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What is wrong with New Jersey's property taxes? Plenty

SabrinM012810_optBY MURRAY SABRIN
COMMENTARY

In Fort Lee, New Jersey — a municipality with one of the greatest concentrations of co-ops and condominiums in the state — a co-op wants to convert its building to a condominium in order to boost property values and remove restrictions on shareholders. The co-op board wants the town to phase in the higher assessments over 20 years to avoid an immediate spike in property taxes.

Condominiums tend to sell for more than comparable co-op apartments because co-op shareholders face several restrictions such as needing board approval for a perspective buyer and doing renovations in the apartment. Hence, when a co-op converts to a condo, unit prices tend to rise as these restrictions are removed, but so do property taxes, because the newly converted units will be taxed at the higher assessed values.

Unfair, cry members of other co-op boards and the town council, who feel taxpayers would be "subsidizing" the new condominium owners reaping the benefits of higher property values but would be paying property taxes based on the lower co-op valuations until the higher property taxes are totally phased in. Although municipalities cannot defer tax assessments on newly converted condominiums without changes in state law, this issue is moot for the time being.

The conversion of a co-op building to a condominium reveals one of the greatest flaws in property taxation. First, the property tax on a 2,000 square foot co-op apartment is lower rate than that of a 2,000 square foot condominium apartment. Why? Because the resident of a co-op is a shareholder in a corporation, and the tax rate on the co-op building is significantly lower than that of condominium units, which are taxed as if they were private homes. Yet even though both units are comparable in terms of square footage, co-op shareholders pay far less property taxes than owners of condominiums do.

Second, if two adjacent houses in a town with the same square footage had markedly different property taxes, the glaring unfairness would be obvious to all. Yet, this is the situation when it comes to taxing condominiums and co-ops.

I am not making the case for higher property taxes on co-ops. I live in a Fort Lee co-op and certainly do not want my taxes increased. I am making the argument that property taxes are arbitrary and capricious. In short, property taxes, like all taxes, do not reflect the fundamental reason for taxation, namely, we the people pay "fair" taxes for services provided by all levels of government.

The flaws in property taxation are monumental. First, if government provides "services" that only it can provide, a dubious assertion to begin with, how should it charge the people? We have one sound method to pay for government services, user fees. The gasoline "tax," tolls on bridges and tunnels, and fees at the post office, are examples of paying for government services without resorting to taxation.

The more you drive, the more you pay — just like anyone who buys more groceries at the supermarket. Large families will pay more at the checkout line than singles, childless couples, widows or widowers. No rational person would argue that supermarkets should charge everyone the same amount for groceries, no matter how much they buy.

Getting back to property taxes. Property taxes pay for local schools, police and other municipal services. Yet, childless singles and couples, widows and widowers, are taxed for public schools, a service they do not use. However, the argument goes, good schools increase property values, and therefore every property owner should pay school property taxes for the benefits of a good school system and high property values. This argument begs the question. Property values in Bergen County also reflect the demand for housing because we are located near New York City. Should New York City demand a "tax" on the residents of Bergen County because proximity to the Big Apple drive up property values in the county? That would be a patently absurd demand by New York City. Yet, this is the rationale for taxing every property owner for public schools.

The fairest way to pay for public schools is to levy a user fee for parents who send their children to government schools.

In addition, parents who send their children to parochial or independent schools or home school would no longer be subsidizing their neighbors who send their children to government run schools. Moreover, residents of condominiums and co-ops have much greater security in their building than private homeowners have in their single-family homes. Yet they pay property taxes for police departments that provide virtually no services to condominiums and co-op buildings, which are very secure buildings.

The bottom line: property taxes should be abolished and local governments should levy fees on end users. This would eliminate the debate of how to tax condominiums and co-ops and put back into the hands of the people of how much they want to pay for government services. In short, I am arguing for the establishment of a free society, beginning at the local level.

Murray Sabrin is professor of finance at Ramapo College. He was the Libertarian Party nominee for governor in 1997 and a Republican candidate for the U.S. Senate in 2000 and 2008. Check www.MurraySabrin.com for more of his writings.

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Comments (1)
1 Friday, 29 October 2010 09:17
karenrz
I think you are wrong on your opinion that only homeowners with children in the school district should be the only ones paying school taxes. I contend that all property owners in a good school district reap the benefits of being in that district with higher home values, after all - people WANT to live in a town with a good school district!

School districts elect their boards of education - all residents who are properly registered to vote, can vote for these candidates. When there are issues within the district that ultimately affect the values of homes with the town, e.g. school expansion, full-day kindergarten, etc., the residents of that town have the option of attending the Board of Ed meetings to voice their opinion and voting on the issue when it's placed on the ballot. With your theory, do we check to see if these residents have children in the district at the door before they can enter the meetings or vote, because, after all, they don't pay the taxes, so why listen to them or allow them to vote?

In the end, it will be the parents of the children in the district who will help to make school district policy decisions that will effect the homes of all. And - if parents are further burdened with paying the whole of the school tax - do we help to relieve those homeowners with exemptions - exempt the homeowners from paying taxes on other services if they don't use them - senior citizen center, buses, the library, etc.? Tax seniors for using services like transportation and the senior center; tax book readers for using the library; tax people who use the community parks, etc.

All of society benefts from our youth receiving a free and appropriate public education, therefore it is up to society to make sure that there are assets, opportunities and facilities to receive that education, therefore all property owners should share in that cost.

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