Corzine’s Property Tax Reform Blueprint
This post deals exclusively with the property tax reform aspects of the Governor’s speech given today before a joint legislative session. We havel covered Corzine’s ideas for property tax relief in a separate post, which may be read here. Our analysis and comments concerning Corzine’s blueprint for property tax reform and relief will be covered in future posts.
This post is broken down into three main sections - Defining The Property Tax Problem, Major Causes of New Jersey’s Property Tax Problem and Property Tax Solutions and Action Plans.
I. Defining The Property Tax Problem
Property taxes have been going up by an average of 6.5% a year for the past 20 years and at 6.9% since 2001, a period of time when, not surprisingly, aid to municipalities and schools was essentially held flat.
The total property tax levy today is $20 billion. Without action, it will double to nearly $40 billion within a decade.
It is all too clear to everyone, the property tax burden is simply overwhelming our citizens and their economic well-being.
II. Major Causes of New Jersey’s Property Tax Problem
1. Unsustainable Public Employee Benefit costs
Today, we face an $18 billion unfunded pension liability that is one of the factors that limits our ability to provide meaningful local aid.
Over the next four years, we can expect costs for the State Health Benefits Program to grow by more than 70% to over $3.6 billion. And we face an unfunded health care liability of at least $20 billion.
2. Ballooning State Debt
Years of postponing tough choices through more borrowing have left us with the third highest debt burden in the nation – over $3,200 per person.
This year our state budget carries $2.3 billion in debt service and will expand by more than 25% in just four years.
3. Unfair State Aid Funding Formulas
And within the state budget, we must acknowledge that many of our aid formulas, especially school aid, are outdated, ineffective and outright unfair.
4. Lack of Financial Accountability
Audit oversight exists in almost every facet of our economy.
Disastrous breakdowns with the internal controls at UMDNJ and the Schools Construction Corporation make this need obvious and mandatory.
5. Home Rule Cost Inefficiencies
To be blunt, if we don’t find a way to drive down costs through shared services, we will never get real reductions in spending.
6. Out-of-Date State Tax structure
The property tax provides 46% of all tax revenues in New Jersey. The national average is roughly 30%.
Now I can already hear the spin machines starting to warm up. But we are kidding ourselves if we pretend we can fundamentally alter the property tax equation entirely on the spending side.
7. Failure of Previous Property Tax Relief/Reform Efforts
As the public knows, ideas to reform and reduce property taxes have been debated ad infinitum.
We have to create mechanisms to contain spending that will stand the test of time.
III. Property Tax Solutions and Action Plans
Everything must be on the table – sacred cows, third rails, 800-pound gorillas – all the issues that government for too long has been unwilling to address.
So let us join together and agree that before the end of this calendar year, we must have in place comprehensive property tax relief and reform to truly address this crisis.
1. Reduce Public Employee Benefit Costs
Our first challenging step in addressing reform will be pension and benefit arrangements for our public employees at every level of government.
Union Public Employee Benefits
That said, I don’t believe we have the legal or moral authority to break a deal or take away non-forfeitable rights.
We also have a collective bargaining process that I respect, and it is through that process that these challenging reforms should be addressed.
a. Two-tiered system
Reality dictates we must consider two-tiered systems in all benefits for new and recently hired employees.
We must also look at increasing the retirement age for new hires.
In these negotiations and your deliberations we must address broad changes to the retirement system, including the potential introduction of means-tested defined contribution plans.
c. Health Insurance
The negotiations must also bring important changes to health care by negotiating alternate plans such as PPOs, eliminating outdated coverages and most importantly employee cost sharing.
Non-Union Public Employee Benefits
Outside of the collective bargaining process, the Legislature can act immediately to eliminate the practices and loopholes that allow professional service providers, political appointees and people who barely work to enjoy the benefits of a system intended for career public employees. Eliminating these items – a.k.a. padding, boosting, and tacking – is a no-brainer.
2. State Aid Allocated To Achieve The Greater Good
a. Revise State Aid Formulas
There is, however, a greater good that we must achieve by doing what is right for the state, and that means we must revise these formulas. One – recognize the needs of every child regardless of zip code. Two – live within the realities of our state finances. And three – meet the obligations of our Constitution.
3. Reduce State Debt
a. Sell State Assets To Raise Funds
Within three months, my Administration will present an asset and liability study with recommendations on the sale, lease or monetization of assets, the use of naming, development and air rights as well as other public-private partnerships to raise capital and reduce debt payments.
b. Pay Down Debt
With this plan, we will reduce the debt load in New Jersey and release billions in free cash flow over the next four years.
4. Reduce Home Rule Inefficiencies and Costs
a. Municipal Consolidations and Shared Services Arrangements
Communities can achieve greater savings and potentially better services – in everything from tax assessment, to trash collection, to school administration – through cooperative efforts.
I support ideas like those put forward by Speaker Roberts in the CORE plan to use counties, schools and townships to provide more regional services.
c. Provide State Funds As Incentive To Consolidate and Share Services
To make shared services work, we have to provide a substantial budget carrot or nothing of scale will happen.
I propose that we use $250 million per year of the dedicated sales tax to create an unprecedented Reengineering Fund.
The goal is to provide financial incentives so powerful that towns, counties and school districts will have little economic choice but to share services and reduce costs.
d. Revise Civil Service Laws
As a part of this effort, we should review our archaic, overly complex civil service laws that are often roadblocks to shared service agreements and effective management at all levels of government.
e. Set Standards and Measure Results
To implement this effectively, we will need objective standards, independent analysis and a means to verify results.
We need to create a financial control board to measure and assure progress.
5. Change Tax Structure
a. Reduce Dependence on Property Tax
The property tax must become less and less a portion of the total funding pie.
b. Modernize Tax Structure
In this context, we have to examine how the economy has changed and see whether our tax code should be changed accordingly.
The goal of modernization is to capture revenues that can be used to provide local aid and reduce property tax pressures without causing undue harm to our economy.
c. Allow Municipalities to Impose Taxes and Fess
We also have to take a serious look at whether we should give local communities a limited right to raise new revenues, including the right to impose impact fees.
If local citizens choose other revenue sources to lessen their property tax burden, then who are we in Trenton to tell them they don’t have the right to an alternative course.
By allowing communities to decide to utilize other revenues, we are giving them additional options aside from the property tax.
6. Improve Financial Accountability
a. Create Comptroller Office
I am prepared to work with the Legislature to create an appointed Comptroller with a term of six years to ensure the office’s independence.
b. Financial Audits of Government
And as I have repeatedly argued, we need an independent and properly staffed State Comptroller to systematically and regularly review financial activities of all governmental units and authorities.
c. Greater Public Participation In Budget Decisions
Public participation can be a check on spending, as we saw with this spring’s school budget elections.
Budget elections should be more democratic and potentially held at the same time as general elections.
7. Create Sustainability of Reform
a. Cap Property Tax Increases
We need to cap the annual increase in the property tax, not a new cap on spending, but a cap on the increase in the property tax bill itself.
We can fashion provisions to cope with inflation, population growth and changing needs.
But no homeowner, no property owner, should have an increase in their annual property tax bill greater than 4%.
This cap would cut the recent spiraling rate of increases by more than a third.
b. Evaluate Results
We should also include a four-year sunset provision so that we can evaluate the cap’s impact.