PROPERTY TAX RELIEF TODAY, HEADACHES TOMORROW

"I'm here to say we've done very well...It's not everything that everyone would like but it's really extraordinary...We're not done. We need to keep fighting."  So said Governor Jon Corzine last Tuesday after he signed a $2.2 billion property tax relief plan that will provide nearly two million homeowners with $1,100 of relief. Most homeowners will certainly like the money they will receive later this year. But fewer are likely to think that this level of relief is extraordinary and will expect the Governor and the legislature to find ways to provide more property tax relief and make it permanent.

Will the Governor and the Democratic-controlled legislature have the political will and the interest to do what is necessary to provide permanent property tax reform?  Will New Jerseyans accept the big changes that it will no doubt take for them to get a bigger break on their ever-increasing local levies?  Will lawmakers and candidates - this year, of course, is a legislative election year - in one or both parties be willing to explain to constituents not just the obvious benefits of property tax reform but the costs as well?

Last July the Governor said he was committed to taking a comprehensive approach to property tax reform. After a tumultuous budget season that saw the sales tax rate increased, state aid to municipalities and school districts frozen, and rebate checks kept at a modest amount, Corzine called for a special session of the legislature to reduce the reliance on property taxes.  Borrowing heavily from Assembly Speaker Joe Roberts' CORE reform plan, the Governor had some bold ideas about what needed to be done.

Corzine directed the legislature to examine the following: the establishment of an independent comptroller who would look for waste, fraud and abuse at all levels of government; how consolidating small towns and school districts and regionalizing services can save money; a fair way to fund public schools throughout the state; a means to control annual increases in municipal, county and school spending; and, reducing lucrative benefits for public workers and public officials that taxpayers can no longer afford.  Now this was an ambitious agenda, especially since Corzine was determined to achieve property tax reform without increasing other taxes.

The Governor wanted to avoid a tax hike for two reasons. First, he had just endured a bitter battle with legislators in his own party over his proposed one cent increase in the sales tax, and neither they nor the public were in the mood for any other increases in broad based taxes.  Second, he did not want to raise taxes that would discourage businesses from opening or expanding businesses here and that may encourage high earners, who already provide most of the state's income tax revenue, to leave New Jersey.

This average homeowner will get that $1,100 in property tax relief without having to endure any new tax hike, and the Governor can feel good about that.  At the signing ceremony, he spoke proudly about how the new legislation will cap increases in local levies at 4 percent and provide more openness in school and municipal budgeting and incentives to share services.  He also noted that an independent comptroller was approved last month and how this new official will help in the battle against unnecessary spending. 
But take a moment to read what appeared in the Governor's electronic newsletter a few days later about the new property tax relief measure.  He wrote, "Not only does the measure provide short term relief but it also puts in place long-term reforms to help break the cycle of steep annual property tax increases that New Jerseyans have had to tolerate."  The tone is still self-congratulatory, but the substance of the message is modest, appropriately so.  New Jerseyans will receive "short-term" tax relief.  The "long-term reforms" referred to do not address the state's reliance on property taxes but rather represent the effort to control "annual..increases" listed above.

That being said, there are serious questions indeed about whether the "short-term" tax relief can be sustained and whether "annual increases" in property tax rates can be controlled.  As has been widely reported, the $2.2 billion package required to pay for this calendar year's property tax relief includes sales tax revenue from the current 2007 state budget and the 2008 budget that will go into effect on July 1st.  What this means is that the state will have to find some $600 million in calendar year $2008 to help fund next year's relief plan. 

To further complicate matters, revenues are running lower than the Governor projected, and the state may face a $600 million shortfall in the 2008 budget.  This would mean that Corzine would have make cuts in the proposal he presented to the legislature in February. Can state government afford a big property tax relief plan given its fiscal condition?  Well, the Administration still thinks so. Treasurer Bradley Abelow told legislators that property tax relief remains one of the Governor's highest priorities.  One wonders if that will change if the state is required to pay more into the public workers' pension and health insurance funds.

At this point New Jerseyans will get their checks this year. But what will happen to their local property taxes?  Corzine has admitted that residents should not be surprised if annual increases in local levies exceed the new four percent cap.  Energy and health insurance costs continue to skyrocket. Contracts already in place must be honored.  Many school districts will experience increases in enrollments that will drive up costs and hence taxes.  The new commission that is supposed to help school districts and municipalities find ways to save money through consolidation and regionalization can only make recommendations and not mandate cost-savings measures. And, it will take the new state comptroller's staff some time before it starts identifying spending cuts.

When one considers likely increases in local levies this year, along with what residents are paying because of the one point sales tax hike approved last July, New Jerseyans net property tax relief shrinks from $!,100 to just a few hundred bucks.  If meaningful relief is so hard to produce, will folks ever get real property tax reform. Without some serious cuts in spending at all levels of government, a big shift in school funding to help moderate-income districts, and an increase in income tax rates on many residents, not just the wealthy, property tax reform will not occur. Why can't lawmakers from both parties simply admit this and get down to work. And, like the Governor has said on other occasions, the focus should first be on helping the truly needy, those people hit hardest by regressive property taxes.  Isn't that what Democrats claim they stand for?    David P. Rebovich, Ph.D., is Managing Director of the Rider University Institute for New Jersey Politics (www.rider.edu/institute). He also writes a regular column, "On Politics," for NEW JERSEY LAWYER  and monthly reports on New Jersey for CAMPAIGNS AND ELECTIONS magazine.