It's well known that New Jersey relies too much on local property taxes to pay for government services and education. Less well known is the extent that property which is exempt from taxes helps drive up everyone else's property taxes. Most of this exempt property is government facilities, schools, religious and charitable endeavors.

It was simpler 300 years ago, when colonists decided not to levy tax on the town church or school, since both were seen as simply extensions of the townspeople's private-and therefore already taxed-property.

Today, New Jersey residents pay higher taxes than they would if everyone using services shared the burden of paying for them. In 2000, the total value of buildings and land in New Jersey was $648.5 billion. Of that, 13.5% was exempt from property tax. You can dispute whether 13.5% is a lot or a little. Clearly, though, we have a problem with how it is distributed. Too often, municipalities with the most exempt property are the ones that can afford it least.

Put another way, municipalities whose residents have higher incomes tend to have fewer exempt properties and those with lower-income residents tend to have more. And property tax rates generally are higher in municipalities with more tax-exempt property. Newark, Trenton, Camden, New Brunswick and Orange top the list of places where more than 25% of property tax value is exempt, effective tax rates are above $3 and per capita income is less than $15,000. In each, more than 40% of property value is exempt from taxes.

Meanwhile, municipalities with tax rates under $3, less than 10% of property exempt and per capita incomes over $100,000 are in the opposite position. They include Pine Valley, Saddle River, Far Hills, Rumson and Bernardsville-none of which has more than 6% of its property value tax-exempt.

If property is owned by state government, the municipality gets a Payment In Lieu of Taxes (PILOT). But it is rarely as much as the law intended, and certainly not enough to make up for all the revenue that a private sector facility or homes in that location would pay. Many nonprofits also pay PILOTS, though they too are far less than what private property would pay.

These exemptions are rooted in various theories which hold that as a quid pro quo certain kinds of uses should not have to pay property taxes because they perform a public good. Again, though, there is unevenness in the process. Take for example a hospital located in Camden which is exempt from city taxes, but most of whose patients live in other municipalities. They are essentially getting medical services and all the other services offered by a city (like police and fire protection) at the expense of Camden residents.

So the problem with what we might call these "free riders" is that the burden of supporting them is unevenly and unfairly spread. In many cases the greatest burden of this fiscal generosity falls on those who can least afford it and the greatest benefits accrue to those on top of the economic ladder.

All of this is exacerbated by the fact that New Jersey relies so heavily on local property taxes. By extension, relieving the property tax burden in general would make this situation better and is one more reason why New Jersey must reform its tax structure. But there are other things we should do. Here are four recommendations:

1. Tax-base sharing. If municipalities in a region pooled their property tax revenue and divided it up to take into account the impact of traffic, pollution and the like that development in one place causes in others, it would ease the inequity caused by one municipality having much more tax-exempt property than another one nearby.
2. Taking this a step further, a tax-exempt tax base sharing pool would spread among the region those costs that need to be made up because of property taxes not paid by various entities that serve a wider area than just the municipality in which they are located. Something like this was recommended more than 30 years ago by a commission Governor Cahill created, which suggested that all tax-exempt property be assigned to the county and that the costs be shared.
3. A state website listing every tax-exempt property in every municipality and the reason for the exemption. Citizens and policymakers could use this to better grasp the magnitude of the situation and examine whether traditional rationales for exemption withstand the test of time.
4. A list maintained and made public by the state of all payments in lieu of property taxes made by any tax-exempt entity and copies of the agreements setting forth the terms.

These property tax exemptions should be seen for what they are: a local subsidy to regional demands. We need to reexamine this trend, rethink the reasons and establish a fair distribution of community responsibilities.

Donald A. Krueckeberg is Associate Dean of the Bloustein School at Rutgers-New Brunswick, and author of the NJPP report "Free New Jersey: The Burden of Tax-Exempt Property".

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