by Christopher Jones, Vice President for Research, RPA
Before departing Trenton for a needed rest following last week's budget battle, Governor Jon Corzine gave some tantalizing clues to what's in store for a special legislative session on property taxes later this month. On the Governor's agenda is consolidation of local services across New Jersey's highly fragmented system of municipalities and school districts, and changes in the way the state distributes aid to local schools.
After years of seeing innovative ideas shunted aside in favor of patch-work rebate programs, this is a call for fundamental reform of a dysfunctional system. Even more optimistically, Assembly Speaker Joseph Roberts, the Governor's adversary in the budget showdown, is singing the same tune. The Speaker already has his own bill pending to encourage shared services and sounds ready to join in a concerted effort to address the underlying problems.
No one is under the illusion that this will be easy. Structural change will require challenging entrenched interests and having a serious debate about sensitive issues like local autonomy. In addition, while this year's budget was balanced without fiscal gimmicks or an over reliance on one-time revenues, the state's long-term fiscal woes are far from solved. Any further commitment of state revenues to lower local taxes will create a bigger hole in the state deficit that will need to be filled.
A good place to start implementing structural change is the estimated $550 million earmarked for property tax relief from the one percentage point increase in the state sales tax. Simply applying sales tax revenue to New Jersey's existing property tax rebate programs would waste an opportunity to implement structural reforms. Property taxes would still be among the highest in the nation and would continue to result in inefficient land use, an inequitable distribution of tax burdens, and incentives that conflict with the goals of the State Development and Redevelopment Plan, the Council on Affordable Housing and the Abbott education finance decisions. Linking the aid to structural reforms like service consolidation would improve efficiency and help hold down future property tax increases.
Beyond use of the sales tax revenue, legislators should be guided by two objectives. One is to cast a wide net in looking at potential reform ideas, giving serious consideration to proposals that may seem radical until they are carefully evaluated. This is the best opportunity in decades for the state to examine the property tax system comprehensively, and all legitimate options should be considered. Second, there needs to be a framework with agreed upon criteria for assessing the multiple goals of property tax reform, from improving land use to greater tax fairness. Regional Plan Association and the Lincoln Institute of Land Policy recommended such a framework in their May 2006 report, "Fundamental Property Tax Reform II: A Guide for Evaluating Proposals (Link)." Several criteria and benchmarks were suggested to measure impacts on multiple goals, including improved incentives for the "smart growth" principles embodied in the State Plan, the construction of affordable housing, equitable funding for education and greater fiscal discipline to control costs.
An upcoming report, due to be released by RPA this month, will make specific policy recommendations that could be part of a comprehensive package of reforms. These include service consolidation to constrain costs, tax rates for new construction that vary by State Plan area, pilot programs that encourage municipalities to adopt different tax rates for land and structures, and changes in state aid formulas. The report will also provide information for an informed discussion of other revenues, beyond the sales tax, that could be used to lower property taxes. As important as specific ideas are, the first priority is to insure that we take full advantage of this unique moment when citizen demand and the political will for change appear to be aligned.
Before departing Trenton for a needed rest following last week's budget battle, Governor Jon Corzine gave some tantalizing clues to what's in store for a special legislative session on property taxes later this month. On the Governor's agenda is consolidation of local services across New Jersey's highly fragmented system of municipalities and school districts, and changes in the way the state distributes aid to local schools.
After years of seeing innovative ideas shunted aside in favor of patch-work rebate programs, this is a call for fundamental reform of a dysfunctional system. Even more optimistically, Assembly Speaker Joseph Roberts, the Governor's adversary in the budget showdown, is singing the same tune. The Speaker already has his own bill pending to encourage shared services and sounds ready to join in a concerted effort to address the underlying problems.
No one is under the illusion that this will be easy. Structural change will require challenging entrenched interests and having a serious debate about sensitive issues like local autonomy. In addition, while this year's budget was balanced without fiscal gimmicks or an over reliance on one-time revenues, the state's long-term fiscal woes are far from solved. Any further commitment of state revenues to lower local taxes will create a bigger hole in the state deficit that will need to be filled.
A good place to start implementing structural change is the estimated $550 million earmarked for property tax relief from the one percentage point increase in the state sales tax. Simply applying sales tax revenue to New Jersey's existing property tax rebate programs would waste an opportunity to implement structural reforms. Property taxes would still be among the highest in the nation and would continue to result in inefficient land use, an inequitable distribution of tax burdens, and incentives that conflict with the goals of the State Development and Redevelopment Plan, the Council on Affordable Housing and the Abbott education finance decisions. Linking the aid to structural reforms like service consolidation would improve efficiency and help hold down future property tax increases.
Beyond use of the sales tax revenue, legislators should be guided by two objectives. One is to cast a wide net in looking at potential reform ideas, giving serious consideration to proposals that may seem radical until they are carefully evaluated. This is the best opportunity in decades for the state to examine the property tax system comprehensively, and all legitimate options should be considered. Second, there needs to be a framework with agreed upon criteria for assessing the multiple goals of property tax reform, from improving land use to greater tax fairness. Regional Plan Association and the Lincoln Institute of Land Policy recommended such a framework in their May 2006 report, "Fundamental Property Tax Reform II: A Guide for Evaluating Proposals (Link)." Several criteria and benchmarks were suggested to measure impacts on multiple goals, including improved incentives for the "smart growth" principles embodied in the State Plan, the construction of affordable housing, equitable funding for education and greater fiscal discipline to control costs.
An upcoming report, due to be released by RPA this month, will make specific policy recommendations that could be part of a comprehensive package of reforms. These include service consolidation to constrain costs, tax rates for new construction that vary by State Plan area, pilot programs that encourage municipalities to adopt different tax rates for land and structures, and changes in state aid formulas. The report will also provide information for an informed discussion of other revenues, beyond the sales tax, that could be used to lower property taxes. As important as specific ideas are, the first priority is to insure that we take full advantage of this unique moment when citizen demand and the political will for change appear to be aligned.
@RegionalPlan