Sunday, October 21, 2007

Property Assessments in Matawan-Aberdeen

In an earlier posting, I had argued for changing the current property tax to a land tax as a means of encouraging development. However, it was quickly pointed out that the New Jersey State Constitution states that “All real property . . . shall be assessed according to the same standard of value.” (Article VIII, Section 1(a)) This means that every county and township is required to assess property in an identical manner. Changing to a land value tax would have required a state constitutional amendment, something that was unsuccessfully attempted by former New Jersey State Assemblyman Michael Arnone of Red Bank. The next best option, one that is constitutionally permissible, is to allow the property owner to determine, within a given time span, when to have a property reassessment.

The state constitution requires that land be assessed in a uniform manner but there is no requirement as to how often land must be reassessed. On this point, the state legislature has recently required that all townships assess all properties at regular intervals to ensure that the tax burden is evenly distributed.

But even here, the townships are allowed wide latitude as to the time of the assessment so long as it is done in a timely and regular fashion.

Both Matawan and Aberdeen will have property reassessments in 2008. Following those assessments, I propose the following:

Require each property owner to reassess his property at least once every ten years. The legal burden, and cost, of the reassessment will be on the property owner. The owner could either use the township’s assessor or any other independent assessor licensed by the state. Like all assessments, they will be public knowledge and subject to public scrutiny.

The proposal has several advantages. First, property owners will not see immediate tax hikes each time they improve their property. On the contrary, they will likely plan to have their assessments immediately prior to any major improvements. Meanwhile, property values would jump higher as buyers recognize the advantage of being able to renovate homes without incurring immediate tax liabilities.

Secondly, as homeowners take advantage of the new policy, the tax rates will begin to drop. That’s because tax rates are determined by dividing the overall budget by the sum of property values. Double property values and the tax rate drops in half. (The county portion of property taxes would likely go up, but even if it doubled that would only represent a 10% increase in the overall tax burden.) Those homeowners who choose to not renovate, will gradually see their tax burdens drop as their neighbors are eventually required to reassess their homes.

Lastly, it would be a strong discouragement to new residential development. While there would be a natural lag between existing homes and property assessments, all new developments would be assessed immediately upon completion. That means existing homes would have a huge tax advantage over new construction. (Residential construction should be discouraged because it burdens our schools and creates traffic congestion.)

Land value taxation is a great idea but politically unfeasible for a small town. However, passing the burden of regular assessments from the town to the property owner is something we can do. With so much upside and so little downside, we should initiate the program as soon as our next reassessment is complete.
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