propertytax

							 Property Tax Reform

 An In-Depth Look at the Most
    Effective Way of Local
Governments Raising Revenue
        Report Compiled By:

• John Kessanis
• Angela Kwon
• Jacob McAreavy



  – Professor Richard Lee
          November 29, 2006
        What is Property Tax?
• Most effective and
  efficient means of
  raising own-source
  revenue for local
  governments.
• Role has shrunk due
  to legal, political, and
  economic constraints
  and will continue to
  shrink without reform.
            The Dilemma…
• Local Government must have a
  dependable source of revenue that they
  can control and that can raise sufficient
  revenue.
  – Only property tax can do this, yet without
    reform local governments will continue to
    relinquish control over basic services to the
    state.
NEW JERSEY PROPERTY TAXES
• NJ has the highest property taxes in the nation




• One of the 37 states that collect property taxes at both the state and local levels.
As in most states, local governments collect far more.
     - Fiscal Year 2004: at local level NJ collected $18,225,594,000 in property
     taxes + at state level NJ collected $3,660,000 in property taxes = combined
     state/local property taxes $18,229,254,000.
     - At $2,099 NJ’s combined per capita collections were highest in the nation
REASON FOR TAX INCREASE
• Property taxes are based on home values. As home values
  appreciate, property taxes rise as well.
• Homeowners living in neighborhoods with rapidly increasing
  home prices are hit hardest
• Many homeowners feel property taxes are unfair because taxes
  can rise even if homeowners’ income levels don’t increase
    – These taxes can increase at a faster rate than income levels
    – Can have dramatic effect on homeowners who bought their highly
      appreciated homes decades ago at low prices
    – Homeowners with fixed income levels, such as retired seniors, may
      have to sell their homes because they can no longer afford the
      increased property taxes.
•   Good idea for New Jersey homeowners to challenge the
    assessed value of their home. In many instances, assessments
    can get lowered due to correcting assessor mistakes.
WHAT IS BEING DONE?
•   The Senate and Assembly passed Assembly Concurrent Resolution No. 3 that created
    four bicameral, bipartisan joint committees to review and formulate proposals that
    address property tax reform
     –   Joint Legislative Committee on Public School Funding Reform
          • Review and formulate proposals that address the manner in which government provides for
            maintenance and support of a system of free public schools
          • May consider proposals to: provide State support based on student needs rather than
            geographic location; eliminate disincentives to regionalization of school districts; control
            school district spending, particularly administrative spending; improve effectiveness of current
            law limiting increases in school district spending
     –   Joint Legislative Committee on Government Consolidation & Shared Services
          • Review and formulate proposals that address sharing of services and regionalization of
            functions at all levels of government
          • Consider proposals to consolidate or eliminate State agency functions and State agencies or
            commissions
     –   Joint Legislative Committee on Public Employee Benefits Reform
          • Review and formulate proposals that address abuses of system of benefits provided to public
            employees, to control the costs of the State and its political subdivisions for public employee
            retirement, health care and other benefits.
     –   Joint Legislative Committee on Constitutional Reform and Citizens Property Tax
         Constitutional Convention
          • Review and formulate proposals that address property tax reform through amendments to the
            Constitution of the State of New Jersey.
          • Determine whether amendments to the State Constitution should be recommended to the
            Legislature for submission directly to the voters or whether such amendments should be
            referred to a citizens property tax constitutional convention to be convened for the purpose of
            reforming the system of property taxation.
      So….

  What are the


ALTERNATIVES?
             Alternative #1
• LOCAL-OPTION SALES TAX
 – Limited by the inability of local governments to
   tax services and necessities, by inter-
   jurisdictional competition, and by the various
   problems associated with remote sales and
   by electronic commerce.
                 Alternative #2
• LOCAL-OPTION INCOME TAX
 – Has a strong political opposition
 – It is believed that it will drive wealthy residents
   to re-locate.
             Alternative #3
• NON-TAX OPTIONS
 – User Fees & Charges: adding fees to services
   like parks, sanitation, hospitals, parking, etc.
   (i.e. Proposition 13 in California)
 – Non-tax options are incapable of financing
   large portions of local governments.
              Alternative #4
• STATE AID
  – Federal Aid is almost non-existent in these
    days.
  – Depends on legislature and is increased or
    decreased with little input from individual
    cities and counties.
  – When states face their own budget deficits,
    they often cut state aid to local government.
  – State aid hampers local fiscal autonomy.
 Solutions
4 Recommendations
 For Strengthening
 The Property Tax
                  Solution #1
• EDUCATE THE PUBLIC ON THE VIRTUES OF
  PROPERTY TAX
  – Negative connotation in “property tax,” yet there are a
    number of safeguards in place to protect those
    vulnerable to high prop. taxes.
  – Property and federal income taxes are the two most
    visible taxes which leads to their public hatred.
  – If government links tax with the services it provides-
    police and education- citizens might be more willing to
    accept the tax.
  – Residents know what they are paying for and can see
    their returns.
                    Solution #2
• EXPAND THE PROPERTY TAX BASE
  – Shrinking tax base= less effective prop. tax.
     • Main reason for decline in the tax base is exemptions.
  – Limit the amount of acres qualifying for exemptions.
  – Setting dollar limits on the amount of property that
    can be exempt.
  – Imposing user charges on tax-exempt organizations.
  – Having the state reimburse local governments for the
    costs of exemptions.
                              Solution #3
•   ADOPT A SPLIT-RATE PROPERTY TAX SYSTEM
    – Today the tax is levied primarily on the value of the land and improvements
      (buildings, etc).
    – A simple-rate tax system simply means taxing the property at a different rate
      than improvements.
    – Property owners accumulate benefits after purchasing the property that are not
      based on work or further investment, but rather the work and investment of
      others and the prosperity of the society where the property is owned.
         • Property owners who are holding land are making money without any economic
           contribution.
    – In a split-rate system, the land is taxed at a much higher rather than that of the
      improvements= encouraging efficient land use= higher cost to hold land=
      pressure to use land more productively.
         • The improvements however, are taxed at a lower rate and therefore give land owners
           more incentive to improve the land.
    – Can kill two birds with one stone
         • It raises revenue to pay for basic services and also fosters economic growth and
           development.
  “FIN”




THE END