ASSEMBLY REPUBLICAN POLICY COMMITTEE

A comprehensive plan to permanently lower property tax bills by 30%, restrain state spending, attack government waste, discourage higher taxes and give local governments tools to control costs.

Assembly Republican Leader Alex DeCroce
Assemblyman Steve Corodemus, Chairman
Assemblyman Peter Biondi, Vice Chairman
Assemblyman Richard Merkt
Assemblywoman Charlotte Vandervalk
Assemblyman Jon Bramnick

Executive Summary   

At the behest of Assembly Republican Leader Alex DeCroce, the Assembly Republican Policy Committee met over the past year with individual property taxpayers, taxpayer organizations, senior citizen associations, veteran organizations, civil rights groups, public worker unions, local government officials, public managers, education organizations, respected academics, conservative and liberal think tanks, business associations, mortgage bankers, realtors, and others to solicit views on how best to address soaring property taxes. In addition, several public hearings were held in various regions of the state.

During these meetings, three goals were repeatedly expressed that we wholeheartedly embrace:

▪          The state budget and its relatively more progressive tax structure should assume a larger share of the costs of services currently paid for with regressive property taxes;

▪           The cost of local government services and the pressure to raise property taxes must be reduced without jeopardizing the quality of services provided; and

▪           The way in which the property tax is administered should be changed to eliminate sudden, unsustainable increases in municipalities that fail to adhere to the statutorily established revaluation schedule.

To achieve these objectives, the Policy Committee has prepared A Blueprint for Property Tax Reform. It includes several constitutional amendments and more than 25 bills that would force state government to make substantial resources available to permanently lower property tax bills by at least 30%.

The plan relies on government spending restraints – rather than tax increases – as the preferred means to make the resources available for property tax relief. It would also dedicate the funds now provided for the NJ SAVER rebate program and all unanticipated state revenue collected by the state during every fiscal year to reduce property tax bills directly.

This plan would be phased in over three years. In the first year, every homeowner’s property tax bill would automatically be reduced 10%. In the second year, the reduction would be 20%. In the third and subsequent years, it would be 30%. A “hold harmless” provision is built into the plan. The property tax reduction realized by homeowners would not be less than the size of the rebate check they received the previous year. In the vast majority of cases, the property tax savings for homeowners would be significantly greater than any rebate they are entitled to under existing state programs, even in the first year of the program. Renters would see no change in the benefits they now receive under this plan.

Major elements of the Blueprint for Property Tax Reform include:

▪           A voter-ratified amendment to the state constitution that would permanently reduce property taxes by 30 percent in 3 years. The state share would be deducted from, and clearly denoted on, every tax bill.

▪           A voter-ratified amendment to the state constitution that would place sensible limits on the amount of money state government can spend in any one year.

▪           A voter-ratified amendment to the state constitution that would require a two-thirds super-majority vote of the Legislature – instead of a simple majority – to increase state taxes or exceed the new state spending cap.

▪           A constitutional requirement that all unanticipated state revenue collected during any fiscal year be used to expedite or enlarge mandated property tax reductions.

▪           Election of an independent state auditor to attack government waste and abuse and the creation of local government audit teams.

▪           Reform of the revaluation process to end “tax shock.”

▪           Tools for local governments to control spending.

▪           Elimination of the “corruption tax” by abolishing “pay-to-play” at all levels of government.

The Policy Committee believes the Blueprint for Property Tax Reform deserves to be considered immediately by the Legislature so the necessary amendments to the state constitution may be placed on the November 2005 general election ballot. The quickest way to achieve this goal is to convene a special session of the Legislature to deal exclusively with the issue of property tax reform. A special session should be held regardless of any action, or lack thereof, with respect to pending proposals for a constitutional convention.

Pending the adoption of constitutional amendments, the Policy Committee strongly urges and supports the restoration of funds in the proposed FY06 budget for the NJ SAVER and Homestead Rebate programs by reallocating non-essential government spending to property tax relief.

SAMPLE PROPERTY TAX BILL (For Illustration Purposes Only)   ASSESSED VALUATION $264,700   DESCRIPTION $ RATE PER $100 AMOUNT OF TAX   MUNICIPAL TAX   0.300    794.10 SCHOOL TAX 1.760 4658.72 COUNTY TAX 0.770 2038.19 LIBRARY TAX 0.070  185.29 FIRE TAX 0.080  211.76 Total Rate: 2.980   Total Tax:   7,888.06 Less 30% Deduction:   2,366.42     Balance of Tax:   5,521.64

 A Blueprint for Property Tax Reform:

•          Provides at least as much, and in most cases more, property tax relief than homeowners receive under the current rebate programs;

•          Provides a permanent and direct reduction in property taxes rather than an annual check that has a history of being politically manipulated, cut or suspended;

•          Is constitutionally guaranteed rather than dependent on political whims; and

•          Is more efficient and cost effective to administer than bureaucratic rebate programs.

 REQUIRE THE STATE TO PAY AT LEAST 30% OF EACH PRIMARY RESIDENCE PROPERTY TAX BILL

The Assembly Republican Policy Committee recommends that the state constitution be amended to require the state to pay at least 30% of each property tax bill for a primary residence after a brief phase-in period.

Current Property Tax Levels Are Unacceptable

It is clear that the first order of business of any plan that addresses property taxes must be to meaningfully reduce property taxes on primary residences in an efficient manner.

The Policy Committee listened to testimony from property taxpayers across the state. People on fixed incomes, particularly the elderly, spoke of being uprooted from their communities as property tax increases consumed more and more of their limited income.  Hard-working homeowners spoke of struggling to meet the expenses of every day life while property taxes increased to excessive levels. Younger adults and people of modest means spoke of property taxes pushing the American dream of homeownership beyond their reach.

These real life stories were reflected in the statistics and data provided by respected academics, staff from the nonpartisan Office of Legislative Services, think tanks and advocacy groups. According to data gathered by the New Jersey Coalition for the Public Good, New Jersey residents and businesses pay more in property taxes alone than they pay in income and sales taxes combined. National think tanks and taxpayer organizations confirmed New Jersey relies more heavily on property taxes than almost any other state. The Office of Legislative Services estimated that the average 2004 residential property tax bill in New Jersey was $5,592. The average residential property tax bill in one community exceeded $13,000.

Unlike other taxes, property taxes continually increase without concern to circumstances that may make payment difficult or impossible – even during temporary periods of economic hardship. A man or woman who faces a job loss, a stagnant income or salary cut, or a loss of an income-earning spouse sees an automatic reduction in income tax liability and can reduce sales tax liability by consuming less. But that same man or woman, if he or she is also a property taxpayer, must cope with escalating property taxes even if they are unable to pay for a short period.

People facing financial difficulty are justifiably angry and hurt by inflexible and unyielding property taxes. But, in a struggling economy, even those who are doing well are aware that a sudden reversal of fortune could destroy their ability to hang on to their single most important investment – their home.

New Jersey must meaningfully reduce its reliance on the property tax, and that will require a commitment by every level of government.

STATEWIDE INCREASES IN PROPERTY TAX LEVIES SINCE 1984

 Principles Guiding Property Tax Reform

The Policy Committee believes strongly that traditional property tax relief programs are not sufficient to deal with the magnitude of the property tax problem in New Jersey. Dramatic action must be taken to lower property taxes directly. The plan recommended by the Policy Committee is based on several principles:

A Constitutional Amendment Is The Only Way To
 Guarantee Lasting Property Tax Relief

The New Jersey Constitution embodies the will of the people and is inviolable. It cannot be ignored by a Governor or Legislature. A constitutional amendment ratified by the people of New Jersey is the only way to ensure that property tax relief remains a priority and does not become a victim of budget cuts.

Property tax relief initiatives authorized by statute can be abolished, suspended or reduced at any time ... and have been by the Governor and Legislature during times of fiscal duress.

The fragile nature of property tax relief programs that are enacted into law by the Legislature can be seen in the budget Acting Governor Richard J. Codey has proposed for the 2005-2006 fiscal year. It would eliminate property tax rebates for most people and cut them dramatically for senior citizens and the disabled to accommodate government spending increases in other areas. This is happening less than a year after income taxes were increased for the stated purpose of providing a dedicated source of funds for these rebates.

This is just the latest example of tampering with the rebate program. In the 2003 and 2004 Annual Appropriations Acts, funding for the NJ SAVER was reduced by hundreds of millions of dollars while funding for a program designed to freeze property taxes for senior citizens was frozen. In the 1992 Annual Appropriations Act, to accommodate a substantial cut in the state sales tax, government spending was reduced and the property tax rebates for everyone but senior citizens and the disabled were eliminated.

A constitutional amendment requiring a fixed state commitment to property tax relief as proposed in the Blueprint for Property Tax Reform is the only way to make property tax relief an absolute priority that the Legislature must address on an annual basis.

Meaningful Property Tax Relief Should Be Made Available From The More Progressive Tax Structure Of The State Budget

The size of the state budget and progressive nature of its major revenue generators make it an appropriate source of funding for property tax relief.          

The state’s tax structure contains progressive features, including a graduated income tax that is only applied to people meeting certain income thresholds, and a sales tax that exempts many day-to-day purchases, such as clothing and food. To be sure, there are less progressive and even regressive revenue sources that feed the state’s budget. Taxes on cigarettes, the sale of lottery tickets, and fees imposed on various products and services are all regressive.

However, it would be difficult to argue that the state’s tax structure as a whole is not meaningfully progressive, and it is obvious that the state’s tax structure is far more progressive than property taxation.

Property Tax Relief Should Be Limited To Primary Residences

In a world with unlimited resources, direct property tax relief would be provided with respect to every parcel of property subject to the property tax. But this would require the state to identify more than $6 billion in resources to provide a one third cut in all property tax bills. That amount, almost 20% of the state budget, clearly could not be provided – even over several years – without jeopardizing essential services or raising other taxes to unacceptable levels. The Policy Committee recognizes the reality that limited resources mean property tax relief must be targeted if it is to be meaningful for those who receive it.

The Policy Committee believes strongly that all owners of primary residences must see a reduction in their property taxes. Relief for these individuals would help advance two public policy goals – making home ownership more affordable and the property tax system fairer.

The Policy Committee believes the state cannot afford an additional property tax reduction for corporations, landlords, owners of second homes, developers who are banking land, and people who are already receiving special tax breaks such as farmland assessments.

However, the Policy Committee is comfortable that elements of the Blueprint for Property Tax Reform would provide indirect relief to these groups by reducing spending pressures on local governments.

Finally, the Policy Committee recognizes the value of encouraging economic growth and the creation of new jobs. In the event additional funding becomes available in the future, whether through extraordinary revenue growth or the identification of additional spending cuts that do not jeopardize essential services, direct property tax relief for small, owner-occupied businesses should be reconsidered.

Property Tax Relief Should Be Provided Through a Program That Is Free  of the Bureaucracy And Politicization That Plague Rebate programs

Many who shared their thoughts and ideas with the Policy Committee expressed frustration with the amount of bureaucracy and politics associated with existing property tax relief programs, particularly rebate programs. Examples of bureaucracy and politicization include:

▪           People paying income taxes are entitled to deduct a certain amount of their property taxes from their taxable income, but first they must pay their property taxes and then apply for the deduction when they file their income tax returns with the New Jersey Department of Treasury. The deduction has become more uncertain with a recent proposal by Acting Governor Codey to prohibit deductions for individuals earning more than $100,000 and families earning more than $200,000.

▪           Certain low income senior citizens who pay property taxes are eligible to receive a reimbursement for an amount paid beyond a certain threshold. But first they must pay their taxes, apply to the New Jersey Department of Treasury for a reimbursement based on complicated rules and regulations, and then wait for their rebate. Campaign-style literature from the Governor promotes the program at taxpayer expense, and rebate checks are mailed with gratuitous political notes from the Governor in the hopes of gaining popularity.

▪           Most property taxpayers can receive a rebate based on a complex formula, but they also must first pay their property taxes, file an application with the New Jersey Department of Treasury, and then wait for their rebate. For all but senior citizens, have been proposed for elimination in Acting Governor Codey’s proposed FY06 state budget.

The Policy Committee strongly believes that any new property tax relief program should be free of this kind of bureaucracy and politics, which has cost taxpayers tens of millions of dollars a year. Applications should be devoid of unnecessary restrictions and conditions. This would significantly reduce the paperwork, bureaucracy, litigation, and unfairness currently associated with these programs – no matter how well intended they may be.

Assistance should be provided to owners of primary residences in the form of credits on their quarterly property tax bills without burdensome applications and without politically motivated and expensive-to-administer rebates.

The Policy Committee recognizes that there have been proposals to restrict relief by utilizing income limits that vary based on marital status, means tests, length of residency requirements, age and other criteria. The Policy Committee believes strongly that such criteria have limited value and only result in burdensome applications, clerical and bureaucratic errors, an inability to grant reasonable exceptions in an efficient manner, excessive litigation, and needless expense. The Blueprint for Property Tax Reform steers away from such criteria. It is structured in such a way that middle class homeowners would benefit the most because individual tax reductions would be capped at reasonable levels.

Direct Property Tax Relief Should Not Require
Tax Increases or Ill-Advised Spending Cuts

Direct property tax relief should be phased in but in a manner that provides meaningful benefits even the first year. It should be financed by tapping routine revenue growth, redirecting spending from nonessential or irresponsible state expenditures, and using existing rebate programs to actually lower property tax bills – thereby obviating the need to dramatically raise taxes or make ill-advised spending cuts. Preservation of state aid programs, especially school aid, would be a priority. Waste, frills, fraud and abuse would not.

The Blueprint for Property Tax Reform would require the state to assume a portion of the property tax bills for approximately 1.7 million owners of primary residences – 1.1 million current non-senior NJ SAVER recipients, 500,000 senior citizens who get the homestead rebate, and 100,000 homeowners who were excluded from property tax relief programs in FY 2005.

The current billing system would remain largely intact. If this plan is approved by the voters in 2005, individual property tax bills would show a 10% reduction in 2007, a 20% reduction in 2008, and 30% reduction in 2009 and every year thereafter. Unlike rebates and NJ SAVER checks, the automatic deduction from the tax bill would not be considered taxable income, another benefit of this approach.

The non-partisan Office of Legislative Services (OLS) has analyzed the Blueprint for Property Tax Reform using the following assumptions:

▪           Tax relief would be phased-in over three years in 10% increments beginning in FY07.

▪           The maximum property tax reduction per taxpayer would be phased-in beginning with a $1,000 ceiling in FY07, $3,000 in FY08, and $5,000 in FY09 and subsequent years. However, the minimum amount per taxpayer would be the value of his or her rebate check in FY06.

According to the OLS, individual savings under the Blueprint for Property Tax Reform would average $600 the first year, $1,230 the second year, and $1,900 the third year.

To keep the program affordable and make sure middle class taxpayers receive the most relief, the Policy Committee believes a $5,000 cap should placed on the property tax reduction received by any homeowner in any year. The cap would be phased in over 3 years and indexed annually for inflation. The cap for the first year would be $1,000 or the amount of the last rebate check received by the homeowner, whichever is higher. For example, if a homeowner received a tax rebate of $1,200 in the year preceding implementation of the 30% property tax reduction, then the credit reflected on that homeowner’s property tax bill during year the first year of the new program would be a minimum of $1,200 even though the first year cap is $1,000.

The cap for the second year of the new program would be $3,000. During the third and following years, the cap would be $5,000.

Actual savings would vary based on individual property tax bills. These savings are substantial, meaningful, relate to actual property tax bills, and would automatically be adjusted along with revaluations to help offset rate shock.

The Office of Legislative Services estimates that in order to implement the plan the state would need to identify an additional $700 million in revenue for FY07; $1 billion for FY08, and $1.2 billion for FY09. Each year assumes a beginning budgetary appropriation that is, at a minimum, equal to that appropriated in total for the property tax reduction program the previous year.

Put in context, the additional cost to the state of the first year of the phase-in represents less than 3% of total spending in the proposed FY06 state budget - a budget that is still 15% larger than the one approved for FY04. The proposed FY06 budget, while proposing a significant reduction in property tax relief programs, contains few cuts in real government spending. The cost of the full phase-in of the Blueprint for Property Tax Reform would equal less than 80% of the increase in state spending that occurred in the current fiscal year alone…and the actual phase-in would have to be accommodated over three years – not one.

We note that the leadership of the Assembly Democrat caucus, including the Assembly Speaker, Majority Leader and Chairman of the Assembly Budget Committee, has announced its intention to find funds in the proposed FY06 budget to restore most, if not all, of the rebates proposed for elimination or reduction by Acting Governor Codey. Assembly Democrats have asked the appointed state auditor to look for savings in every department of state government. Assembly Republicans support this effort.

The Policy Committee takes note that the proposed FY06 budget already contains nearly $400 million for a scaled-back rebate program. Since the Acting Governor unveiled his proposed budget, the OLS has also projected that the state will take in $287 million more in tax revenue than that anticipated by the Codey Administration. This money should be used for property tax relief.

Assembly Republicans have begun their own search for savings and wasteful spending by requesting financial information, through the Open Public Records Act, from every department of state government and several authorities. As of April 13, 2005, Assembly Republicans have identified nearly $400 million in waste, frills, fraud and abuse that should be stopped so that those funds could be used to lower property taxes. This effort is ongoing and will likely produce other areas of significant savings.

It is anticipated that funding for implementation of the first year of the Blueprint for Property Tax Reform would be included in the state budget adopted in June of 2006 for FY07. Revenue growth would assist the process in FY06 and subsequent years

Projecting revenues so far in advance of the earliest possible implementation date of the Blueprint for Property Tax Reform is nearly impossible with any degree of accuracy. Still, the Policy Committee believes it would be irresponsible to suggest a tax increase would be needed for implementation. Professional economists and revenue forecasters alike acknowledge the difficulty in projecting revenue for New Jersey’s progressive tax system one year in advance – let alone two or three years in advance. Any suggestion that a tax increase would be necessary now to pay for property tax relief required in future years would not only be premature, it would be baseless.

There have been periods in our state’s history when revenue growth from existing taxes far outpaced ordinary government growth due to salary increases and inflationary pressures. In the late 1990s, despite dozens of net eliminations and reductions in taxes, revenue soared in large part due to an expanding economy and a rapidly growing stock market. In FY98, sales and income tax revenues (which account for between 55% and 65% of the state’s budgeted revenues) grew at rates of almost 8% and more than 16% respectively. The rate of growth in these two dominant sources of revenue rose dramatically in FY00 and FY01 as well. A growth rate similar to that witnessed in 1998 would today produce about an additional $2 billion from the sales and income tax alone. The return of such revenue growth could easily fund this program.

Of course, there have also been periods when revenue growth was far less dramatic. In fact, revenue from the income tax declined in 2002 by more than 14% and declined again the following year by a small amount. Revenue increases for those years were also far less than in the previous years. Should difficult times return, the Blueprint for Property Tax Reform would require the state to prioritize. By placing the state in the position of becoming the single biggest property taxpayer in New Jersey, it is the hope of the Policy Committee that the Governor and Legislature would have an added incentive to spend its available resources prudently and wisely.

The Policy Committee respectfully notes that certain think tanks, various property tax relief advocacy groups, and one major newspaper have proposed new or increased taxes of one sort or another to provide property tax relief immediately. Proposals for increased taxes include: a 1% increase in the state income tax; an increase in the tax rates for people making more than $300,000; extension of the sales tax to various services that are currently exempt; and giving municipalities the option to impose local income taxes. The Policy Committee believes consideration of such proposals at this time is unwarranted.

Certain Special Property Tax Relief Programs Should Be Continued

The Policy Committee believes strongly that several current property tax exemption and rebate programs for homeowners should continue. 

Exemptions and rebate programs for veterans are special ways to thank people who have put their lives in harm’s way to defend our country and our way of life. The Policy Committee strongly recommends that these programs be retained.

The program that freezes property taxes for the poorest among our elderly and disabled should also remain intact and should even be expanded in the future if resources are available. This program provides the most targeted relief for the neediest among us, and it is important that this relief remain available to help protect senior citizens from losing their homes.

Finally, constitutionally recognized rebate programs for the elderly and disabled should also remain. Voters long ago approved these special programs and their decision should be respected.

Additionally, it is not recommended that programs providing property tax relief to renters be impacted by this proposal.

Property Tax Relief Should Be Phased In More Quickly
If Unanticipated Revenue Becomes Available

In the past, the state has witnessed tremendous revenue growth beyond what was anticipated when the budget was adopted. For example, in the 1990s, on average more than $750 million in revenue was collected each year by the state than anticipated at the beginning of the fiscal year. All too frequently, the windfall revenue was viewed not as money to be saved for bad times or to pay for one-time costs, but as an excuse to spend money in a manner that was not prioritized or sustainable.

Rather than allow the state to squander unanticipated revenue in the future, it is proposed that all revenue beyond that anticipated in the budget during any fiscal year be used to expedite the direct property tax relief called for by the Blueprint for Property Tax Reform. This would have the practical effect of restricting unplanned growth in spending for purposes other than property tax relief and would encourage state government to live with its means and within the confines of its adopted budget. It would also ensure a quicker phase-in period for the Blueprint for Property Tax Reform if economic conditions improve. 

RESTRICT THE STATE’S ABILITY TO INCREASE TAXES OR EXCEED A STRICT SPENDING CAP