Corzine Unveils Ambitious Property Tax Reform Plan

Gov. Jon S. Corzine addressed the joint Legislature on Friday as part of a historic special session dedicated to fixing the state’s overreliance on property taxes, which rank the highest in the nation. 

Corzine announced several suggestions as part of his tax reform blueprint for the Legislature to consider as it begins to tackle the state’s property tax structure, including more controls on municipal and school funding, shared service agreements, restrictions to employee pensions and health benefits, and discussion over whether the state should hold a constitutional convention. 

He implored the Legislature to devise sustainable solutions before Jan. 1, or said he said he would press for a convention, which would require a public vote in November 2007. 

“Our business model of delivering and paying for government and school services is broken. If we were a business we’d be bankrupt,” he said. “In our case,  middle class families and seniors in particular bear the brunt of the failure to meaningfully address the root causes of this problem. Our citizens pay through the roof for a tax that is imposed without any regard to income or ability to pay.”

Kevin E. Ciak, president of New Jersey School Boards Association, cited many of the governor’s goals as in line with that of the Association including encouraging shared services, reforming employee benefits and relieving the school property-tax burden.

“New Jersey’s property tax burden is the highest in the nation, and it hurts all communities, especially middle-income districts that rely heavily on property taxes to support schools,” Ciak said. “This overreliance on property taxes stems from the state of New Jersey funding only 38 percent of the overall cost of public education—with many communities receiving far less in aid. Nationwide, most state governments pay at least half of public school costs.”

The state’s total property tax levy is about $20 billion today, and without action by the Legislature, the governor predicted that it would double to $40 billion within a decade. 

Corzine’s blueprint for change includes: 

• Reducing pensions and benefits at all levels of government.

The governor said he plans to start the next round of employee negotiations with state unions by mid-September and introduce a two-tiered system for new and newly-hired employees by increasing the retirement age, implementing defined contribution plans, and alternative health plans such as PPOs. 

“Benefits reform is also crucial,” NJSBA’s Ciak said. “In December, the State Benefits Review Task Force announced numerous recommendations to enable school districts to control the rapidly escalating costs of health benefits. NJSBA has developed legislation reflecting the Benefits Review Task Force recommendations. The concepts should be part of the special session’s efforts to control local government spending.”

• Decreasing the state’s debt payments, which have climbed to about $3,200 per person in the state. 

“Every dollar we spend on interest is one less dollar for school or municipal aid,” Corzine said. 

Within the next three months, the administration will deliver a state asset and liability study with recommendations on the sale, lease, and naming rights for properties in the state to help raise money and reduce debt.

• Restructuring state aid for education.

Education Commissioner Lucille Davy is already working to reform state aid to schools, according to Corzine. 

“A new formula must, in my view,  one – recognize the needs of every child regardless of ZIP code; two – live within the realities of our state finances; and three – meet the obligations of our constitution,” the governor said. 

• Achieving sustainable government by making the reforms stick over time.

• Appointing an independent state comptroller for a six-year term to regularly audit government units and authorities.

• Capping annual increases on property taxes to 4 percent a year, with a four-year sunset provision that would allow a review of the rule.

“The governor’s call for a cap on property taxes is an interesting concept, but our support would need to be contingent upon an adequate level of state aid. Otherwise, educational programs could be negatively affected,” Ciak said. 

• Making it easier for the public to participate in budget deliberations by holding them at the same time as general elections.

• Using $250 million a year to create a “re-engineering” fund to provide incentives to encourage shared services.

• Establishing a state financial control board to measure and ensure progress over time.

Corzine, the former chairman and CEO of Goldman Sachs, noted that all levels of government in the state have failed to control spending and to give the public a meaningful voice in budget decisions.

“We have far too many layers of government delivering too many similar services,” he said. “The fragile foundation of state finances have prevented the state from increasing aid to local school districts and governments.

“This particular failure has been compounded by inequitable aid formulas particularly with respect to education.”

Corzine said getting the state on the right track financially will require an overhaul of the existing tax system, including the many aid formulas in place. He referred to the school aid system as “outdated, ineffective and outright unfair.”