LOCAL PROPERTY TAXES AND NEW JERSEY STATE GOVERNMENT
The amount of property tax relief funding that municipalities get from the State – the vast majority of which is raised from the Income Tax and from utility taxes that were formerly collected by municipalities – directly affects the level of public services in your community and the amount of property taxes that you pay .
When your property tax bill goes up and municipal services don’t meet your needs, ask your State Legislators and the Governor if the State is providing your home town with adequate financial aid. Municipal property tax relief funding can help to pay for the local services you need and can keep your property taxes from going up – again.
Q. How is the responsibility for taxing and spending divided between the State and local governments in New Jersey?
A. State government and local governments share responsibilities and resources. Both the State and local governments (municipalities, counties and school districts) must provide a variety of important public services. But the ability of each of these levels of government differs greatly .
Unlike the State, local governments have few revenue options available to pay for services. This has resulted in the continued heavy reliance on property taxation as the major source of revenue for municipalities, counties and school districts. Because the value of property varies widely from municipality to municipality, many local governments are unable to meet local service needs.
Q. Why do New Jersey local governments need funding from the State?
A. Municipalities, counties and school districts need enough money to pay for the many essential services that they provide. Paying for and providing many of these services (including, for example, education, transportation, law enforcement and environmental protection) is a joint responsibility of state government and local governments. But New Jersey local governments are not only responsible for delivering most of these services; they also bear the primary responsibility for financing them. In the area of education, for example, local property taxpayers pay most of the costs, even though the State has a Constitutional obligation to ensure a thorough and efficient education for all of our children. Historically, the State’s share of K-12 public school expenditures is around 40%. State law limits how local governments can raise money. Other than State and Federal funding, New Jersey local governments have only property taxes and limited user fees (charges imposed upon residents and businesses that use or receive a specific service).
Q. Why do you call it “municipal property tax relief” and not “State aid”?
A. We call it municipal property tax relief funding, and not “State aid,” for this reason. The lion’s share of the money that municipalities receive from the State is a replacement for funds that were originally direct sources of municipal revenue. From Public Utility Gross Receipts and Franchise Taxes, now distributed as Energy Tax Receipts Property Tax Relief, to Business Personal Property Taxes, Financial Business Taxes and Class II Railroad Property Taxes, all of which have been folded into Consolidated Municipal Property Tax Relief Aid, these revenues were intended for municipal use from their beginnings. When the State, at the request and for the convenience of the taxpaying businesses, became the collection agent for these taxes, it pledged to redistribute the funds back to local governments. So, from our perspective, these do not constitute new “aid” from the Treasurer of New Jersey. Instead, we see them as local revenues, temporarily displaced.
Property tax relief funding,
Q. What about user fees?
A. User fees and other non-tax revenue provide a minimal support to New Jersey local governments and can only be used for certain specified purposes. They cannot, by State law, be used to offset the costs of most services, such as police protection, snow removal, public education or maintenance of public facilities. Furthermore, user fees limit the availability of services for those who cannot afford to pay .
Q. That leaves property taxes and property tax relief funding from the State. What about State funding?
A. According to State sources, in FY 2001, the State provided municipalities with about $1.604 billion in general property tax relief funding. In the State’s last Fiscal Year (2005), the figure was around $1.682 billion (which includes $2.5 million in Taxpayer Hero Grants that were appropriated, but never distributed). Though we appreciate the State’s struggle to provide a little less than a 5% increase in tough budgetary times; at about half the rate of inflation, that’s hardly enough to help us to stem the property tax crisis .
Q. How does New Jersey’s property tax burden compare with other States?
A. The property tax accounts for over 40% of total State and local tax revenue in our State. The National average is just slightly above 30%. In 2002, the New Jersey per capita property tax burden amounted to $1,887 - almost doubling the National average of $979. New Jersey property taxes equaled 5%, as a percentage of personal income – almost 2 points above the National average of 3.2%. And in our State, those with the least shoulder a disproportionate share of the burden. Households with incomes in the lowest 20 % pay 9.2% of their earnings in property taxes, while the wealthiest 20 % pay 3.6% of their income through this assessment.
Q. Can cutting local budgets reduce property taxes?
A. Yes. But there is a limit to what can be reduced. Police salaries and benefits often represent the biggest components of municipal budgets. The salaries are often set by arbitrators, pusuant to State Law. And the post-retirement benefits are also often mandated by the State. Education costs make up the largest portion of the average property tax bill. And much of that is spent for compliance with State laws and regulations. New Jersey local officials make difficult choices to keep the lid on property taxes every year. Last year the statewide total county tax levy was $3.5 billion. The total municipal levy was $4.7 billion. The total school district levy was $10.2 billion. In 2003, the county levy was $3.1 billion. The municipal levy was $4 billion. The school levy was $8.8 billion. Average property taxes for 2004, as calculated by the State’s Division of Local Government Services, increased by 6.33% over the 2003 average. And the average property tax rate actually decreased from 3.027 to 3.021. This restraint has been achieved despite the fact that a large percentage of municipal, school district and county spending is mandated by State law (e.g., education programs, environmental programs, health services, binding arbitration, work rules and benefit levels for public employees, prevailing wage requirements for public construction, etc.). Much of this is largely removed from local control.
The underlying demand for local public services continues to increase, and the costs continue to rise with inflation and population growth. Without commensurate increases in relief funding, increases in property taxes are inevitable.
Q. Can local governments hold down the costs of public services?
A. Yes. And they are doing so. No municipal official wants to raise taxes. In addition to their commitment to their constituents, they are also motivated by an enlightened self-interest (They pay property taxes, too.) and by a desire to remain in the public’s service beyond the next election. Local budgets are subject to intense public scrutiny. Inflation alone forces municipalities to spend more, just to maintain current service levels. But aside from inflation, local expenditures are driven by demographics. Public school enrollments are on the rise. And service demands related to the aging of the “baby boom” generation will also increase on into the future .
Q. How can the State provide needed relief to local governments and, more importantly, to property taxpayers?
A. There are a number of ways, such as:
* Annually adjust property tax relief funding to account for inflation and increased population;
* Refuse to impose new mandates, new costs and new responsibilities on municipalities, counties and school districts, without full State funding;
* Repeal, modify or fully fund existing mandates;
* Expand and increase payments in lieu of taxes to more adequately reimburse local governments for money lost due to state mandated property tax exemptions; and
Pass legislation that would ask the voters to authorize a special convention for property tax reform, and a concurrent resolution that would allow the convention to propose
Q. Do we really need a special convention for property tax reform? Isn’t that the job of the Legislature?
A.The Legislature has always had the power to address the property tax crisis. The Legislature has had ample opportunity to address the property tax crisis. The Legislature has NOT addressed the property tax crisis. Despite decades of inaction, incredibly, there are those who still believe that the Legislature, and the Legislature alone, should have the right to accomplish significant and lasting property tax reform. We would welcome that. But don't let anybody tell you that that is the surest route to true reform. And don't let anybody tell you that movement towards a property tax convention precludes the possibility of Legislative progress.
Legislative action on a special property tax convention bill will do nothing to prevent the unanticipated, unprecedented and highly unlikely prospect that the Legislature just might decide, at long last, to lance this festering sore on the body politic. All action on a convention bill will do is set a time
The Legislature will have until Election Day 2006 to convince the people of New Jersey that they do not need a special convention to get true property tax reform. If they can do that, there will be no special convention. If they cannot, then there has to be one. With property tax pressures almost certain to intensify this year, the people of New Jersey must be given a hope for future relief. They expect the Senate and General Assembly, as well as Governor Codey, to act on a property tax convention bill, in time to get the question on this November's ballot. They need nothing more than that. They deserve nothing less