Our preliminary concerns with A-14/S-39 are these.
We of course have serious concerns that the Treasury Department’s "oversight" be meaningful. Vesting responsibility in the County without strict oversight and close management is unacceptable. The County alone is clearly not up to this task.
While purporting to shift all local assessment costs to the State’s General Fund, the bill, as we read it, raises questions in two important areas and will fail in a third.
It appears that the costs of defending appeals of assessments are not addressed in this bill. Consequently those costs could still be born by local property taxpayers. Likewise, it appears that municipalities could still be responsible for any refunds, resulting from successful appeals, including responsibility for refunding that portion of collected taxes, which went to fund the school district’s budget. And, in Section 27 of the bill, the State explicitly gives itself a mechanism whereby it can annually abrogate its pledge to fund any and all parts of the system, in order to divert funding to state priorities other than property tax relief, and to shift those costs back on to the shoulders of our property taxpayers.
Questions about the defense of tax appeals are crucial. Currently, municipalities will aggressively defended assessments, in order to prevent an unfair distribution of the tax burden and to protect local revenues. Governing bodies and the professionals that they employ are highly motivated to prepare and present a vigorous defense of those appeals. They have to be, because the appellant and the professionals that he or she employs are also highly motivated to present the best case possible. We fear that if it becomes the State’s responsibility, an imbalance may arise between the motivations governing the decisions of the respective litigators.
It is not coincidental that communities with a history of strong financial management and careful management of their tax rate are vigilant in protecting and aggressively defending property values. This insures that municipal revenue does not unfairly suffer. With the local focus on these activities removed, it is uncertain that the motivation for timely scrutiny of values and their strong defense will exist.
But if this bill is enacted, in its current form, a State employee will be responsible for property assessments. The State, directly, through a General Fund appropriation, or indirectly, through the Section 27 loop-hole, will provide that employee with compensation, office space and equipment. That employee will report to another State employee, who will, in turn, report to a State Division Director. Given that, it would not be appropriate, if a taxpayer alleges that that employee made an error, to require a local governing body, through the property tax, to raise the funds needed to contest that claim. Further, if the taxpayer prevails, it would be inappropriate to require a local governing body, through the property tax, have to raise the funds to reimburse that taxpayer both the local municipal purposes and the school district portion of those overpaid taxes.
In such a case, a local governing body that had no control over or responsibility for an error of a State employee could be held accountable for that error.
Section 27 of the bill provides a statutory escape clause from the promise of State funding of any part of the process. It allows the Governor and the Legislature to impose a Statewide property tax surcharge, in order to fund the assessment function.
History provides ample reason for worry about this.
There once was a time when municipalities had direct access to a number of revenue sources, aside from the general property tax. A major source was the Public Utility Gross Receipts and Franchise Tax. In 1900, the Voorhees Tax Act provided for State collection of these taxes, which were to be redistributed back to the host municipalities. In 1980, major changes in Public Utility Gross Receipts and Franchise Taxes were enacted, but the State, once again, promised to return the revenues to the host municipalities. That promise was soon forgotten. In 1982, the Governor then in office used the line item veto of the State’s Annual Appropriations Act (for FY 1983) to skim $32 million of Public Utility Gross Receipts and Franchise Tax funding from the proceeds intended for municipalities, and to use that money for other State priorities – priorities other than property tax relief. The then-Assembly Speaker and the then-Senate President went to bat for our property taxpayers. This skim was challenged in Court. But, in the case of Karcher v. Kean, the State Supreme Court sanctioned this practice. Throughout the ‘80’s and into the ‘90’s, every State Budget featured an annual diversion of some of the funding dedicated by permanent statutes to municipal property tax relief, and the use of that funding for different State purposes.
Then, in the 1990’s, Legislators in both parties and in both Houses recognized the fact that increases in population, prices, wages and employee benefits – increases over which mayors and governing bodies have little, if any, control - erode the ability of local officials to keep a lid on property taxes with “level funding.” Appreciating that fact, they put laws on the books that were supposed to preserve the property tax relief benefits of the most significant of municipal tax relief programs, into the future, by adjusting funding levels to account for inflation.
For the past five years, however, because of the State's fiscal problems, the Legislature has been unable to honor its statutory commitment to full municipal property tax relief funding. And, with the passage of this year’s budget, our local property taxpayers have been denied $283.7 million of relief, over those past five years.
Given that sad history, all of which occurred without the benefit of a statutory escape clause, we must oppose the bill, in its current form. That part of Section 27 needs to be replaced by an iron-clad guarantee of full General Fund funding of what would become a state controlled function.
But beyond the question of how the revenue to fund this program will be raised – whether through local property taxes or through a less regressive distribution of the burden – is the question of how much will need to be raised. Will this reform actually be less costly than the current system? Before proceeding with the bill, we would urge you to conduct a careful and thorough cost-benefit analysis, so that you can quantify the savings, if any, that it will produce.
We urge you to carefully consider these and other problems with the bill, in its current form, and to delay action until you can be sure that this bill is in the best possible form to advance the interests of the property taxpayers of our Garden State.
c: Senator Ellen Karcher
NJLM - A-14/S-39 – THE PROPERTY ASSESSMENT REFORM ACT
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TO: CHAIRMAN SENATOR ROBERT SMITH AND
CHAIRMAN ASSEMBLYMAN JOHN S. WISNIEWSKI
OF THE JOINT COMMITTEE FOR GOVERNMENT CONSOLIDATION AND SHARED SERVICES
FROM: WILLIAM G. DRESSEL, JR., EXECUTIVE DIRECTOR,
NEW JERSEY STATE LEAGUE OF MUNICIPALITIES
DATE: DECEMBER 7, 2006
RE: A-14/S-39 – THE PROPERTY ASSESSMENT REFORM ACT
___________________________________________________________________________
We salute the sponsors for introducing, and the Members of this Committee for recommending, one of the few bills coming out of the special session that could actually shift a portion of the burden currently born by our beleaguered municipal property taxpayers to the more general and less regressive State General Fund. If we could be sure that that would actually be the case, a number of our objections would be eliminated
We cannot, however, be sure about that and so we must oppose A-14/S-39 in its current form.
This is major change in public policy, which merits careful and thorough analysis. It is complex legislation that significantly impacts the administration of property valuation and tax assessment, which as you well know is the heart of each municipality's revenue. Its importance to sound municipal financial management cannot be overstated.
It appropriates $4 million and so will need to be reviewed by both Appropriations Committees, in accordance with Rule 10:18, in the case of the General Assembly, and in accordance with Rule 12:11, in the Senate’s case. But that should only occur after the members of this Committee are convinced that this bill is in the best possible form to advance the interests of the property taxpayers of our Garden State.
As the members of this Committee are aware, the Joint Committee on Constitutional Reform took extensive testimony on regional assessments. Mr. Bernard C. Haney, the President of the Assessors Association, was asked, by that Committee, to analyze how different states handle property assessment. He presented a detailed study of the Maryland system, which is state administered, but county based. That system could well have been an inspiration for this bill.
Among the most significant differences between our system and Maryland’s are these. Maryland uses a property classification system. Maryland does not equalize assessments. And Maryland’s constitution does not include a uniformity clause. As a result, market value assessment in Maryland is never achieved.
But that’s Maryland. Our preliminary concerns with A-14/S-39 are these.
We of course have serious concerns that the Treasury Department’s "oversight" be meaningful. Vesting responsibility in the County without strict oversight and close management is unacceptable. The County alone is clearly not up to this task.
While purporting to shift all local assessment costs to the State’s General Fund, the bill, as we read it, raises questions in two important areas and will fail in a third.
It appears that the costs of defending appeals of assessments are not addressed in this bill. Consequently those costs could still be born by local property taxpayers. Likewise, it appears that municipalities could still be responsible for any refunds, resulting from successful appeals, including responsibility for refunding that portion of collected taxes, which went to fund the school district’s budget. And, in Section 27 of the bill, the State explicitly gives itself a mechanism whereby it can annually abrogate its pledge to fund any and all parts of the system, in order to divert funding to state priorities other than property tax relief, and to shift those costs back on to the shoulders of our property taxpayers.
Questions about the defense of tax appeals are crucial. Currently, municipalities will aggressively defended assessments, in order to prevent an unfair distribution of the tax burden and to protect local revenues. Governing bodies and the professionals that they employ are highly motivated to prepare and present a vigorous defense of those appeals. They have to be, because the appellant and the professionals that he or she employs are also highly motivated to present the best case possible. We fear that if it becomes the State’s responsibility, an imbalance may arise between the motivations governing the decisions of the respective litigators.
It is not coincidental that communities with a history of strong financial management and careful management of their tax rate are vigilant in protecting and aggressively defending property values. This insures that municipal revenue does not unfairly suffer. With the local focus on these activities removed, it is uncertain that the motivation for timely scrutiny of values and their strong defense will exist.
But if this bill is enacted, in its current form, a State employee will be responsible for property assessments. The State, directly, through a General Fund appropriation, or indirectly, through the Section 27 loop-hole, will provide that employee with compensation, office space and equipment. That employee will report to another State employee, who will, in turn, report to a State Division Director. Given that, it would not be appropriate, if a taxpayer alleges that that employee made an error, to require a local governing body, through the property tax, to raise the funds needed to contest that claim. Further, if the taxpayer prevails, it would be inappropriate to require a local governing body, through the property tax, have to raise the funds to reimburse that taxpayer both the local municipal purposes and the school district portion of those overpaid taxes.
In such a case, a local governing body that had no control over or responsibility for an error of a State employee could be held accountable for that error.
Section 27 of the bill provides a statutory escape clause from the promise of State funding of any part of the process. It allows the Governor and the Legislature to impose a Statewide property tax surcharge, in order to fund the assessment function.
History provides ample reason for worry about this.
There once was a time when municipalities had direct access to a number of revenue sources, aside from the general property tax. A major source was the Public Utility Gross Receipts and Franchise Tax. In 1900, the Voorhees Tax Act provided for State collection of these taxes, which were to be redistributed back to the host municipalities. In 1980, major changes in Public Utility Gross Receipts and Franchise Taxes were enacted, but the State, once again, promised to return the revenues to the host municipalities. That promise was soon forgotten. In 1982, the Governor then in office used the line item veto of the State’s Annual Appropriations Act (for FY 1983) to skim $32 million of Public Utility Gross Receipts and Franchise Tax funding from the proceeds intended for municipalities, and to use that money for other State priorities – priorities other than property tax relief. The then-Assembly Speaker and the then-Senate President went to bat for our property taxpayers. This skim was challenged in Court. But, in the case of Karcher v. Kean, the State Supreme Court sanctioned this practice. Throughout the ‘80’s and into the ‘90’s, every State Budget featured an annual diversion of some of the funding dedicated by permanent statutes to municipal property tax relief, and the use of that funding for different State purposes.
Then, in the 1990’s, Legislators in both parties and in both Houses recognized the fact that increases in population, prices, wages and employee benefits – increases over which mayors and governing bodies have little, if any, control - erode the ability of local officials to keep a lid on property taxes with “level funding.” Appreciating that fact, they put laws on the books that were supposed to preserve the property tax relief benefits of the most significant of municipal tax relief programs, into the future, by adjusting funding levels to account for inflation.
For the past five years, however, because of the State's fiscal problems, the Legislature has been unable to honor its statutory commitment to full municipal property tax relief funding. And, with the passage of this year’s budget, our local property taxpayers have been denied $283.7 million of relief, over those past five years.
Given that sad history, all of which occurred without the benefit of a statutory escape clause, we must oppose the bill, in its current form. That part of Section 27 needs to be replaced by an iron-clad guarantee of full General Fund funding of what would become a state controlled function.
But beyond the question of how the revenue to fund this program will be raised – whether through local property taxes or through a less regressive distribution of the burden – is the question of how much will need to be raised. Will this reform actually be less costly than the current system? Before proceeding with the bill, we would urge you to conduct a careful and thorough cost-benefit analysis, so that you can quantify the savings, if any, that it will produce.
We urge you to carefully consider these and other problems with the bill, in its current form, and to delay action until you can be sure that this bill is in the best possible form to advance the interests of the property taxpayers of our Garden State.
c: Senator Ellen Karcher
Senator Joseph M. Kyrillos, Jr.
Assemblyman Robert M. Gordon
Assemblyman Joseph R. Malone, II
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