New Jersey Approves Property Tax Cap

July 16, 2010

Earlier this week, New Jersey Governor Chris Christie (R) signed into law a more stringent property tax cap, a compromise that supporters hope will slow the growth in local spending and property taxes. Christie had proposed a 2.5% cap with only debt payments exempted. Democratic legislators came back with a 2.9% proposal keeping many of the exclusions. The compromise is a 2% cap with fewer exclusions.

The previous cap had been enacted in 2007 under Gov. Jon Corzine (D), limiting for five years annual property tax growth to 4%, but excluding 14 areas of spending from the cap:

  • Debt service
  • Lease payments with county improvement authorities
  • Replacement of reduced state education funds
  • Pension contributions
  • Reserve for uncollected taxes
  • Health care costs
  • Accrued pension liability
  • Capital lease payments
  • Energy costs
  • Insurance
  • Offsetting loss of non-recurring general fund revenue
  • Net expenditures for new services
  • Extraordinary costs for which the Local Finance Board grants a waiver
  • Any other purpose for which the Local Finance Board grants a waiver

(NJ ST 40A:4-45.45 & NJ ST 40A:4-45.46). A 60% public vote was needed to exceed the cap.

With all those exceptions and waivers, the 4% cap has been ineffective. Under the bill approved by Christie this week, the cap is reduced to 2%, made permanent, and those 14 exclusions and waivers are eliminated and replaced with four:

    • Capital expenditures and debt service
    • Pension contributions and accrued liability
    • Health care costs
    • Extraordinary costs associated with a declared emergency

      The threshold for a public vote to exceed the caps is reduced to 50%.

      Many people bemoan their property taxes, but New Jersey residents truly have it among the worst. The median tax as a percent of home value was 1.74% in 2008, second only to Texas. The Garden State collected $2,490 per capita in property taxes in 2007, highest in the country and twice the national average of $1,277.

      One comical/sad aspect of this whole thing is that modern New Jersey tax history has been one of trying to alleviate the affect of property taxes. As Josh Barro of the Manhattan Institute details, New Jersey adopted its income tax in 1976 with the promise that the money would reduce property tax burdens.

      While Democratic governors have preferred raising income taxes to increase local aid for property tax “relief,” Republicans have tended to prefer giving out property tax rebates. These, too, have failed to constrain taxes or spending overall. And when budgets get strained, the rebates tend to go away — and taxpayers are left with high local property taxes and high statewide taxes.

      More on New Jersey here.

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