How Percent Property Tax Cap Plan Will Impact Residents

property tax capThe state Assembly is to vote today on legislation that would establish a 2 percent cap on local property tax hikes, the result of last week’s compromise between Governor Christie and Democratic legislative leaders. Christie’s new budget includes some funding for a credit that would be provided in 2011 for property owners.

While the political sideshow in Trenton may be confusing, the goal of the new cap is simple: Put stronger controls on property tax bills.

What’s the latest? The Senate voted overwhelmingly to approve the 2 percent cap on Thursday after Governor Christie, a Republican, and Senate President Stephen Sweeney (D-Gloucester) struck a deal over the July 4th weekend. Assembly Speaker Sheila Oliver (D-Essex_ has posted the bill for a 10 a.m. vote.

How did they come up with 2 percent? Current law caps local property tax increases at 4 percent, but it allows several exceptions and voters remain frustrated with high property tax bills. Christie originally proposed a constitutional amendment that would lower the cap to 2.5 percent cap with only one exception, modeled after a Massachusetts initiative. Democrats in the Legislature countered by passing a 2.9 percent cap that included several exceptions, but no constitutional amendment. After signing the new state budget in late June, Christie and the Democrats began negotiations on a new cap. In the end, Christie dropped the constitutional amendment and agreed to allow some more exceptions in exchange for a lower base cap of 2 percent.

Why cap property taxes? State spending is up 40 percent over the last 10 years, far outpacing the rate of inflation since 2000, but spending by local governments has increased by 70 percent during the last decade. And local governments rely heavily on property taxes, the one tax voters routinely identify as their biggest concern. At a combined $45 billion, local governments spend more money than the state does with its annual budget of about $30 billion. Not surprisingly, New Jersey has the highest property taxes in the nation.

Do caps work? The last decade began with tax bills averaging $4,429 statewide and ended with average bills of $7,281, a more than 60 percent increase. Tax bills were going up by more than 7 percent annually in the mid-2000s before a 4 percent cap was enacted by Gov. Jon Corzine in 2007. The last two years saw average statewide increases of 3.7 and 3.3 percent. Conservatives point to those type of decreases when promoting the benefit of tax caps, but labor leaders say they only tell half the story because some communities have eliminated valued services and jobs to get under the caps.

What about the exceptions? The existing 4 percent cap includes several exceptions that communities have used to get around the limit. More than 30 percent of local governments were able to hike taxes over 10 percent in 2008. The deal Christie has struck with Democratic leaders would also allow exceptions, for debt payments, rising health benefit and pension costs and if an unforeseen state of emergency occurs. School districts would also get an exception to deal with rising enrollment. Read full story in Star Ledger.

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