Some New Jersey policy makers are considering the creation of a statewide tax on nonresidential properties. Further, these policymakers would redistribute these pooled property tax revenues based on an as yet undetermined formula largely to school districts different from those on which the tax was levied. Their aim would be to reduce per pupil spending variation across communities. However, this plan would result in inequitable per pupil expenditures, inequitable educational resource distributions, and unequal educational opportunities.
Despite such a plan, unequal school financial, material, and human resource variations will remain opportunities unless the state invests in community economic development. Although property tax base differences may enable affluent districts’ to raise property tax revenues above state minimums and levels poor districts can provide, differences in financial sustainability will remain without community economic development to improve tax bases especially in disadvantaged districts. Students in poor districts attend comparatively under resourced schools because their districts lack the tax base with which to provide an educational quality commensurate with more affluent districts necessitating the need for community economic development.
Imposing statewide taxation of nonresidential properties and redistributing the statewide pooled nonresidential property tax revenues creates inequities. Disparities in per pupil expenditures would remain unless the redistribution of pooled nonresidential property tax revenues equalized per pupil expenditures among Traditional Public School Districts (TPSDs), which is highly unlikely even under the most robust pooling assumptions. Total pooled nonresidential property tax revenues will be insufficient to equalize per pupil expenditures without significant state investment in building tax bases in disadvantaged districts.
Commercial and industrial properties are unequally distributed throughout the state creating inequities. Some districts have a disproportionately large share of commercial and industrial properties with high assessed property values. Replacing these districts’ nonresidential property tax revenues with lower statewide uniform property tax revenue would reduce their ability to provide the resources necessary for a quality education leading to a reduction in per pupil expenditures.
A statewide uniform nonresidential property tax creates inequities because property assessment practices can vary by region or county. Differences in property assessment practices result in different valuations of similar properties that are not a function of real estate characteristic differences among districts, regions, or counties. Nonresidential property tax abatements create inequities for the commercial and industrial businesses enjoying them if canceled by the state. Additional problems are created by the statewide pooled property tax revenues should municipalities award abatements following the imposition of the statewide tax.
Inequities would be created depending on the proportions of school, municipal, county, and nonresidential property taxes before the imposition of the statewide tax. Districts without nonresidential property taxes would receive incremental statewide nonresidential property tax revenues. Districts relying disproportionately on nonresidential property taxes would most likely experience a reduction in nonresidential property tax revenues that would shift the property tax burden to residential properties. Districts with disproportionately high shares of non-taxable properties (e.g., houses of worship, governmental facilities, universities, and parks) and nonresidential properties would experience a significant property tax burden shift to residential properties. Districts with high County imposed property tax burdens would suffer inequities.
Increasing the tax burden disproportionately on residential properties by implementing statewide taxation of nonresidential properties would most likely lower housing values. Imposing statewide taxation of nonresidential properties and redistributing the pooled nonresidential property tax revenues would create inequities and not eliminate current ones. The state must invest in community economic development to improve local tax bases which will resolve educational funding inequities rather than impose a counter-productive statewide tax.
Stephen Coffin is an Adjunct Professor at Montclair State University
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