Alternative Proposal Would
Place 2.9% Cap on Taxes

Senate President Stephen M. Sweeney has proposed legislation to create a 2.9 percent cap on property taxes.

Under the plan, annual increases in property taxes would be capped at a maximum of 2.9 percent.   Since the creation of the current 4-percent levy cap in 2007, property tax increases have dropped to an average increase of 3.3 percent – or about 17 percent below the 4-percent ceiling. Previously, average annual increases were near 7 percent.

Sweeney believes that the 2.9 percent cap closely approximates the actual rate of inflation, giving local entities a budget scenario based on realistic cost increases.

A key feature of his proposal would allow for “cap banking,” in which communities that keep increases below the cap could set aside the difference for future use when circumstances arise that would require a budget to increase property taxes above the cap.

Sweeney believes that allowing communities to bank against the cap would give them greater long-term flexibility. Furthermore, towns and school districts would be more inclined to conserve resources by budgeting below the cap if they knew they could access the additional “reserve,” should some unanticipated costs arise.

The 2.9 percent cap bill stands in stark contrast to the 2.5 percent hard cap proposed in Gov. Chris Christie’s toolkit. The “Cap 2.5” proposal would be created through a constitutional amendment and would preclude districts from exceeding the cap unless approved by a supermajority of voters in each community.

Copyright © 2010 New Jersey School Boards Association. All rights reserved.