The League of Women Voters
of New Jersey

a nonprofit, nonpartisan organization whose purpose is to promote political responsibility
through informed and active participation in government

Update: This legislation (S.12/A.1) was passed and will be phased in and, by 2003, provide $1 billion in direct relief. The rebate is calculated on the school tax base in each municipality and in 2003 will be the school taxes paid by homeowners in each municipality on the first $45,000 of assessed value of a principal residence. There are also provisions for renters to receive rebates.

LWVNJ has opposed homestead rebates in previous administrations as well as this latest proposal--based on our Tax and Spending Policy position.

Senate Budget and Appropriations Committee

Assembly Appropriations Committee

March 18, 1999

given by Judith Cambria, LWVNJ Fiscal Policy Specialist

The League of Women Voters of New Jersey has been concerned with New Jersey’s overuse of the property tax for half a century. The League began advocating for a state income tax in the 1950s to help balance the tax structure and provide more tax equity among citizens. The League has also advocated a “circuit breaker” property tax relief system which targets aid to those with heavier tax burdens while protecting state revenues by not giving unwarranted “relief” to those whose property tax load is light.

The League believes that any property tax relief is justified only if it meets these goals and also is fiscally responsible. Fiscally responsible means a reliable source of state revenue capable ofsustaining the program, particularly this program which increases the revenue demand fivefold before full phase-in occurs. Fiscally responsible also means designing a program that is efficient and cost effective. Individual rebate checks provide political advantages to politicians and elected leaders at a heavy tax cost to New Jersey taxpayers.

The League of Women Voters opposes the homestead exemption plan because:

• The plan fails to reduce inequities in the property tax burden among citizens by providing significantly greater property tax relief for more affluent citizens. (Property tax rates in New Jersey range from 50 cents to more than $11, with the lowest rates in municipalities with affluent citizens.)
• It will drain hard-to-come-by state revenue dollars to provide relief to citizens who enjoy a low property tax burden and high personal wealth. (The property tax burden by family income [non-elderly married] exceeded 8.5% of income for lowest 20% to just over 2% for highest income families in 1995.)
• It has no source of reliable future income, depending on a continually improving economy to provide large annual revenue increases, and preempting a major portion of any such increase for this single program.
• It is excessively and unnecessarily expensive. Rebates can be accomplished efficiently and cost effectively through tax credits at the state or local level.

Unfortunately, existing property tax relief programs suffer some of the same flaws (defects). The property tax deduction from the income tax also skews relief to the benefit of wealthier citizens and the design of senior citizen homestead results in significant relief to seniors with incomes well above the very high New Jersey average income while ignoring younger families with children with low or modest income.

The League opposes homestead property tax rebate program before you today because it continues and increases the negative effects of present relief programs and represents a far greater drain on the state treasury. An essential reason for the League’s opposition to this plan is our firm belief that it is fiscally irresponsible. We are convinced that presently elected leaders have no right pass programs with low initial funding that require massive increases in revenues after they have left office -- without providing the necessary revenue source.

The hallmark of the 1990s in New Jersey has been the shifting of costs of present programs and newly enacted initiatives to future taxpayers -- and leaving the raising of taxes to future elected officials. This is reflected in rapidly escalating debt repayment to pay for a huge increase in state debt (with even greater borrowing needed after 2000) as well annually increasing program costs. Annual debt payments have quadrupled since the early 1990s to $1.2 billion annually. This is only the beginning.

• Major increases in debt repayments on issued debt and commitments for
• increased debt facing NJ.
• Reasonable to anticipate $10 billion or more.
• $2.8 billion in pension bonds payment increase to $500 million annually
• $1 billion land preservation bonds
• $5.3 to $7-8 billion school facilities
• $550 million higher education
• ? transportation infrastructure
• recent bonding reached $700 million annually
• all fuels tax needed for debt payment in 2000
• ? incinerator bonds

Major program commitments include:

• $98 million yearly for land preservation constitutionally dedicates about 14% of sales tax
• $1 billion yearly for prop.tax rebate phases-in by 2004 in $200 million increments

Annual state budget increases in 2000; total of $768 million in selected areas only:

State Government - $580 million
Human Services - $170
Law & Public Safety - $ 33
Higher Education - $ 88

Do you not find it disquieting that within a few years the state debt will match or exceed the annual state budget, with no end in sight? The League does.

League opposition also is based on other “unintended consequences.” The rebate plan undermines the State Plan, encouraging and subsidizing suburban sprawl and increasing the difficulty of carrying out the recently enacted open space preservation program. It provides positive,and large, financial incentives for citizens to desert the cities forlower tax, higher rebate suburban municipalities. Furthermore, itencourages rather than discourages high cost suburban school districts,where excessive spending has been attacked by the state, by providing greater tax relief there.

Finally, the plan does not address the real issues of property tax reform. The design of the homestead exemption legislation, with its five year phase-in period, makes it clear that it is designed to provide short-term political advantage by improving the election chances of the present administration in the fall legislative election, and to leave it to future legislators raise taxes or reduce or eliminate the rebates.

LWVNJ IS CONVINCED THAT THE PROPERTY TAX REBATE PLAN WILL NOT BE FULLY FUNDED UP TO THE BILLION DOLLAR ANNUAL LEVEL.

We are sure of this for a number of reasons: -- because it is unrealistic to expect the economy to increase at unprecedented levels for another four years to provide the significantly increased state revenues needed; -- because program and debt service costs will rise so rapidly they will preempt revenue needed for the rebate program; -- because no legislature, whether controlled by Republicans or Democrats, will have the political courage to raise state taxes to cover the increasing cost.

We see a rerun of the history of the earlier homestead rebate program. Benefits for all but senior citizens and disabled were eliminated in 1992 when the reduction of the sales tax trumped tax relief from the rebate programs. When the rebate program fails to be increased to the billion dollar level, present elected leaders of New Jersey will have set the stage for greater citizen cynicism about and alienation from government as well as increased apathy and reduced citizen participation, The Appropriations committees of our legislature are responsible for looking at the bigger picture. Citizens count on these particular lawmakers to analyze individual pieces of legislation to assess their effects on the future of the state, whether they make our tax structure more or less equitable, whether there are sufficient revenues now and in the future to continue the program, whether funding for other essential programs will not be compromised, and if future legislatures will be willing to increase taxes if needed to carry out any escalating cost built into a new initiative.

The Senate Budget and Appropriations Committee carried out this responsibility with honor when it refused to approve the pension bond legislation. The League hopes it will carry out this responsibility again by voting not to release the property tax rebate legislation for action by the full legislature. But we do not expect that outcome.

Therefore, we call for the following changes in the legislation to ameliorate some of its worst shortcomings. Base rebates on total tax rates rather than the school tax rate. This provides for far more equitable distribution of state funds to citizens and eliminates many of the unintended consequences discussed above. Include a graduated amount of exemption based on income. The amount of exemption of assessed value should begin low, perhaps 10%, for those of very high personal income, and should increase to more than the 45% in the present bill for those at the lowest income levels. This reduces the rebate of the more affluent families while increasing the amount provided as income declines.

These two changes will improve the legislation significantly by creating greater tax equity among New Jersey citizens. It will reduce the property tax burden of citizens carrying heavier tax burdens while providing a modest amount to wealthier families living in lower tax rate municipalities. They will also help offset the anti-equalizing effects of other existing property tax relief programs.

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