Voting for Property Tax Relief or Reform?

November 3rd, 2006 by New Jersey Future staff

On election day next Tuesday, Ballot Question #1 will ask New Jersey voters to vote on a constitutional amendment that would dedicate a half-cent of the new one-cent sales tax increase to not-yet-defined “property tax reform.”

The revenue would be dedicated every year unless removed by another ballot question, even if other tax reforms are put into place.

Projections for the tax dedication are between $500 and $620 million per year at this time; monies would go into a special “Property Tax Relief Fund” account.

To date, there is no plan for how the legislature would spend this extra money. If the ballot initiative passes, however, New Jersey has the opportunity to use the funds to combat some of the negative effects of our current property tax system.

A CREATIVE IDEA FROM MASSACHUSETTS: FUNDS FOR SMART GROWTH

Ballot Question #1 raises some interesting questions for the people of New Jersey. Are rebates the best way to help remedy our infamous property tax system, or is there a better way to use this money? Clearly, something needs to be done to help those in financially strapped households who can barely afford to live in New Jersey because their property tax bills are the highest in the nation. But other more creative solutions need to be considered if we are to begin to address the many problems created by our overreliance on property taxes to pay for schools and local services.

Our tax system currently encourages municipalities to favor building commercial properties and high-end McMansions over more moderately priced residential development because such housing attracts families with children—and that means higher school and service costs. This situation has fostered sprawling growth patterns that have hurt not just people and the environment, but also our economy. Today many high-wage New Jersey businesses are choosing to locate elsewhere—and a chief complaint is the lack of affordable housing for their workers.

New Jersey Future has long advocated systemic tax reform, including increased state funding for schools and regional tax base sharing, which would reduce the competition between municipalities for new nonresidential developments, known as “chasing ratables.” But there are also interim solutions that can be used to target some important problems including workforce housing.

Massachusetts offers one creative way to use money to help communities that want residential development but are struggling with the associated costs of adding school children. Chapter 40R is an initiative that rewards municipalities with cash incentives for welcoming housing production aligned with smart growth development. The program, signed into law in 2004, offers towns $10,000 to $600,000 in cash, plus $3,000 for each new housing unit. Eligible areas must meet minimum density requirements, have the necessary infrastructure in place, and make at least 20 percent of the new housing affordable. A companion initiative, Chapter 40S, relieves the fiscal burden on municipalities associated with building this new smart growth housing by providing full reimbursement for any new education costs resulting from housing units built under Chapter 40R. The school costs supplements resulting from 40S are expected to run $35 million annually for 33,000 housing units.

If New Jersey can follow Massachussets’s lead and find innovative ways to provide more affordable housing, we will be doing more than just providing people with a decent place to live. We will help to jumpstart our economy—and help everyone in the process. The more prosperity there is, the more money there will be in the tax coffers. To get there, we need to think creatively, as our New England neighbor has done, about the best ways to promote smart growth and economic development.

For a detailed analysis of the land use problems created by New Jersey’s current tax system and some ideas for systemic solutions to the property tax problem, read the latest installment in New Jersey Future’s Smart Growth Policy series, “Property Tax Reform and Land Use.”

For questions on this issue of Future Facts, contact 609/393-0008, ext. 101.