Proposed Cap No Solution to New Jersey’s Property Tax Problems
http://www.offthechartsblog.org/proposed-cap-no-solution-to-new-jersey%e2%80%99s-property-tax-problems/
Posted by: Jon Shure
Posted in: State Budget and Tax, Taxes
“For every complex problem there is an answer that is clear, simple, and wrong.” That line is often attributed to H. L. Mencken, and it’s certainly true about New Jersey, where Governor Christie is proposing a constitutional amendment to limit yearly property tax revenue growth to 2.5 percent.
Yes, property taxes are a problem in the state. With more municipalities per square mile than any other state and over 600 school districts, New Jersey pays a price for delivering services inefficiently.
But a cap is like cutting off your feet because you’ve outgrown your pants. It doesn’t solve the problem. New Jersey cap supporters tout Proposition 2 ½, a similar measure Massachusetts adopted 30 years ago. But they ignore critical differences between the two states:
- Massachusetts’s cap came with a big increase in state aid to make up for the lost property tax revenue. No one in New Jersey proposes increasing state aid.
- In Massachusetts, public school enrollment fell 20 percent in the decade after the state adopted Proposition 2 ½, cutting school costs substantially. New Jersey’s enrollment is projected to drop only 2.4 percent.
Nor has the Massachusetts cap turned out so well in the long run, as my colleague Iris Lav has explained. Limiting revenues didn’t reduce the cost of health insurance for public employees, heat for school buildings, gasoline for police cars and fire trucks, and the many other costs communities face.
So they had to cut other spending. And that meant deferring road and building maintenance, closing schools, laying off teachers, increasing class size, and eliminating sports and language programs and pupil transportation. Communities shut down fire houses and eliminated police and firefighter positions.
Keeping taxes down while providing high-quality public services requires a hard look at the structure of local governments and their tax and budget systems. Sound-bite solutions like tax caps only make the job harder.
More About Jon Shure
Jon Shure is Deputy Director of the State Fiscal Project.
Full bio | Blog Archive | Research archive at CBPP.org
In MA, as you know, the state provides “Local Aid” and it goes much more to cities and towns that have less money. That is one reason we have overrides in our town; we don’t share in proportion in Local Aid funds. That’s the way it is. We have more money and the state moves that around to help places like Lynn pay for their schools.
I totally agree we must address the root causes.
A point you might have made is that even Cato Institute has come out and said that “starve the beast” – essentially a political cap on the money available to Congress – has had the opposite effect of what’s intended because it has driven increases in debt, in future obligations rather than current spending. It has also driven mandate funding down to states, but that’s not as directly comparable. In other words, a cap creates creative means to evade the cap, which means more debt, more off book debt, more future liabilities. I would imagine a cap would mean pension obligations would be listed as more funded than they really are because that would push the problem off just by changing an assumption.
I have several problems with this post because it tells one side of the story and comes off as being in favor of revenue, revenue, revenue no matter what. I hope that is not your position.
I live in Brookline, MA. Property taxes have grown, partly because of natural 2.5% growth, partly because we’ve passed a few overrides. Our town’s budget issues, which I’m quite familiar with, revolve around the growth in government employee costs, mostly health and pension benefits. Our services have not suffered and if you look at cities and towns around the Commonwealth you see their budget problems are on the expense side, meaning employee health and pension costs. That is a huge issue here as it is all over the nation. The state has been trying to help by letting towns move employees into larger state pools but the basic problems remain: very high pension benefits – look at Boston’s problems, which mirror NYC’s – and high health costs combined with disability issues that would never exist in private business. (Even our town has had a real problem with police and fire being on the payroll for years with no productive work.)
Having a greater revenue stream would not “solve” those employee problems, but would have a lot of other consequences. For example, Brookline is a town of great socio-economic diversity and we are able to maintain a degree of that because our real estate tax growth has been constrained. The tone of the article suggests that we need to increase revenue, but that really means the people of the town must come out of pocket to pay for government employee expenses that have gone haywire. That means old people will not have food or heat in the winter. That means more kids coming to school hungry.
I’ve watched closely as our town budget has grown by leaps and bounds. If you take the cost growth apart, it is employee cost. Not more employees, but more costly employees. The state has contributed to this with laws like the Flynn Bill that mandate raises for police who complete course work. If you look at the earnings of town employees, you find a number of partrolmen and an even larger number of command staff making well into six figures. And that’s not counting pension and health benefits, just money paid.
So if you’re looking at “Policy Priorities,” the main priority is government employee cost.
Jonathan: Thanks very much for commenting on my blog post. These certainly are important and complex issues. Glad to hear you feel the cap is working in Brookline. You note that the town has passed a few overrides. One concern I have is that middle- and lower-income communities have been less likely to vote to override the caps in Massachusetts than more affluent communities — so their experience might not be as positive as you feel yours has been. Also, the NJ proposal would require a 60% vote to override, rather than the majority it takes in Massachusetts. That’s a pretty high bar.
The other issue I’d like to address is your point about employee costs. No question, that’s the major expense in the public sector. But as my blog says — and you seem to confirm — caps don’t reduce employee costs. We can debate what is the appropriate level of pay and benefits for public sector workers. But the larger point here is that if taxpayers think employee costs — or any government expense — are too high, then the solution is to get at the root causes. A cap doesn’t do that and it certainly creates the potential for cuts to be made in other areas to the detriment of services and quality of life.
As you point out, Brookline seems to have avoided some of these problems by voting to override the cap. I think in some ways that proves my point — often the only way to “live with” the restrictions is to exceed them, if possible.
-Jon Shure