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The Mass. model: Is property-tax cap a good fit for N.J.?
Posted On: Jun 09, 2010



The Mass. model: Is property-tax cap a good fit for N.J.?

Gov. Christie wants to throttle the steady rise of property taxes in New Jersey - already the highest in the nation - by following Massachusetts' lead.

That state's property-tax cap, known as Proposition 21/2, has helped keep property taxes in check since it took effect in 1981.

But experts warn that Massachusetts' experience also holds critical lessons for any state considering a similar approach.

"New Jersey can't say, 'Look, it works in Massachusetts, and it will work here.' It's not the same thing," said Iris Lav, a senior adviser at the left-leaning Center on Budget and Policy Priorities in Washington. Lav, who has studied Proposition 21/2, briefed Garden State legislators Thursday about her findings.

On Monday, Christie formally proposed a constitutional amendment, which would require voter approval, to cap local property-tax increases at 2.5 percent annually. Voters in each town could vote to exceed the cap, and the only other exception would be for debt service.

New Jersey now has a 4 percent cap on property-tax increases and much more wiggle room for exceptions.

In Massachusetts, voters approved Proposition 21/2 in 1980 through a ballot initiative. As in Christie's proposal, local voters may override the 2.5 percent cap. Proposition 21/2 also mandated that property-tax revenue not exceed 2.5 percent of the assessed value of a town, something Christie is not suggesting.

Lav said Massachusetts in 1980 looked very different from New Jersey today.

Massachusetts' economy was booming - so much so that it was called the "Massachusetts Miracle" - while school enrollment was dropping, for example. New Jersey is just starting to recover from a deep recession, and school enrollment is more stable.

The intent of Proposition 21/2 was to keep property taxes in line, not necessarily to reduce government spending, Lav said.

After Proposition 21/2, Massachusetts directed additional state funding to towns to make up for some of the property-tax restrictions and help prevent some cuts in services.

But during tough economic times, including the latest recession, Lav said, state aid has not kept up and towns have had to cut services, including laying off teachers, police officers, firefighters, and other employees; closing fire stations, libraries, senior centers, and recreation centers; and trimming school programs.

"The principal lesson learned is that it works only if the state is willing to give additional assistance to cities and towns," said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a nonpartisan public-policy research organization. "A state thinking about this needs to do it with its eyes open to the reality that it means reduced services at the local level because recessions are inevitable. There's no magic here."

Christie has not proposed increasing state aid to municipalities. His budget proposal for the next fiscal year would cut state aid by $446 million, or about 23 percent.

Mary Forsberg, research director of the nonpartisan New Jersey Policy Perspective, said property-tax caps didn't encourage efficiency so much as they resulted in smaller government, which inevitably means reduced services.

"Caps in general are a lazy person's way of doing government," Forsberg said.

In Christie's March budget address, he said Massachusetts had the third-highest property taxes in the nation in 1977, three years before Proposition 21/2 was approved. By 2005, the ranking had dropped to 33d, the governor said, citing figures from the conservative Americans for Tax Reform.

The Associated Press, citing census figures, reported that the impact of Proposition 21/2 had been much less dramatic, with Massachusetts dropping from third in property tax per capita in 1981 to eighth in 2005.

Proponents of Proposition 21/2 say it has accomplished exactly what it set out to do: Slow the growth in property taxes.

Frank Conte, director of communications at the Beacon Hill Institute, a free-market think tank at Suffolk University in Boston, said Proposition 21/2 had helped keep the growth of property taxes reasonable, but only because the state had increased local aid over the years.

Chip Faulkner, associate director of Citizens for Limited Taxation, estimated that had property taxes continued to rise at their pre-Proposition 21/2 rate, they would be at least double what they are.

"It's worked out very well in Massachusetts, and it can work in New Jersey," Faulkner said.

He said complaints about service cuts had been overstated.

"Despite their cries of doom and gloom, we're doing fine in the state," Faulkner said. "Police, fire, roads, highways - everything is fine."

Some communities in Massachusetts have suffered more than others.

The wealthiest towns have voted to override the 2.5 percent cap much more frequently than less-wealthy towns, widening the disparity between the towns, according to several experts.

"As a general matter, the wealthier communities, of course, have been more likely to pass overrides, but a city like Boston has never even attempted one, and [it] wouldn't pass if they did," said Widmer, of the Massachusetts Taxpayers Foundation.

Some observers argue that because Massachusetts has directed state funding to the poorest communities to protect them, middle-class communities have suffered the most, rarely approving overrides but not receiving enough new state funding to offset the caps.

When Christie introduced his cap proposal last week, he said he expected critics to argue that education in New Jersey would suffer.

"This is absolutely wrong," he said. "Massachusetts has accomplished this astonishing drop in property taxes while maintaining the No. 1 K-12 achievement in America."

But, Lav says, Massachusetts' enrollment in kindergarten through 12th grade fell 21 percent between 1980 and 1989.

"If there had been a level number or increasing number of children, it would not have been possible to implement Proposition 21/2 without massive budget cuts, even if the local aid increases," said Geoffrey Beckwith, executive director of the Massachusetts Municipal Association.

Later, in 1993, the state overhauled its education-funding system to increase state aid overall and direct more dollars to urban areas.

Beckwith warned that New Jersey should consider a property-tax cap with caution.

"The only way Proposition 21/2 was implemented without causing major fiscal chaos was because the state stepped in and increased local aid substantially," he said. "If the State of New Jersey is not prepared to do that, then the cap would likely trigger much greater fiscal distress than people are envisioning."


Contact staff writer Adrienne Lu at 609-989-8990 or alu@phillynews.com.


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