New Jersey needs a plan to slay its property tax dragon

A few years ago, the Garden State Initiative looked at the total dollars collected by all state government agencies.  The staggering $117 billion price tag astounded everyone, including us.

Since that time, the relative burden of our Property Tax portion of that number rightfully remains at the top of our citizens’ and business owners’ minds.  In order to tame the fire-breathing dragon known as “property taxes,” let’s have an honest conversation about the whole picture, not through the lens of 565 municipal budgets, 600+ school districts and 21 county budgets.

Based on our research, with some updating from state records, New Jersey spends over $67 billion to sustain “local control”. That means $31.4 billion is collected directly from property owners and $35.2 billion supplemented from the state budget, primarily funded by Personal Income Tax collections

What is not so apparent, is that the $67 billion primarily pays for a public workforce of approximately 350,000 individuals. So, if you look inside your property tax bill (on average 60% for schools with county and local government comprising the remaining 40%), you will see that between 60 and 70% of your tax bill, or over $43 billion, is exclusively driven by salary, health and pension benefits for those 350,00 individuals.

To be specific, of the $40.2 billion we spend on K-12 schools statewide, understand that employee salary and benefits account for $26 billion. And our county and local governments who collectively spend $27 billion, over $17 billion is for their salary and benefits.

Commit to roadmap real property tax cost deductions

To realistically discuss flattening or even reducing our highest-in-the-nation property taxes, one-time or annual rebates only temporarily assuage angry constituents and papers over what every New Jersey resident knows in their gut we must do to control our future. We must either lower the cost per employee or reduce the number of employees. Typically, a bit of both is what happens in the “real world” where taxpayers live.

GSI proposes three steps to “slay the dragon” and maintain communities in New Jersey that are affordable, fair and sustainable:

1. Save property taxpayers $3 billion by matching cost per pupil in MassachusettsBenchmarking our education costs to Massachusetts’ cost per pupil, which is 20% below New Jersey’s over $20,000 per pupil, will reduce property taxes over $3 billion.  Let’s find out how they are able to beat us on costs and integrate those cost savings immediately.

2. Offer health benefit plans consistent with current market conditions

The revelation that the much heralded “renegotiation” of the health plans provided to our public work force created an additional $40 billion in liability for taxpayers is jaw dropping.  Exacerbating not improving our property tax burden is unacceptable and must be remedied.  Setting cost limits, available options, and reasonable cost sharing formulas, will reduce this liability and deliver market-defined, affordable plans for employees and property taxpayers.

3. Fund a sturdy retirement plan, not a failing pension system While much focus is put on the state’s hefty $7 billion pension payment last year, when local pension contributions are included, taxpayers’ total cost to sustain New Jersey’s pension systems approaches $10 billion annually and still the funding ratios continue to decline each year.  New Jersey can take this unique opportunity to immediately improve our failing retirement plan for our public workforce.

This funding of a one-time even higher contribution is only warranted if it comes with real reform to the pension system as a whole. Switching to a defined contribution (or hybrid) plan, used by more than 100 million Americans, can assure our pension retirement obligation is met into the future. New Jersey can make this payment up front which gives residents and employees more confidence in the retirement plan for public employees, improves NJ’s credit position, and lowers future debt payments leading to more investment capacity for economic growth.Taming the dragon of our ever-escalating, highest-in-the-nation property taxes will only be possible if responsible elected leaders at the state, county, municipal and school levels commit to follow a roadmap to a better future for all New Jersey.

If these steps make sense to you, ask your elected leaders to either get on board, or get out of the way.

Regina M. Egea is the president of the Garden State Initiative, a public policy think tank based in Morristown.