Free New Jersey: The Burden of Property Tax Exemptions

By Donald A. Krueckeberg

INTRODUCTION

Imagine a colonial New Jersey town 300 years ago. It has one church; the townspeople are predominantly of one faith. The town is miles from its nearest neighbor, so everyone lives, works and goes to school there. There is a town doctor, but no hospital. The town has businesses that trade on the river and serve surrounding farmers from time to time, but for the most part the residents consume what services the town provides. And these services are relatively few, so government expenses are low and paid for entirely by a tax the town levies on residents’ homes and land-a property tax, as it were.

In this era-before “separation of church and state”-religious institutions were closely identified with the government, in the tradition of the divine right of kings. No property taxes were levied on the church nor were they on the school because they were considered-like the church-to be no more than extensions of the private property of the townspeople, who already carried the tax burden. The people who would pay a tax on the church and school were the same people whose property already was being taxed, so taxing the institutions themselves would be duplicative.

Now imagine this same place today-a city, say, like New Brunswick. It is an old and complex city, densely packed into a county of 25 municipalities. Instead of one church there are 56 churches and synagogues. Many of their congregant families moved to the suburbs a generation ago. A major state university-attracting students from around the world-sprawls throughout the city, with a faculty that lives all over New Jersey and in neighboring states. A seminary trains pastors for a large national Protestant denomination. The incomes of city residents, largely working class, are among the lowest in the state. Revitalized commercial development and new upscale homes carry substantial property tax abatements.

Two large hospitals fiercely compete to supply the region with the best medical services money can buy. Numerous county government buildings crowd into high-value downtown space. The public schools struggle near the bottom of academic ratings for the region. Nonprofits, charities, medical and educational organizations concentrate in the city.

To pay for the schools as well as services offered by the city and county, property taxes are high. Yet, property amounting to 47 percent of the value of all the buildings and land within the city limits is not taxed at all.

This is a situation in which many of the services supported by property taxes-police, firefighting, street lighting, roads just to name a few-are used by thousands of people who do not pay those taxes, either because they reside outside the city or because they are within the city but exempt from property taxes. And many of those who do pay are not getting the value of the institutions that do not pay. These are people whose children do not attend the state university, whose churches do not benefit from the seminary’s training. They do not practice medicine in the hospitals or law in the county courts or teach at the university.

Everything else being equal, residents are paying higher taxes than they would pay if everyone using the services shared the burden of paying for them. In short, piety, charity, government and the tax laws of the state help to keep this city poor. “Where is the justice,” asks Richard D. Pomp, professor of law at the university of Connecticut and Director of the New York Tax Study Commission, “in a state law that forces a city to subsidize those who live in the suburbs?” (Pomp 2002, 385). Indeed, where is the justice in public policy that heaps the burden of many onto the few least able to bear it?

This report will examine those questions. It will present data on the nature and extent of property tax burdens in New Jersey and its municipalities, look at the reasons and arguments for and against property tax exemptions and offer recommendations to deal with a situation resulting at least in part from sleepy villages evolving into modern New Jersey-while the system for funding government services still closely resembles that of colonial times.

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