Thesis: Taxes Public Administration

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¶ … dwarfed in terms of physical size and population by its larger neighbor, New York City, Hoboken, New Jersey has experienced many of the same growth pangs as its larger counterparts elsewhere in the country and has struggled with identifying an appropriate property tax rate that will provide its citizens will indispensable services while keeping rates affordable for its middle-class residents. Despite some needed reforms in recent years, property taxes in New Jersey remain the highest in the entire country and many observers suggest that more needs to be done to provide property tax relief for the citizens of New Jersey State today. Compounding the problem for the citizens of Hoboken, though, have been some significant changes in the city's oversight by the state and the need to maintain tax reserves that are also mandated by the state. Not surprisingly, the tax-weary citizens of New Jersey in general and Hoboken in particular have made their outrage at these burdens well-known, and the current leadership of the state and city have made some progress in delivering some sorely needed relief. Nevertheless, much more remains to be done to bring New Jersey's and Hoboken's property tax rates in line with the rest of the country, a problem that forms the focus of this paper. A review of the relevant juried, scholarly and popular literature is provided concerning these issues, followed by a discussion and summary of the research in the conclusion.

An Analysis of Property Tax Issues in Hoboken, New Jersey

Introduction

purpose significance, trends

The focus for this study is the city of Hoboken, NJ and the controversial property tax issues that have emerged in recent years. For example, in December 2008, Hoboken increased municipal property taxes by a staggering 47% after finding major shortfalls in the budget that included $10 million for the FY 2008 budget which was $10 million short. The increase was also needed to provide $8 million as a "Reserve for Uncollected Taxes" because the reserve is required by law and is based on a city's uncollected tax rate from the previous year. Usually the required reserve is around $365,000; however, because the city failed to pass the 2008 budget on schedule, they sent out the final tax bills late and people paid them after the fiscal year ended. Therefore, Hoboken's tax collection rate for FY 2008 dropped from 99% to 83.3% making the required reserve skyrocket. Other shortfalls that made the major municipal tax increase necessary included $1 million that was needed since homes that improved their value in 2008 by building were not reassessed appropriately and an adjusted bill was never provided. To determine the current state of affairs, this paper examines the issues concerning how such a large budget short fall occurred in the first place and why it required a nearly 50% increase in property taxes to resolve it. In addition, this paper provides a review of the local controversy and the resolutions that have been offered to resolve the unforeseen tax malady.

Review and Analysis

Introduction to Hoboken

With a population of about 35,000, Hoboken is a relatively small city that is confronted with many of the same economic problems that its larger counterparts have been experiencing in recent years. Incorporated as a city in 1855, Hoboken has emerged as a burgeoning industrial and commercial center that features a major port, shipyards, and warehouses (Hoboken 2009). Over the past 20 years or so, a growing number of professionals, artists, and students have been attracted to Hoboken because of its geographic proximity to New York City as well as its affordable, renovated housing (Hoboken 2009). The encyclopedic entry for the city notes that, "Hoboken's reputation has grown accordingly, and it has become a cultural community with art galleries, musical events, entertainment, and developing businesses. A major riverfront development project was launched in the late 1990s, and the city became an alternative office location for companies based in Manhattan" (Hoboken 2009:22613). According to Kahn (2000), just a short trip from New York City proper, "Hoboken reveals itself as a small, mostly working-class town: tight little streets criss-cross its one-mile square, a reduced version of Manhattan's dense grid. Row upon row of three-floor walk-ups. Frank Sinatra is the city's favorite son" (44).

Property Taxes in New Jersey

Recent history. The definition of property taxes provided by Black's Law Dictionary states that this type of tax is "an ad valorem tax, usually levied by a city or county government on the value of real or personal property that the taxpayer owns on a specific date. The tax is generally expressed as a uniform rate per thousand of valuation" (1218). The overview of property taxes provided by Barrymore (2009) states that, "Today, property taxes in the United States are mostly based on real property, though some states do tax certain items of personal property. Office buildings are usually taxed according to the rental income they provide for their owners" (3). The State of New Jersey currently has 567 municipalities and 21 counties, and all are covered by the same state mandates concerning property taxes, but this has been a truly sore issue with the citizens of the state for years (Salmore and Salmore 1999). In this regard, Salmore and Salmore emphasize that, "Massive alterations in government bring massive alterations in public policy, and so they have in New Jersey. As stronger state institutions developed, bent on forceful intervention in the state's life, New Jersey became one of the last states to adopt broad-based taxes. So intense was public aversion to an income tax that only the state supreme court, backed by the governor, could mandate its passage in 1976" (8). Despite these initial concerns, the state enjoyed a period of healthy economic growth that helped it pass new tax legislation. For instance, Salmore and Salmore (1999) note that, "When Trenton proved that the modest new tax actually lowered local property taxes (at least temporarily), New Jerseyans gave it grudging acquiescence. Hikes in the broad-based taxes as the economy took off in the early 1980s produced undreamed of revenue, and the state budget quadrupled over 15 years" (Salmore and Salmore 1999:8). As the state budget increased, so too did the corresponding property tax rates. In response to these trends, in 2006, the New Jersey legislature created four joint legislative committees that were tasked with the responsibility to review new ways to deliver reforms for the state's property taxes including alternatives for funding schools and the consolidation of local governments; the state legislature also sought and received approval from New Jersey citizens that allowed the state to increase the sales tax by a half cent in return for property tax relief (Salmore and Salmore 1999). The four committees provided their recommended courses of action in November 2006 and a tax relief law was passed in April 2007 that reduces property taxes by 20% for homeowners whose incomes were less than $100,000 and graduates the rate to 10% for homeowners with incomes less than $250,000 (Waisanen 2007). The property tax reform bill also reduces the average homeowner's property tax bill by $1,000 and mandating doubling the renters' rebate for 800,000 state tenants (Waisanen 2007:41). According to this analyst, "The package restricts annual property tax increases to 4% for school districts and local governments, down from a recent average of nearly 7%, and requires voter approval to exceed the limit" (Waisanen 2007:41). Despite these efforts at reform, the property tax rates in New Jersey are the highest in the country and these issues are discussed further below.

Highest in country. Local property taxes in New Jersey remain among the highest in the nation (Salmore and Salmore 1999). The relative amounts charged for per capita property taxes for the top ten states in the U.S. are shown in Table 1 and Figure 1 below.

Table 1

Ten Highest Property Tax States in the United States

State

Per Capita Property Tax Assessments

New Jersey

$2,098.90

Connecticut

$1,943.90

New Hampshire

$1,939.70

New York

$1,677.00

Rhode Island

$1,628.80

Maine

$1,596.50

Massachusetts

$1,531.80

Vermont

$1,530.00

Illinois

$1,407.00

Wyoming

$1,351.70

Source: Waisanen 2007 at 41

Figure 1. Ten Highest Property Tax States in the United States

Source: Based on tabular data in Waisanen 2007 at 41.

Breakdown of how property taxes are used. At the state level, expenditures for public education account for almost 33% of the budget, and New Jersey consistently ranks first or second in terms of spending for elementary and secondary education in the nation. Despite these contributions, the state's proportional fiscal contribution to education remains below the 50-state average (Salmore and Salmore 1999). At the municipal level, the Hoboken property tax bill is comprised of three fundamental components: (a) the municipal, (b) school district and (c) the county (Baldwin 2009a). This reliance on property taxes to fund the city's schools is commonplace throughout the state. For instance, according to Salmore and Salmore, "New Jersey has always put unusual reliance on local property taxes to fund its public schools" (196). The property taxes… [END OF PREVIEW]

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