TRENTON-New Jersey residents pay higher property taxes than they would if everyone using government services shared the burden of paying for them. Tax-exempt property-mostly devoted to government facilities, schools, religious and charitable endeavors-amounts to over 13% of the value of property in New Jersey, or nearly $90 billion, according to a new report from New Jersey Policy Perspective.

Free New Jersey: The Burden of Property Tax Exemptions, by Rutgers Prof. Donald A. Krueckeberg, found that municipalities whose residents have higher incomes tend to have less exempt property, and those with lower-income residents tend to have more tax-exempt property. And municipalities with a lot of exempt property also tend to have more people living in them. The report makes several recommendations to reform the process, with the aim of making sure the tax burden is more equally shared.

"The problems detailed in this report are more serious because New Jersey relies so heavily on local property taxes," said NJPP President Jon Shure. "If the state relied less on property tax, the burden caused by those exempt from it would be reduced. It's just one more reason why New Jersey's tax system needs to be reformed."

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.

Generally, property tax rates are higher in municipalities with more tax-exempt property. The 10 municipalities with these three characteristics-more than 25% of property tax value is exempt, effective tax rates are above $3 and per capita income is less than $15,000-make up nearly 10% of the state's population. Newark, Trenton, Camden, New Brunswick and Orange top the list-each with more than 40% of property value exempt from taxes.

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

In the case of property owned by state government, the municipality gets a payment in lieu of taxes (PILOT) under a state program that rarely is fully funded and does not make up for all the revenue that would have come in if a private sector facility or homes were in that location. Many nonprofits also pay a PILOT, though not required by law to do so. Basically, a municipality works out what it thinks is the best deal it can get-again, far short of what private property would pay.

The report makes these recommendations:

• Tax-base sharing. If municipalities in a region pooled their property tax revenue and divided it up in ways that take into account the impact of traffic, pollution and the like that development in one place causes in others, it would help ease the inequity caused by one municipality having much more tax-exempt property than another one nearby.
• Taking this notion a step further, a tax-exempt tax base sharing pool. In other words, 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.
• A state website listing every tax-exempt property in every municipality and the reason for the exemption. Then, citizens and policymakers could get a better grasp of the magnitude of the situation so they could examine whether traditional rationales for exemption are withstanding the test of time.
• 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. Today there is no one place to find out if Princeton University, the Presbyterian Church, St. Peter's Hospital or the local cemetery are making any payments toward the services they receive from the places where they are located.

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

TAX REFORM

WORK & WAGES

BUDGET & FISCAL POLICY

TRANSIT ISSUES

ECONOMIC DEVELOPMENT

VOTING & GOVT REFORM

© 2008 New Jersey Policy Perspective