The Other Budget

Considering the resounding approval of the school district budget “despite” remarkably low turnout, it seems almost frivolous to dissect the much smaller township budget. However, for the few fiscal conservatives left in town and those on the town council driving towards a more prominent slice of the property tax, this review is for you.

	2011	2010	Increase
Municipal Budget	15246563	15154052	0.61%
Municipal Tax Levey	9604371	9137212	5.11%
Police Salaries	3953719	3748020	5.49%
Health Insurance	1663000	1604000	3.68%
Police Pension	896988	692192	29.59%
Public Employees Pension	262417	195400	34.30%
Capital Improvement Fund	160000	100000	60.00%
Sewer Salaries	537388	483855	11.06%
Municipal Debt Service	1217902	1813703	-32.85%
Bond Principal	701112	1201111	-41.63%
Bond Anticipation	160000	75000	113.33%
Interest Bonds	276791	331068	-16.39%
Interest Notes	79999	206524	-61.26%
Water - Interest Bonds	2750	5404	-49.11%
Water - Interest Notes	41000	71645	-42.77%

As can be seen from the chart above, spending is flat but taxes will be popping another 5%, over triple the school district’s increase.

That increase doesn’t include the hike in sewer rates that appears to be sneaking into the general funds. Sheet 10 of the budget shows a $120,000 revenue item from sewer surplus funds. I guess that’s one way to increase revenue without “raising taxes”.

Police are getting another 5% raise. Hopefully, they’ll go easy on the residents during contract negotiations.

Pension payments are 30% higher, partly because the town council took a payment deferral and then marketed it as a “spending cut”.

Health insurance appears to be under control with costs “only” increasing another 3.7%. Makes you wonder how much money the township wasted during the prior years before getting it under control.

The big mystery to me is how did the township cut municipal debt payments by over 30%. Considering how quickly assets and surpluses are dropping and how fast costs are rising, it’s inconceivable we’ve cut our debt that quickly in a single year. Nor did we accelerate any of the debt payments last year.

One possible hint is the doubling in Bond Anticipation fees. The township may be refinancing its debt and stretching out the payments, which, given the likelihood of rising interest rates, isn’t necessarily a bad idea.

On a side note, any updates on the Cambridge Club? Always wondered if someone from Matawan understood what it took to build in Aberdeen. >>> Read more!

Unwanted Development

Well, we all saw this coming, at least everybody but the developer, our “dear leaders” on the town council, and their political hacks on Aberdeen’s planning board and zoning board. Six years after being built, the Cambridge Park development remains over three-quarters empty. The one sale went to a Californian transplant whose employer fronted half the mortgage.

The developer continues to “update” the year built – now showing 2009 – and maintain the properties, but no amount of window dressing will hide the plain fact that the lots are too small. The house at 75 Cambridge practically touches its property borders on all sides. The other homes lack fences and decks to maximize their puny yards.

The four houses plus the undeveloped lot in the back provide the town an annual windfall of $50,000. But those short-term gains will soon become long-term losses.

Tax sale certificates, totaling over $30,000, have been sold against the three vacant houses indicating the developer may be struggling to maintain the properties. If so, the homes will be forced down to market prices. Once occupied, even an average of one public school child per house will cost the district over $5,000 per house. At two children per house, the development would lose the town $75,000 a year.

Of course, by the town council’s calculation, even if each house was home to a dozen kids, the municipal tax rate would still drop from the additional ratables and the inevitable school tax hikes would be blamed on someone else.

Meanwhile, the neighbors can’t be too pleased with an oversized empty development. Which brings us back to the original point – What was the town council thinking? >>> Read more!

Property Taxes on the Mayor's Street

Due to the township's 2009 property revaluations, Mayor Tagliarini's 2011 property taxes are lower than his 2008 property taxes. Among everyone on his street, Mayor Tagliarini (the then presumed Democratic nominee for mayor) benefited the most from the property revaluations. By $23, he misses having the lowest property taxes on his street to two homes that have 15% less square footage than he does.

Despite all the above, I do not believe Mayor Tagliarini or Holly Reycraft, Aberdeen's interim town manager and tax assessor, engaged in any impropriety regarding the mayor's property taxes. Knowing the two individuals, I find the suggestion completely out of character.

However, to be fair, I present the data in the table below and in an excel file. Considering all the elements that go into assessing the market value of a house, it's impossible to know the truth from reviewing just the tax data but I did include the homes' square footage in case anyone should argue the assessments do or don't consider any house additions. I also checked for property tax appeals of which there were none since 2008.

Address	Sq. Ft.	2008 ASMT	2011 ASMT	% Incr	2008 Tax	2011 Tax	% Incr
19 FAITH LA	1809	128700	291700	227%	6958.81	6881.20	-1.12%
35 FAITH LA	2011	153800	349500	227%	8315.97	8244.72	-0.86%
31 FAITH LA	1569	128000	291100	227%	6920.96	6867.05	-0.78%
26 FAITH LA	1751	136600	313000	229%	7135.96	7133.67	-0.03%
20 FAITH LA	1751	137700	322100	234%	7445.44	7598.34	2.05%
41 FAITH LA	1951	151800	360200	237%	8207.83	8497.12	3.52%
40 FAITH LA	2426	164100	395100	241%	8872.89	9320.41	5.04%
7 FAITH LN	2244	161600	389800	241%	8737.71	9195.38	5.24%
24 FAITH LA	2168	150100	364600	243%	8115.91	8600.91	5.98%
34 FAITH LA	1725	126200	309600	245%	6823.63	7303.46	7.03%
14 FAITH LN	1769	127200	312900	246%	6877.70	7381.31	7.32%
16 FAITH LA	1569	117600	288600	245%	6108.63	6558.07	7.36%
37 FAITH LN	1887	145200	364100	251%	7600.96	8339.12	9.71%
30 FAITH LA	2076	142200	374700	264%	7688.75	8839.17	14.96%
25 FAITH LA	2108	141400	383600	271%	7645.50	9049.12	18.36%
10 FAITH LA	1788	132300	363600	275%	7153.46	8577.32	19.90%

>>> Read more!

Aberdeen's Top Earners

Across the nation, there’s been a lot of talk about the public sector’s salaries, work benefits, health plans, and pensions. And there’s no reason to exempt Aberdeen Township from the discussion.

Among the top earners, 1st prize goes to our former police chief, Joseph Kelly, who’s receiving an annual pension of $104,000. 2nd prize goes to our councilman, James Lauro. After serving our community for over 40 years, with a final average salary of $145,563.67, Councilman Lauro is earning an annual pension of $98,569.68, plus another $13,000 a year for his service as councilman and fire commissioner. (Need we mention again that he voted last year to raise his commissioner’s salary?) The booby prize goes to our disgraced former town manager, Mark Coren, who’s receiving an annual pension of $82,000 plus health coverage.

Last year, John Quinn earned $104,000 from the township and another $36,000 from Matawan. Police Chief John Powers earned $138,000 and his number two, Richard Derechailo earned $132,000. Town Manager, Joe Criscuolo only earned $122,000.

Of the township’s 35 police officers, 29 earned above $92,000, another two officers earned $88,000, and only the remaining four officers were below the highest brackets.

I bear no grudge against anyone for earning the above salaries. To my knowledge, none of the above ever threatened to endanger the township during contract negotiations and every person is entitled to honorably pursue the highest salary and benefits he can muster. Furthermore, excluding the pay-to-play payoffs, the vast majority of the township employees have performed exemplary.

However, the question for the taxpayers is whether the community can afford such generous compensation or if we can get the same outstanding service at a lower cost.

A simple resolution at the state level would be to cap the benefits of future retirees and, once the public employee has reached his cap, all further retirement contributions would be diverted to a 401K plan. Till then, the only alternative is to reduce headcount and outsource services.

On a side note, an anonymous commenter took issue with me including the salary history of the teachers union officers as one of the factors prompting tax increases, arguing their salaries are a tiny part of the overall budget. Well, I hope the commenter isn’t one of our math teachers.

The current crop of union officers saw their salaries increase a combined $162,091.60 from 2006 to 2009. During that same period, the school tax levy increased $1,407,437. Not including pension liabilities, those 12 union officers accounted for 11.5% of the school property tax increases. And, unlike the above mentioned township workers, the union officers have frequently undermined our children’s education and threatened the operation of our school district. >>> Read more!

The Two-Faced Tax Hike

Click here for Aberdeen Township’s preliminary 2010 budget

Once upon a time, I argued the Matawan-Aberdeen school district and Aberdeen Township had a shared responsibility for our high taxes. And, once upon a time, that was true. But no longer. The school board set a goal of limiting tax increases to 2%. The residents have declared that no tax increase is acceptable and the actual increases have been below 2%. The town council, however, has no such restraint. Over the past three years, Aberdeen Township has imposed larger tax increases, both percentage-wise and in real terms, than the school district. Aberdeen Township has the 5th highest tax rate in Monmouth County and you can thank the town council.

To understand the impact of the school district’s tax increases, we must first recognize that Aberdeen pays for two-thirds of the tax levy. (Aberdeen currently pays 67% of the tax levy, which is slightly lower than it was before the property assessment revaluations but two-thirds is still a reasonable estimate.)

This year’s school tax increase is still being decided by the municipalities (and could be appealed) but, for the sake of argument, let’s err on the high side and say they only cut $200,000 from the proposed budget. That would leave a $676,000 increase for the district or a $453,000 tax increase for Aberdeen Township.

The town council’s preliminary budget calls for a $2 million tax increase. (Sheet 3b) Now, that will certainly be revised downward but how much do we truly expect the council to cut? For guidance, we can look to Matawan. After their voters rejected a $223,000 school tax increase by a 5 to 3 margin, the council unanimously approved a $555,000 municipal tax increase.

Last year, an election year, the council was only able to cut $352,000 in taxes between the preliminary budget and the final budget. (Sheet 3b) Still, for argument’s sake, let’s assume the council cuts one million dollars from the projected tax increase.

Using the above assumptions, here’s a comparison of tax increases from 2007 to present between the school district and the municipality.

	2007 Tax Levy	2010 Tax Levy	% Change	$ Change
Municipal	$6,990,240	$9,225,073	31.97%	$2,234,833
School District	$29,111,480	$29,800,190	2.37%	$688,710

Even using overly generous assumptions, over the past three years, municipal taxes have outpaced school taxes by 3 to 1 in real dollars and over 13 to 1 on a percentage basis. And this doesn’t include fee hikes like the $92 sewer increase per year per household. Nor does it include the over half million dollars CME (town engineer) snares every year from local homeowners and businesses.

Nor does it excuse the town council from using one attorney who lies to the public and another attorney who recommends using police action against the public as the basis for creating more unwanted development that will crowd our public schools.

So, the next time your tax bill skyrockets, please remember to thank your town council. And the next time your kid gets stuck in an overcrowded classroom, please thank your town council. And when you try to leave but can’t sell your house due to high property taxes, please give a big “thank you” to your town council.

But when the town council tells you its cutting the school budget to lower taxes and then turns its back on you and votes for a massive eye-popping municipal tax increase, please tell them what you really think. >>> Read more!

Bill My Neighbor

My esteemed colleague on the Matawan-Aberdeen School Board, Student Representative Andrew Monagle, articulated the community opposition to any program cuts – Any program that attracts student participation and has educational value should be maintained. Furthermore, all existing programs have educational value. For example, ceramics and TV production provide “career exploration”. Drivers ed satisfies a state requirement towards acquiring a driver’s permit. Golf has the educational benefits of any successful athletic program.

Since any program with student participation can find some justification, the logical outcome is - Don’t cut any student programs. Give the kids what they want and bill it to the taxpayer.

I respectfully dissent.

The critical issue is how one views taxes. Those opposed to cutting any student programs or services view taxes as the cost of living in a nice community. You want good schools, paved roads, a safe neighborhood, clean parks, etc.? Well, this is what it’s going to cost you. And, if you don’t like it, you’re free to move (as if uprooting your family, selling your house, and finding a new home were as easy as changing TV channels).

I view taxes as property seizures. I envision men with guns garnering your wages, plundering your bank account, and taking your home. Why? Because your neighbors voted to take more of your money than you could afford or ever agreed to pay.

Taxes are only a necessary evil when they support necessary expenditures. Otherwise, they’re just evil.

We’re spending over $600 for every student taking ceramics or TV production. Another $350 per student taking drivers ed. How can we justify forcing one person, under threat of losing his house, to pay for another person’s golf instruction?

How about a gun club? Citizens have the constitutional right to bear arms, gun safety is very important, and there are many occupations that require the use of firearms, such as law enforcement, security, and military. I’m also guessing it would be very popular.

Would we force our neighbors to pay for training sixteen-year-olds how to fire a rifle?

How about martial arts, scuba diving, or magic? Using student participation and “educational value” as the sole criteria, what program wouldn’t justify us picking our neighbors’ pockets?

Does this mean we’d end all electives outside of core requirements? Absolutely not. It does mean that, before confiscating our neighbors’ property, a program would have to meet a higher threshold than student popularity.

In my opinion, a program must meet four criteria to warrant taxation:

1. The money must be used “to pay the debts [or] provide for the common defense [or] general welfare” of the public
2. The benefit must outweigh the cost and burden to the taxpayers
3. The benefit must be a legitimate role of government
4. The public has no reasonable alternative

Does ceramics meet the threshold? The money is being used for the “general welfare” of the public, i.e. the students. Does the benefit outweigh the cost of $600 per student? No. Is teaching ceramics a legitimate role of government? Not when we have several other arts programs. Does the public have no reasonable alternatives? No. Students can enroll in a different arts program or study ceramics at one of the local private art schools.

How about drivers ed? I’d say yes to all but the 4th. Our district could lease space to competing driving schools and the students could pay private instructors.

How about golf? You’ve got to be kidding.

Remember this - If all school programs are sacred, then our private property is not.

Our country has a long tradition of balancing the majority’s will against the minority’s rights. Even if most of us want a ceramics class, we don’t have the right to make our neighbors pay for it. >>> Read more!

Death by a Thousand Cuts

Note: In addition to the projected $6 million hole for next year, we just had a million dollars cut from this year's budget. Here's the list (page 10) of the state's cuts, district-by-district.

Your taxes are about to go up again. This week, Dr. O’Malley presented his initial draft budget proposal to the Matawan-Aberdeen school board and he recommends raising school property taxes by 3% to help close a projected $6 million budget hole for next year. Today, I emailed the board my budget proposal that entails a small tax decrease. It’s all about what you’re willing to cut.

Between salaries, benefits, and the like, total expenditures are projected to increase by $3.5 million. State aid will likely be cut by $2.5 million. Hence, the $6 million budget gap.

To cut expenses, Dr. O’Malley has recommended eliminating 39 staff positions, ending summer school, and using one-time measures such as paying our health insurance bill two months late. The $1.2 million in one-shots means we could still be looking at another $4 million budget hole next year, depending upon what happens in the state legislature. So, even with $3.5 million in permanent spending cuts and $1.3 million in tax increases, we’re still looking at more cuts and more tax increases next year.

The argument is tax increases are natural and necessary because costs increase and wages increase and the only significant sources of revenue are government aid and property taxes. But that assumes we’re operating at near maximum efficiency, that there’s no more fat to be cut.

So, let’s talk about what the recommended tax increases will help fund. High school students can take the following classes to meet their credit requirements for graduation – drivers ed, ceramics, acting, computer applications (i.e. Excel and Access), sports marketing, TV production, stock market analysis, food fashion & family (meal prep and sewing), business technology (i.e. working in the school store), stage acting, children’s literature, SAT prep, and choir.

The administration objects to cutting any of these programs, all of which could be done as after-school activities, especially considering that one-third of seniors have failed to score 50% on a HSPA exam and may not graduate.

In the elementary schools, we have three full-time computer teachers teaching six to eight-year-olds how to surf the web and do PowerPoint presentations.

We have custodians earning more than teachers with masters degrees.

We have school psychologists earning supervisor salaries even though they don’t do any supervisory work.

We’re spending over $60,000 a year on student work-study programs.

Among the sports teams, we’re funding golf, bowling, tennis, and volleyball.

We could cut all these programs without impacting our school mission one bit, namely educating and preparing our students to “achieve success as honorable members of society”.

My proposed budget calls for the following:

• Outsource all staff members and departments that can be outsourced. This will allow us to remove unwanted personnel, take staff off the salary guides, and give them benefits on par with the private sector
• Eliminate one pre-kindergarten position. This will raise class size but we are not required to provide pre-school programs to the general public
• Postpone textbook purchases for one year. This is a one-time measure that doesn’t bend the cost curve but we’re in a bad year
• Eliminate all work study positions
• Replace elementary computer teachers with self-guided software tutorials
• Raise class sizes up to 22 students except in Strathmore where overcrowding already has class sizes at 26
• Eliminate the TV production class
• Eliminate high school computer instruction. Astonishingly, the school district does not teach any computer programming. (Web page design refers to page layout, not data processing.) Excluding graphic design, the computer courses have very little commercial or educational value
• Eliminate ceramics

My proposed budget would slightly reduce taxes without adversely impacting our core mission or undermining our future. However, I acknowledge that I am also using $1.7 million in one-time spending measures, which means expanding next year’s budget gap by $500,000 above Dr. O’Malley’s proposal. Even so, from a financial perspective, over the next two years, we’ll be spending $2.5 million less under my proposal. I would also argue from a strategic perspective that my cuts preserve more core services and are more aligned with our long-term goals than Dr. O’Malley’s.

The one other possibility that has been discussed but not seriously considered is for the board to declare it will not consider any adjustments to next year’s teacher salary guide. The issue is whether the district can reasonably budget under the assumption that we won’t cave into pressure and increase funding for salaries.

None of this is easy. We’re talking about terminating high-valued employees to retain unwanted tenured employees. We’re talking about people losing their jobs. But this is what it takes to keep taxes from rising.

The current proposal calls for a 3% tax increase and eliminating positions and services that I consider core to our mission. I have offered an alternative.

For everybody complaining about their high property taxes, remember this - The government didn't raise our taxes all at once. They did it bit by bit. Voting against the budget won’t stop our taxes from increasing. The only way to do that is to contact your representatives on the school board and to do it now. >>> Read more!

Modest Property Tax Increases

Correction: The township has informed me the ESTIMATED tax rates are 2.283 for Fire district #1 and $2.279 for fire district #2 (the difference being garbage pickup).

In an earlier article, I had assumed property taxes would rise around 4% this year, given reduced state aid, heavy pension contributions, and our leadership’s free spending ways. Fortunately, Dr. O’Malley proved me wrong by presenting a school budget that actually reduced (albeit minutely) Aberdeen’s tax burden. The county was “on target” with a 3.8% increase and our town budget, after a mix of faux savings and unconscionable spending increases, appears to be rising 7%. (I still need to review the final budget.) So, the good news is property taxes, excluding any individual impact from the revaluations, is only rising 1%. The bad news is how we got there.

First, the math. This year’s total municipal tax collection is $48,156,817.12. The assessment roll is $2,090,000,000. Divide collections by assessments and you have a tax rate of 2.304 per hundred dollars of value. That’s a 1% increase over last year’s adjusted tax rate of 2.274.

Bear in mind, although the property revaluations are revenue neutral, individual homeowners could see tax swings of ten percent or more.

Sadly, the township used a combination of financial gimmickry and bare-knuckle tactics to restrain property taxes in an election year, hoping the townsfolk wouldn’t notice.

Most egregious was the brazen mugging of our Matawan-Aberdeen Public Library. Matawan and Aberdeen sacked the place for $250,000, of which Aberdeen got $184,402. That’s the library’s reward for being fiscally responsible and saving money towards capital projects.

Coincidentally, I’m sure, that sum almost covers the $195,000 budget increase for the road improvement program (read CME) and the township attorney.

Then, let’s not forget the town’s $458,000 pension deferral that we’ll need to pay, with interest.

If we were to add the money from the library and the pension deferral to tax collections, our municipal tax rate would have been rising 10% this year or 23% in the two years since the “no tax increase” during the last election year.

This year, we’ll be electing a majority of the town council. Do either of the parties have a plan to halt runaway spending? I’d sure like to see it. >>> Read more!

The Property Tax Blame Game

There’s an old story of two beggars plotting to pilfer apples from the king’s orchard. However, one beggar was lame and the other was blind. So, the blind man carried the lame person on his shoulders and, together, they were able to snatch apples off the king’s trees. When they were caught and brought before the king, each beggar blamed the other. The lame person said he is guiltless because, without the blind man’s help, he could never have reached the apples. The blind man professed innocence because, without the lame person, he could never have known where to go. So, the king placed the lame person on the blind man’s shoulders and charged them together.

Aberdeen township has the third highest equalized tax rate in Monmouth County. The municipality blames the school district, which spends most of the tax revenue. The school district blames the township for not developing more ratables to spread the tax burden. As a community, we need to hold them jointly accountable.

In the past decade, Aberdeen Township has not broken ground on a single major development except for the Avalon condos by the train station. The development generates $950,000 in PILOT payments, minus the education costs for children in the development and the additional COAH housing. Since the COAH units haven’t been built, yet, the development likely saves the average household a little over a $100 a year. Nice but not enough.

As for all the other developments – Anchor Glass, Aberdeen Forge, Church St. Senior Housing, Transit Village, Cliffwood Beach – we’ve got nothing. The transit village is particularly disturbing considering the newfound opportunities to garner federal funding. The township is continuing to work with Silver Oaks, a developer convicted of attempting to bribe an IRS agent who uncovered possible tax evasion. The same developer also used his son to sue Matawan for choosing another developer – a lawsuit the borough won but could ill afford. The township also passed a “pay-to-play” ordinance designed to allow the town council to continue doling jobs to their political patrons but blocks Matawan’s developer from working in Aberdeen.

Still, the township asks us for more time. Last week, Mayor Sobel told the Independent “I have found that over the years, that these kinds of projects have lives of their own. You learn to be patient.”

Amazing. Aberdeen Township has one of the most desirable locations in all of New Jersey – a major highway, the shore, close proximity to Manhattan, and a commuter train - yet we can’t attract any major developments? Not a single developer is interested in any commercial development? How about a healthcare complex that encompasses assorted medical offices and outpatient clinics? What happened to the retirement community in Freneau? Are people no longer getting older?

10 years and the mayor asks us to be patient. I think we’ve been patient enough. We need to attract developers and build projects that contribute to our community and ease our tax burden.

Last Monday, Dr. O’Malley made a presentation to the school board on the difficulties of restraining spending growth and tax hikes. The message was simple – we’ve made some progress but there’s very little to cut in a $63 million budget. Examples of progress were primarily reductions in transportation costs. Most of the budget growth is due to contractual obligations that our “capable” school board negotiated.

Well, let’s do some quick math. Assuming another 4% hike in the school budget, minus the haircut after it’s defeated for an eighth consecutive year at the polls, we’re looking at a $65 million school budget for 3,800 kids. Since we’re looking at short-term solutions, let’s lop off the approximately $7 million spent on out-placement and special services for special needs students. That still leaves a bit over $15,000 per student.

Some more math. The average class has about 20 students. That means we’re spending $300,000 per class. Lots of different subjects, so each class needs to share teachers and other resources, but $300,000 per class? And there’s no place to cut? Rather than ask the superintendent to cut costs, let’s first ask him to justify $300,000 per class. Would our school district self-destruct if we chose to only spend $275,000 per class?

At what point will our school board look at the budget and recognize it’s out of control? Who will be the first board member to reject any further tax increases?

Rather than allow each politico to point fingers at the other guys, we need to shackle them together and hold them jointly responsible for what they’ve done and failed to do. They are all responsible. >>> Read more!

Guesswork on Next Year's Property Taxes

Aberdeen’s taxpayers are naturally concerned about next year’s property tax rates. This year, the township had its largest ever tax increase. Next year, about a third of homeowners will see their property taxes readjusted upwards from the revaluations. And the township will need to, once again, raise its annual contribution to the state’s pension funds (sheet 20). Excluding those people who will be devastated by their property revaluations, we should be relatively okay. Property taxes will be going up again next year but probably not more than 5%.

There are several elements that contribute to tax hikes but the two items that differentiate this year from prior years are 1) the biggest stock market collapse since the great depression and 2) a parallel drop in commodities (i.e. oil). For local government, that means an increase in pension contributions (to offset the dramatic losses in pension funds), a drop in utility costs, and reduced state aid (because of lower tax revenue).

To do the math, we need to engage in a bit of fudging since we won’t begin seeing the numbers until February or March but I don’t believe we’ll be off by that much.

Two-thirds of property taxes are taken by the school district. In contrast to the township, the school district strives to remain within the 4% CAPs set by the state because they otherwise risk review by the county superintendent. The school district also has a tendency to work backwards – raise spending by the legal limit and then determine how to spend the money. Still, the proposed budget will grow 4% but given the township’s history of rejecting the school budget, which is then cut by the township council, the final budget should be slightly less than a 4% increase.

Since daily operations are growing faster than the 4% limit and the capital budget has nearly disappeared, expect reduced maintenance and growing class sizes but not much higher taxes. One wildcard – New York Governor Patterson today announced a plan to reduce spending growth in education. If Governor Corzine does the same, the school may be forced to break CAPs or borrow more money.

Monmouth County, about 11 percent of the property tax, will probably raise taxes due to pension liabilities and reduced state aid. The county had no tax increase this year and modest tax increases during the prior two years. Monmouth County will likely restrain any tax increase and look to service cuts to meet budget constraints.

Given the drop in utility and fuel costs, tax hikes for smaller budget items such as sanitation, sewer, and library, should also be modest.

Last on the list is Aberdeen Township. Before looking at 2009, let’s review 2008. Municipal taxes, this year, jumped 12%. Some of the big ticket items included an additional $279,000 in pension contributions, another $275,000 for health care, and a $210,000 cut in municipal aid from the state.

In 2007, the state pension fund lost 3%. So far, this fiscal year, the state pension fund has lost about 9%. We can expect at least another $250,000 increase in pension contributions.

In 2001, after the dot-com bust and 9/11, New Jersey income tax revenue dropped a billion dollars. If even a quarter of that is passed along to New Jersey’s 566 municipalities, we could be facing another cut of $400,000 in municipal aid.

Healthcare costs will jump again but should be partially offset by a $100,000 drop in utility expenses. (Sheet 15C)

I guesstimate that municipal taxes could increase by 10% next year except for one thing – elections. It’s highly unlikely, especially considering the blowback from the property revaluations, that the township will risk double digit tax increases during an election year. By simply scaling back some capital expenditures and postponing other purchases, they can roll back the tax increase to 6%.

This is obviously all guesswork but it’s nice to know that, unless you’re hit by the revaluations (mostly older homes and condos), you won’t have to worry about monster property tax hikes for next year. Anytime taxes rise faster than wages, we’re heading for big trouble but, in the meantime, it’ll just be the slow bleed that’s endemic to New Jersey. >>> Read more!

Property Revals Redux

Last month’s council meeting in Matawan is an apt preview of what will happen next year in Aberdeen. Homeowners expressed their shock and dismay over substantial property tax increases following the borough’s property revaluations. The situation was entirely foreseeable but the borough chose to do nothing. To date, Aberdeen Township has done nothing as well.

Between last November and January, I wrote five articles explaining the danger behind the county-mandated property revaluations. Although the revaluations are “revenue neutral” (they don’t affect the municipality’s total tax revenue), they do adjust each property’s assessment to ensure everyone pays his “fair share”; invariably, some people will pay more while others pay less. At the extremes, some people will see huge differences in their property taxes.

On November 23, 2007, I wrote “Matawan and Aberdeen will be talking about tax rates but the only thing that matters is the tax bill. Some homeowners will be facing massive tax increases next year. If these homeowners have adjustable rate mortgages as well, expect to see more foreclosures.”

The following week, I wrote “Unfortunately, the town plans to do absolutely nothing for those poor folk who are about to have their property taxes skyrocket. The town council created this situation through their neglect. The council has the power to help. To act otherwise is heartless and cruel.”

In December, I suggested that “[a]lthough everyone should pay his fair share, I see no harm in allowing those hardest hit by the revaluations to transition to the higher property taxes. The municipality could provide financial assistance, essentially limiting a single year’s tax increase to 10%.”

Following publication of the newly assessed property values, I provided a table listing several properties whose taxes would leap from 30% (houses) to over 100% (condos).

At the time, my detractors still had the courage to attack me on my blog (and thereby improve my writing, for which I’m grateful).

“Your postings really show your ignorance. Perhaps you should spend more time reading and less time blogging.”

“Stop posting lies and trying to acare [sic] people.”

“Aberdeener isn't informed - just has to [sic] much time on hands and presents erroneous conclusions as facts.”

“Your facts simply are not correct in the real world, and what's worse is that it seems that you don't care that you are spewing misinformation”

“Aberdeener's calculations seem to exhibit a sense of paranoia and fractured logic that is best treated with psychotropic drugs.”

Fast forward to the present. According to Kurtis Roinestad, “[o]ver 25 percent of residents' tax bills [in Matawan] have gone up by at least a thousand dollars.”

Though Matawan has chosen its fate, there’s still time for Aberdeen. Here are three steps the township should take:

• The final revaluation numbers will be submitted in January. In the annual mailing that informs property owners of their assessments, the township should also provide the projected change in property taxes based upon the 2008 appropriations, indicating the projections do not include any possible tax increases for the upcoming year. The notice will give people about six-months warning to prepare for possible tax hikes.


• The state constitution requires all property to be assessed in the same manner, thereby prohibiting a phase-in period. However, the township can provide low-interest loan programs to those hardest hit, giving homeowners time to adjust to the higher property taxes.


• Lastly, the township could prevent this from recurring. In an earlier posting I had suggested requiring each property owner to have his property assessed at least once every ten years. Not only would this enable a property owner to “schedule” when his assessment could go up, it would also mitigate any tax penalties for home improvement. (Major construction would still be assessed upon substantial completion.)

Mayor Sobel recognizes the problem. He saw the anger in Matawan and next year is an election year. We’ll know in January if he or the township chooses to do anything or not. >>> Read more!

Lucky Ciaglia's Luck Runs Out

Special Note: Joe Ciaglia of Ciaglia Landscape Design, LLC. has requested I post the following:

Please make the appropriate corrections to your verbiage. I am the owner of Ciaglia Landscape Design LLC. I have nothing to do at all with any variances, subdivisions and or tax breaks. I work 70 hours a week so that I can do for my children what my father (Anthony Ciaglia the Mason) has done for us. I am not a board member and quite frankly have never attended a board meeting in my life. I am not saying that I do not care about the town, but I spend most of my time trying to grow my business so I can afford to stay here in Aberdeen. Please know that I am not a builder nor am I affiliated with any type of new construction of homes in this town. Should you have any questions regarding my personal or business life, please contact me at anytime. I would be more than happy to interview.

Aberdeen’s been good to the Ciaglia family. There’s Joe Ciaglia of VRI Realtors, Joe Ciaglia of Ciaglia Landscapers, and Joe Ciaglia of Ciaglia Builders. All of them have built successful careers through hard work and their fair share of good fortune. But John Ciaglia of Ciaglia Builders has been the luckiest one of all. He has an unbroken streak of winning variances, building on subdivided lots, and garnering tax breaks in Aberdeen Township. Sadly, it seems John’s luck is about to run out.

Again and again, John Ciaglia has won the right to subdivide land and build on lots that are too small to accommodate his houses. In 2000, he won the right to subdivide two lots on Church St. into 5 properties, even though each lot would only be 75 feet wide instead of the 100 foot zoning minimum. That same year, the zoning board allowed him to construct five homes on a tract formerly owned by the Cross of Glory Lutheran Church. In 2003, he was allowed to subdivide a property on Atlantic Avenue and build a second house on a 6,250 square foot lot. Then there’s the 7,500 square foot lot on Dolan Avenue. He’s now looking for a variance to convert the corner mother/daughter house on Church St. and Atlantic Ave. into a legal two residence.

To assist with any zoning requests, the town council obligingly appointed Joe Ciaglia (I believe of landscaping) to sit on the Zoning Board.

At each turn, the public has opposed Ciaglia’s expansion plans on grounds that over-developing the land would detract from the neighborhood and the added tax revenue would be lost to the costs of schooling for incoming families. After all, why have zoning regulations if they constantly get waived for developers.

The most egregious zoning exemptions were granted for 75 Cambridge Dr., a house that is only a few feet from the street on three sides and nearly bumps into the retaining wall on the backside. (There is a jutting strip of land that constitutes much of the 8,390 sq. ft. of land.)

By granting the zoning requests, Aberdeen Township enabled John Ciaglia to buy land on the cheap, subdivide the properties, and build as much as he could. But then the township went one step further. In a town that has the third highest tax rate in Monmouth County, where the locals howl against over-development, where our school district is being overwhelmed by nearly 4,000 students, Aberdeen Township declared all of Ciaglia’s development properties as “vacant land” rendering them almost tax-free.

Before continuing, I need to explain a couple of items regarding property taxes. Real estate consists of the land itself, including everything above and below it, and any “improvements” on the land (i.e. houses, buildings, swimming pools, etc.). To determine market value, an appraiser first determines “best use” of the property and then evaluates the property through one of three methods – comparables, income, and cost to build.

The township then assesses the property based upon presumed market value. To keep the bookkeeping simple, rather than change a property’s assessed value with each fluctuation in the marketplace, the township maintains a constant assessment but uses an “equalization factor” to determine the ratio between the assessed value and market value. Market value times equalization factor equals assessment. For example, in 2008, Aberdeen Township’s equalization factor is 37.94 percent. A house with a market value of $400,000 would be assessed $151,760.

When assessing a developer’s property, we need to first assess the best use of the property and then the improvements. So, let’s say a developer purchases farmland and then applies for the land to be rezoned for residential. The land would be initially assessed as farmland but then assessed as residential property after the zoning change.

Regarding improvements, the legal standard is that every developer is assessed full market value once the improvement is “substantially complete”. What’s the definition of “substantially complete”? If a person could live or work in the structure, it’s substantially complete. No need to wait for final touches.

Now, let’s look at Ciaglia’s properties. As mentioned, the township allowed him to subdivide two lots on Church St. into five. Have a look at the tax table for the Ciaglia properties on Block 55, Lots 9.04, 9.05, 9.06, 9.07, and 9.08. Notice how they’re all assessed as vacant land in 2002. Flip through the pages and you’ll see that whichever properties are owned by Ciaglia remain assessed as vacant land. There is one exception – block 55, lot 9.07 in 2004. That’s because the property was sold in 2003 but not recorded until 2004.

Of course, that’s not proof that anything is amiss. It’s possible that Ciaglia sold the homes as soon as he finished them. (The township doesn’t track when properties become “substantially complete”.)

Nor is it proof that it happened again on Oakshades Avenue on block 275, lots 10.01 and 10.02. Or that it also happened on Shadynook Street, block 315, lot 3.

But Cambridge Park, that’s proof.

Ciaglia purchased land from the Cross of Glory Lutheran Church in 2002 for $250,000. Although he initially intended to build six homes, part of the property was declared a wetland, reducing the project to five houses. Have a look at the tax tables for block 68, lots 16.02, 16.03, 16.04, 16.05, and 16.06. The properties are only assessed at $1660 each. Using the 2003 equalization factor of 67.67%, the township valued all five properties together for $12,265, less than 5% of the purchase price.

Basically, the township assessed the properties as if they were still zoned for a place of worship. Even when all the zoning variances had been approved, the Ciaglia lots were assessed for a pittance of the purchase price. Even when all the permits were issued. Even when construction began. And even when construction was “substantially complete”.

In 2006, I received the following MLS listing - 10105935, 75 CAMBRIDGE DR, ABERDEEN, NJ - $649,900.00. The listing has since expired but it described 75 Cambridge Dr. as being built in 2005. Then take a look at the tax record. In 2006, it was still being assessed $1660 (a market value of $3670). In 2007, it was assessed as residential property with zero improvements. Only in 2008, has it finally been assessed full value.

In 2006, Ciaglia paid $440.95 in taxes for properties worth over $3,000,000.

The game plan was a simple one. Ciaglia’s properties were only re-assessed at the issuance of a certificate of occupancy. But builders don’t apply for the certificate until they’re about to sell the properties. Why Aberdeen Township chose to play this game, I don’t know.

But then John Ciaglia’s luck ran out. Of the five properties, he’s only been able to sell one; the lots are too small to warrant such high prices in this neighborhood. Then came the housing slump and the credit crunch. Then came Holly Reycraft, Aberdeen’s new tax assessor.

Unfortunately for Ciaglia, Reycraft neither knew of, nor was interested in, any “understanding” Ciaglia had with the township. Her only concern was doing her job as defined by law. The New Jersey State Constitution demands that “All real property . . . shall be assessed according to the same standard of value.” (Article VIII, Section 1(a)) There are no exceptions for developers, even in Aberdeen Township.

So, one day, Reycraft just happened to be driving down Cambridge Drive when she noticed all the new houses. Back at the township, she discovered an “oversight” in the tax rolls and immediately adjusted the property assessments for Cambridge Park to reflect full market value.

Well, John Ciaglia was not pleased at all. He challenged the assessments at the county level and was rebuffed. Now, he’s waiting to make his case before the Tax Court of New Jersey, docket number 000134-2008. Unfortunately for him, the case isn’t scheduled until September.

Including his two houses on the corner of Atlantic Ave. and Church St., John Ciaglia is sitting on about $2 million in debt and spending over $250,000 a year in interest payments, property taxes, and upkeep, while watching his properties lose value.

Then again, this is Aberdeen. Let’s see if John Ciaglia’s luck turns around. As for Holly Reycraft, pray she doesn’t meet the same fate as former town manager, Stuart Brown. >>> Read more!

Mayor Buccellato's Challenge

Matawan has the highest tax rate in Monmouth County but the borough controls less than one-fifth of property taxes. Can Mayor Buccellato provide tax relief?

Upon taking office, Mayor Buccellato announced the municipality would no longer make pension contributions to professionals and part-time employees unless mandated by statute. Though the move will save thousands of dollars, it won’t put a dent in next year’s forecasted $22 million of appropriations. Even if the Republican mayor could achieve draconian spending cuts in a Democrat-controlled borough council, any tax reductions would be minimal.

That leaves revenue as the only possible means to reduce the tax burden. The two obvious sources for substantial revenue increases are the Transit Village Project and Main St. Revitalization.

The Transit Village Project (TVP) is unlikely to start any time in the near future. In addition to economic conditions, community opposition, and disputes between Matawan and Aberdeen, COAH now requires one affordable housing unit for each five new residences, making these large development projects even less appealing.

Meanwhile, Main Street’s largest commercial tenant, C-Town, has decided to close their doors after only a year; the supermarket continually lost money while being picketed by the United Food and Commercial Workers Union’s Local 464A.

What to do? For any meaningful tax relief, Mayor Buccellato would need to find $2 million between cost savings and increased revenues in a small borough with a $9 million budget. Absent the Transit Village Project and Main St. Revitalization, which would take many years, I don’t see how it’s possible. Still, here are some measures the Mayor could consider:

• Establish a shared services committee consisting of Matawan’s borough administrator, Aberdeen’s township manager, and the school district’s business administrator. While the municipalities share some services, they should be far more aggressive. For example, Matawan and Aberdeen both hired Realty Appraisal to implement the municipal revaluations. They probably would have saved money by requesting a joint bid. Other departments and services that could be shared: police, park maintenance, road maintenance, capital improvements, and professional services.
  
  (Though I still believe Matawan and Aberdeen should merge, I now agree with blogger, Truth In Matawan, that we should first merge services until the political landscape becomes more receptive to a municipal merger.)


• Establish a joint task force between Matawan, Aberdeen, and the school district to actively pursue grants at the county, state, and federal level.


• Initiate a corporate sponsorship program of public parks and facilities similar to the Adopt-A-Highway program.

I believe these proposals could save the average Matawan household about $150 per year. Not much but better than nothing. >>> Read more!

Matawan Revaluations - Part II

"I, __________, do solemnly swear (or affirm) that I will faithfully, impartially and justly perform all the duties of the office of _________ according to the best of my ability. So help me God." - New Jersey State’s Oath of Office

Public officials from Aberdeen Township and Matawan Borough have been trying to reassure residents that the property assessment revaluations would not drastically alter anyone’s property taxes. Their argument is that the revaluations are revenue neutral and therefore, on average, will not raise taxes. At the same time, I have been arguing that revenue neutral simply refers to the average but that a small percentage of homeowners would be severely impacted. I further urged our elected officials to devise a means to assist those hardest hit and least able to cope.

Well, the preliminary assessment revaluations for Matawan were certified just after the election and some homeowners will be getting clobbered with monster tax hikes. (Please note, these numbers are preliminary as property owners still have the opportunity to challenge them.)

2007 property assessments were based upon 40% of the property's market value. I reviewed nearly 240 residential property sales in Matawan over the years 2006 and 2007. Of the 240, I found twenty properties (including four condos) whose market prices were significantly higher than the borough’s valuations. I then checked the preliminary property assessments and estimated 2008 property taxes based upon the presumption that Matawan will appropriate (raise in taxes) $22 million for the upcoming fiscal year; my estimated 2008 tax rate for Matawan is $2.12 per hundred dollars of value (total appropriations / assessment roll = $22 million / $1.035 billion).

Finally, I only listed those properties whose taxes will increase over 15% this year. The table below may not be a representative sample but it certainly disproves the claim that no one’s taxes will go up by that much. Also, please note that all the properties below were recently purchased just prior to the revaluations and that these homeowners do not have a history of underpaying their "fair share".

	Preliminary 2008 Assessment	2007 Taxes	2008 Est. Taxes	% Increase
67 BROAD ST	$455,700	$7006.56	$9,660.84	37.88%
A-2 CROSS ROAD	$119,400	$1240.80	$2,531.28	104.00%
B-9 CROSS RD	$128,700	$2006.40	$2,728.44	35.99%
C-3 CROSS ROAD	$115,600	$1240.80	$2,450.72	97.51%
D-4 CLIFFWOOD AVE	$121,700	$1240.80	$2,580.04	107.93%
32 FIERRO  AVE	$329,900	$5522.88	$6,993.88	26.63%
136 JACKSON ST	$292,600	$5174.40	$6,203.12	19.88%
246 JACKSON ST	$275,300	$4572.48	$5,836.36	27.64%
39 LITTLE ST	$413,000	$7571.52	$8,755.60	15.64%
183 MAIN ST	$525,100	$7015.28	$11,132.12	58.68%
24 OAK KNOLL DR	$380,200	$6040.32	$8,060.24	33.44%
32 PARK AVE	$257,700	$4155.36	$5,463.24	31.47%
9 STILLWELL ST	$218,500	$3368.64	$4,632.20	37.51%
59 WYCKOFF ST	$331,000	$5934.72	$7,017.20	18.24%

One correction that needs to be noted – A prior example I used was 59 Wyckoff St. where I suggested the property tax could jump 35% in one year. As the table above shows, the taxes will only be going up 18%. That’s because the borough has assessed the property for less than 80% of its purchase price (certainly a mixed blessing).

Another item to note is the dramatic impact the revaluations will have on condo owners – many, if not most, will see their property taxes double this year.

I urge Aberdeen Township to issue a notice to local property owners – if your property is worth more than triple your current assessment, expect a significant property hike. I also ask that both municipalities hold an emergency session to brainstorm possible means to assist those homeowners whom will be most severely affected.

At the very least, please stop telling homeowners there’s nothing to worry about.

>>> Read more!

Revaluations, Falling Home Prices, and the Equalization Factor

There’s some confusion regarding revaluations during a bearish housing market. People fear that their homes will be over-assessed because prior sales are not necessarily indicative of current values in a falling market. However, the focus should be on property taxes, not assessments. Will the current housing market affect individual property taxes? Yes but in ways that are impossible to measure, predict, or control.

Let’s assume that property taxes consist of local property taxes and county property taxes. Your property taxes are based upon your “fair share” and total appropriations at both the local and county levels. Your fair share is based on your property’s assessment compared to the total assessment for your municipality and your county.

In theory, a rising and falling market shouldn’t affect your fair share because all the properties are rising and falling at about the same rate. But in reality, that’s often not the case.

To illustrate this problem, let’s assume you own a “custom colonial” in the Strathmore section of Aberdeen. The appraisal company will assess your home using a comparable sales approach. Basically, they look at recent sales of similar homes in the same neighborhood. In a stable market, they would look at sales over the past year, maybe longer. In the current market, they’re more likely to use a 6-month horizon.

The problem for you is that there haven’t been sufficient sales of custom colonials in your area in the past six months to use in a sales comparison. So, instead, they will use the next best thing, country clubbers. But there haven’t been many recent sales of country clubbers either so they’ll use 4-bedroom Strathmore colonials.

The appraisal company will use the 4-bedroom Strathmore colonials as a base and then make adjustments to account for your basement, 2-car garage, square footage of living space, and the fact that you have a more modern home.

Here’s where the problem arises. The moment the appraisal company uses a different model house as the base, they’re assuming that your house is rising and falling at the same rate as the base model. That may or may not be true. If prices for custom colonials are falling at a faster rate, then you will be over-assessed.

Will the owner of a Strathmore colonial be affected? Only in that the total assessment roll may be off because some properties were assessed too much or too little.

The other issue is the equalization factor. Aside from revaluations, properties are generally not assessed at 100% of market value and the percentage varies for each municipality. To account for this, the county uses an equalization factor to “equalize” all assessments.

If you look at Monmouth County’s Equalization Table for 2005, you’ll see some interesting facts. Matawan has the pole position of highest taxes in the county. (Aberdeen is ranked 5th highest but moved to 3rd place in 2006.) Our school property tax rates are higher than the total tax rates of 16 municipalities in Monmouth County.

After the revaluations, the county will assume our assessments are at 100% of market value. Because the market is falling, our assessments at the county level may be too high.

Neither of these problems concerns me for a few reasons. 1) Markets are usually going up or down. 2) Assessments are an inexact science. 3) Appraisal companies try to account for market changes. 4) The errors are well within an acceptable range.

Another point to remember is that there is no remedy. Those who advise we wait for the market to stabilize are implicitly suggesting that we can predict when the market will stabilize since revaluations are always planned over a year in advance.

As my readers know, I have concerns regarding the revaluations and property assessments in general but the timing of this revaluation isn’t one of them. >>> Read more!

Losers and Winners in the Upcoming Property Revaluations

Matawan recently announced that its property revaluations have been completed. Aberdeen will be having a public meeting on November 27th to discuss their 2008 property revaluation. It’s no surprise these announcements took place after the elections. The news isn’t good.

Property taxes are determined according to a property owner’s “fair share” of the tax burden. The taxing body “assesses” the value of all taxable properties (ratables) within its jurisdiction. The total value is called the assessment roll. A property’s fair share of the tax burden is equal to its share of the assessment roll, or “ad valorem”, according to its value.

To simplify the math, taxing bodies express taxes in terms of a tax rate. The tax rate is equal to the appropriations (needed tax revenues) divided by the assessment roll and expressed in dollars per hundred dollars of value. For example, if a school needs to raise $5 million in taxes and the total assessment of all ratables is $100 million, then the tax rate would be $5 per $100 of assessed property value. If a home is assessed at $500,000, that home’s annual tax burden would be $25,000.

The municipal revaluations are being mandated by the state. Previously, assessments were a percentage of market value. For example, in Aberdeen, a property’s assessment was 45% of its estimated market value. The state now requires that all property assessments be uniform at 100% of market value.

In theory, property revaluations should have no effect on an individual’s tax burden because they don’t change the property’s fair share. For example, if there are ten homes of equal value, each homeowner would be responsible for 1/10th of the tax burden. If all the homes suddenly doubled in value, each home would still be responsible for 1/10th of the tax burden.

The problem is that current property assessments in our neighborhood are wildly inaccurate. Aberdeen’s last property assessment was in 1992. Following the Rule of Thirds, after the revaluations, a third of the properties will see their tax bills decline, another third will see little change, and the remaining third will see their taxes go up.

For example, Aberdeen Township estimates the value of 2 Campbell Ct., a custom colonial, at $470,700. In 2007, the home sold for $625,000. Between the revaluation and next year’s estimated tax increase of 5% (the state’s 4% tax increase cap allows for certain exceptions) the homeowners at 2 Campbell Ct. could be looking at a 25% property tax increase.

119 Courtland Rd., a country clubber, is valued at $348,000. Last year it sold for $450,000. It, too, could be looking at a 25% property tax increase.

681 Cliffwood Ave., a modest house on a small lot, has an assessed value of $210,000 but sold this year for $365,650. The homeowners could be hit with a 60% tax increase.

12 S Atlantic Ave., a condo by the train station, sold this year for $175,000 but the town only valued the property at $90,700. It’s facing a possible 80% tax increase.

At this point, it’s impossible to know how much property taxes will change until the property revaluations are completed. Obviously, there are far more homes that are undervalued than overvalued since homeowners are quick to challenge high property assessments. For this reason, I've tried to give conservative estimates for possible tax hikes. Still, if the Rule of Thirds holds, many homeowners could be subjected to property tax increases over 20%. (Percentage-wise, the more affordable homes are facing the largest increases.)

As for the municipalities, they see it as a good thing that these homeowners will finally be forced to pay their fair share. There is no cap for how high property taxes can go up and there is no assistance available for those families facing a huge tax increase.

The easiest way to see if you’re at risk of a huge tax increase is to visit the New Jersey Tax Records site and look up your home address. Divide the total assessed value by 0.40 to get the assessed market value. If the actual market value of your property is more than 10% above the municipal estimate, be concerned.

If you’re thinking you can sell your home before the new assessments, think again. All realtors are required to inform prospective buyers of the revaluations.

Matawan and Aberdeen will be talking about tax rates but the only thing that matters is the tax bill. Some homeowners will be facing massive tax increases next year. If these homeowners have adjustable rate mortgages as well, expect to see more foreclosures. >>> Read more!

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. >>> Read more!

Change Property Tax to Land Tax

Tax policies change people’s behaviors. Hence sin taxes are used to discourage certain economic activity. A property tax is a de facto sin tax. When you decide to add a deck to your home, the municipality will tax that deck until you take it down. You want to convert your attic or basement to usable living space? The municipality will tax that space until you make it unusable. But home improvement is not a sin and should not be taxed as such.

Property taxes are determined Ad Valorem, Latin for “according to the value”. Each municipality sets a tax rate and taxes the property according to its assessment. So, if your neighbors work to make your neighborhood more desirable, your taxes go up. If you work to make your home more desirable, your taxes go up. If you do absolutely nothing but happen to be in proximity to a desirable location, your taxes go up.

Meanwhile, the converse is true as well. As neighborhoods become less desirable, their taxes go down. Why would a neighborhood allow itself to deteriorate? Homes require constant investment to maintain their value but many of these “improvements” are punished by taxes so people are often disinclined to make the necessary upgrades.

Furthermore, developers, who are crucial to a community’s growth, are discouraged from any new construction that will incur higher taxes and thereby diminish the property’s value.

For example, the four (slated to become five) Ciaglia homes on Cambridge Rd have been unoccupied for over a year. Each is priced about $650,000 and have estimated property taxes of $15,000. Similar homes that are about a decade old have property taxes around $11,000. Does the town truly believe a new house is worth 35% more than a decade-old house? Apparently so.

(Property assessments have a legal range of +/- 15% of the market value. If two properties each have a market value of $100,000, the municipality could assess one house at $85,000 and the other at $115,000. The second home’s assessment would be 35% higher despite the fact the two homes are worth the same.)

Obviously, Ciaglia knew the risks prior to developing the property and is not entitled to any assistance. But is it in the town’s best interest to make it prohibitively expensive to own a new home?

Another example is the high number of modest 3-bedroom ranches and capes sitting on lots over 15,000 sq. ft. Were it not for the property reassessment, developers could knock down these houses and build attractive modern housing. Nicer homes create a nicer neighborhood and benefit the entire community.

I would suggest the following: While the county continues to tax according to property values, the town could petition for an exemption, allowing it to set tax rates according to the assessed land value. (Disclaimer: I live in a 4-bedroom house on an 18,500 sq. ft lot in a cul-de-sac.)

Since this would aversely affect many homeowners, I would implement the plan over a twenty-five year period. During this period, the town would assess both the land and the “improvements” (i.e. buildings) but reduce the assessment on the “improvements” in 4% increments until it reached zero. Also, to encourage new development, I would cap the assessed value on all “improvements” for single type residences at $300,000 (assuming 100% ratio of assessment to market value).

For commercial properties or multiple dwellings, I would implement similar programs.

Not only would this significantly increase the level of home improvements and benefit the local economy, it would also be an immediate boon to the property values of all homeowners. Owners with high assessments would see their taxes gradually go down. Owners with low assessments would see their taxes gradually go up but would also see an immediate jump in their property values as they become more attractive to developers. The newfound equity would actually reduce the overall tax rate.

The entire community would benefit from increasing property values, new development, and higher living standards. Let’s move from a property tax to a land tax. >>> Read more!