New Jersey residents can be proud to be number one in something: property taxes. According to the Fiscal Times, Garden State homeowners pay an effective tax rate of 2.38 percent, for a median of $7,331 on an average home, the highest in the nation. By comparison, the average homeowner in Illinois, the second highest-taxed state, pays only $3,959.
You don’t have to be a tea partier to feel as if property taxes are oppressively high. Taxes are the number one reason cited by residents who move from New Jersey to another state.
Most of that property tax goes to fund the state’s public schools, which perhaps not coincidentally, are highly rated by most surveys of educational quality. The rest of that hefty bill pays for municipal and county services and a few miscellaneous items like open space and library taxes.
The blame for this high tax rate often falls on the way the state’s levels of government are structured. In many states rural or lightly populated areas are not incorporated into townships and receive government services at the county level. But in New Jersey the entire state is a patchwork of 565 municipalities, and more than 1,500 government entities if you include school districts. The tradition of “home rule” means that these local governments have a high level of sovereignty and rarely collaborate to provide shared services.
Others blame New Jersey’s high property values and high cost of living for the high taxes. Many commissions and politicians have examined the issue and tried to find a solution, but few people have taken a scientific look at local government and property taxes.
One of those trying to shed rational light on the topic is Raphael J. Caprio, a Rutgers professor and director of the Bloustein Local Government Research Center, part of the university’s school of public policy. Caprio notes that while New Jersey is a high tax state overall, there is wide variation between municipalities in how much they collect and how they spend that revenue.
So how does your town stack up? Thanks to open government records laws, townships are all required to post their annual budgets on their websites. These budgets provide the key to seeing how your tax dollars are spent. One simple way of measuring the effectiveness of your tax dollars is to take the total amount spent every year and divide it by the total number of residents. This tells you how much the government is spending per person.
Caprio is currently in the midst of a survey that calculates this figure for every municipality in the state, making minor adjustments to account for some differences in the way towns handle their finances.
For example, Hamilton Township spends about $1,100 per resident of the town — about an average amount of money. On the other hand, Trenton spends about $2,200 per resident. And Princeton also spends about $2,200 per resident.
Another interesting measure is to compare the number of township employees to the size of the municipality. While town budgets do not make public the number of employees, a state database of current pension employees shows the number of active pension members, which can be equated to the number of workers. Princeton has 224 workers, or one employee for every 127 residents. By comparison, Hamilton Township has 543 workers, or one for every 162 residents.
Those figures mirror a statewide pattern that Caprio has found in his research. Several years ago Caprio looked at the budget-per-capita figure and compared it to another measure that the state had come up with to measure the socioeconomic status of school districts. The District Factor Group rated school districts on a scale from A (poor communities) to J (wealthy communities.) Districts like Trenton and Newark are rated A, while Princeton is rated I, near the top of the scale.
What Caprio found was that districts like Hamilton, with its FG grade, is in the middle of the scale, had average or low budget-per-capita. On the other hand, very wealthy and very poor communities spent much more per person. So why do Trenton, with a low average income, and Princeton, with high income, spend the same amount per person?
“This is pure speculation, but we believe poor municipalities cost more because they have to provide more services, while rich communities have money and they buy what they want,” Caprio said. Everyone else is somewhere in between.
Research conducted by the Local Government Research Center busted a popular myth that larger municipalities are more efficient with their tax dollars than smaller ones, a conclusion that cast some doubt on the effectiveness of municipal consolidation as a way to improve efficiency. “If you take out the coastal resort communities, the cost per capita averages around $1,200 and it doesn’t make any difference whether you are a big or a small municipality,” he said. “In fact some of the smallest municipalities have some of the smallest per-capita costs because they also tend to be rural and have no police cost because police protection is provided by the State Police.”
While Caprio is skeptical that consolidation is the answer to property tax woes, he concedes that it does make sense in certain situations. For example, the 2012 merger of the Princetons resulted in a small reduction in the cost of municipal government. “It was probably the right thing to do,” he said. “If you’ve got two municipalities that see themselves as two different communities, then you probably don’t want to pursue consolidation. But if you have two communities such as the Princetons, which did consolidate, as evidenced by the fact that over the course of decades they had more than a dozen key services consolidated … it made very good sense for those two communities to consolidate.”
In the end, homeowners in the Princetons didn’t see smaller tax bills because a small increase in school costs around the same time more than canceled out the savings on the municipal side.
The towns in the Route 1 corridor are fairly average across the state in terms of budget-per-capita. Elsewhere in the New Jersey, there are small towns that are true statistical outliers. According to figures from the New Jersey Data Book, Teterboro in Bergen County, population 67, spends $73,426 per resident. Among more normally sized towns, Weehawken, Hudson County, is the biggest spender at $2,707 a head. Financial basket case Atlantic City, with a population of around 38,000, spends $6,600 per person to run. However, Caprio typically excludes beach resort towns from his analysis because they have to provide services to hordes of out-of-town tourists who do not pay property taxes.
Property tax payers also fare better in towns that have a lot of commercial taxpayers. For example, South Brunswick spends less per resident than the average. Caprio speculated that this could be partly due to the large numbers of warehouses in the municipality, which pay taxes but don’t consume very many government services.
Caprio has spent most of his career studying public policy. He grew up in Newark, where his mother was a saleswoman. His father was himself a municipal employee who drove a front-end loader for the city. Caprio said his parents worked extra jobs to send him to the prestigious St. Benedict’s prep school in Newark, which he described as a life-changing experience, and which he continues to support. “It’s one of fewer than a handful of well respected private high schools where a predominantly white alumni group is supporting financially, in a big way, a predominantly minority current student body,” he said.
He studied urban geography and urban affairs at Rutgers, earning a Ph.D. in 1973. He has spent the last 46 years at Rutgers as a professor, starting in urban geography, where he was an early user of computerized Geographic Information System mapping.
In 2012 Caprio co-founded the Local Government Research Center together with Marc H. Pfeiffer, a former municipal administrator who oversaw local governments as the state Division of Local Government Services deputy director for 14 years. Caprio said that New Jersey suffers from an absence of research on local government issues, a gap that his small center hopes to fill. “There is very little research on the impact of policy on municipalities,” he said. “For example, one of the things that we hear all the time is that cops are half the cost of local government. Well, it’s not true. On average it’s about 20 percent.”
How to Read a Budget: Local government budgets are the key to Caprio’s research and also provide a way for average citizens to see what their municipality is up to. Conveniently, all municipalities use the same form to report their budgets. This makes it possible to make apples-to-apples comparisons between towns. While the form has a lot of boilerplate and extraneous information, Caprio said useful information can be discerned by focusing on a few key details.
The first piece of useful information is on page 3b of the budget, at the bottom, which shows the total appropriations cap. That’s the maximum amount of money that the town is allowed to spend. Since 2014 the cap for all towns is 2 percent higher than the previous year’s budget, excluding certain items that rise automatically such as interest payments on debt. In the case of Princeton’s 2015 adopted budget, the form shows the town’s appropriations were $35.6 million, which was $1.5 million under the allowed budget cap.
Following this is a sheet showing the potential future liability for sick days and vacation time of town employees. This figure is what the town would have to pay if every police officer and town employee quit at once and cashed in their sick time and vacation time. Towns hold a cash reserve to pay for this eventuality. Since a mass walkout is unlikely, the reserve is usually just a fraction of the total liability and varies depending on the budget philosophy of the town. Princeton reserved $243,000, but if everyone walked off the job one day, it would cost $672,000. Caprio said this is an unusually high number and that most towns only hold about $100,000 in reserve.
The next item of note, sheet 11, shows the budget surplus. For a variety of reasons, townships usually don’t spend their entire budget each year, and the surplus is carried over for future use, providing some cushion in case the town collects less tax revenue than it expects.
Next comes a list of income from various revenue sources other than property taxes, and this can be quite a significant portion of the budget. Parking and speeding tickets, construction fees, unrestricted state aid, liquor licenses, and other revenue is shown here. In Princeton’s case, the sheet shows money collected via PILOT — payments in lieu of taxes — from nonprofit groups that are exempt from local property taxes, but which choose to contribute to the town — most notably, Princeton University.
Traffic tickets and other fines are listed under Municipal Court. This item dispels another myth about township government, which is that tickets are a major source of revenue. In most cases, the amount collected by tickets barely covers or falls short of the amount of money it costs to operate the municipal court, to say nothing of the police force. By contrast, a 2014 study of Ferguson, Missouri, following the Michael Brown shooting found that municipal court revenue accounted for a full 20 percent of the budget.
Caprio said if governments truly wanted to use tickets as a revenue source, they would need only to set up speed cameras to write automated tickets.
Next comes a list of appropriations, which include everything from salaries to the police force to the cost of keeping the lights on in municipal buildings. Police budgets are usually 12 to 16 percent of the town’s total expenditures, making them a major expense, but not an outsized contributing factor to the property tax bill.
On page 19 is a list of things that municipalities are required to contribute to, including the police and fire pension system, retirement funds, and healthcare plans. While this item is consistently a large chunk of change, towns cannot choose not to pay it if they are facing some sort of budget crisis.
“This is precisely the kind of stuff the state is supposed to be paying for by contract but doesn’t pay,” Caprio says. The statewide pension system is suffering a $64 billion shortfall, due to the state government failing to meet its obligations, but the system for municipal workers is healthy because townships have been unable to duck out of their obligations.
Next is a list of things that are paid for by grants from outside sources, such as police body armor or the “cops in shops” program to put police officers in liquor stores. These items have no effect on the rest of the budget because the grants have to be spent on the services or programs they are earmarked for.
There is also a line item called “reserve for uncollected taxes.” While this may seem boring or arcane, this figure represents the amount that taxpayers must pay to make up for their deadbeat neighbors who don’t pay property taxes. Townships anticipate collecting about 97 to 98 percent of the money they are owed each year, and must raise taxes a little on everyone else to make up for the shortfall. Princeton reserves about $2.9 million for this purpose.
What does it all mean? In the world of business, it’s possible to compare enterprises to one another and against a set of standard benchmarks to see which companies are being run efficiently and which aren’t. For example, a certain kind of dental practice operating in a certain part of the country could be expected to spend a certain amount on hygienists. Anything above that amount would be a red flag that something was out of whack.
Unfortunately, such benchmarks do not exist for municipalities because no two towns are alike. Some have paid fire departments, while others are funded by a special fire district tax. Others have all-volunteer forces. Some towns collect garbage and in others, the residents are on their own. Caprio says large cities provide a greater range of services that just don’t exist in small towns.
“People ask us how towns got to be the way they are,” Caprio said. “They got to be the way they are because that’s how they evolved for the past hundreds of years. What do people want, and what’s right? Well, it depends.”
Some towns have existed since the 1600s and the mix of services they provide has evolved slowly since then. (As far as anyone can tell, the state’s first property tax — half a penny per acre — was levied in 1670.) Undoing that much tradition and creating a more efficient system would not be an easy task. After studying the subject for years, Caprio has concluded that the only way to make a real dent in the tax bill would be to increase classroom sizes, an idea that both parents and teachers’ unions would oppose.
The flow of traffic across the Scudder Falls Bridge every day is evidence of the fact that many people who work in New Jersey would prefer to live in tax-friendlier Pennsylvania rather than receive all those services. Lower Makefield, Pennsylvania, spends only about $327 per resident. But pure property tax numbers can be deceptive. Pennsylvania has local sales taxes, personal property taxes, high vehicle registration fees, and high gas taxes that New Jersey residents avoid, Caprio said.
There is a bright side to municipalities being so eclectic in their spending habits — if you don’t like your town’s spending habits, you can get a completely different version of local government one or two towns over and still be in commuting distance to your job.
“New Jersey is one of the few places where people have within almost any reasonable commuting distance far more choice in what they want and what they are willing to pay for than most other states.”