Cap 2.5 Is Propaganda, But It Should Get Towns Thinking About Consolidation -- For the Right Reasons

People who live in towns that they absolutely love are lucky. They are lucky for a number of reasons, but from a policy standpoint, they are lucky that they get to be completely sentimental, often to the point of being irrational, when it comes influencing policy. They are lucky because they have a voice and get to drive the town council nuts and have it actually produce results (unlike places like, say, New Brunswick, where driving City Hall nuts more often than not results in being stifled, harassed, shut out, etc.).

This could be wrong, but I would say that most residents of New Jersey's 566 municipalities would agree that there are several instances where it would make cultural, financial, and geographical sense for two adjacent towns to consolidate governments, police departments, fire departments, public works, and so on. I would also say that just slightly more than half of those residents would say that their town should NOT consolidate with the adjacent town. This is just my sense -- also, it's a sense based more on a pre-Great Recession and BC (Before Christie) mindset and less on new economic realities.

As governor, Jon Corzine recognized that certain towns needed to consolidate, but he never really made an aggressive case. He formed the Local Unit Alignment, Reorganization, and Consolidation Commission (yawn) that was charged to:

"Study and report on the structure and functions of county and municipal government. This effort includes the study of local taxing districts and their statutory basis. It also includes the fiscal relationship between local governments, and the appropriate allocation of service delivery responsibilities from the standpoint of efficiency"

This Byzantine mission statement is more that most of us can swallow, and resulted in kind of pushing for consolidating "the two Berlins" (not sure if that was more for symbolic purposes) and encouraged shared services between municipalities. LUARCC still exists, but while the state's Department of Community Affairs (the department that oversees LUARCC) remains in transition under the new Christie administration, it's unclear how the consolidation commission will proceed.

In the meantime, Governor Christie's tax caps, budget slashing, and overall disregard for tactful legislating will more likely than not result in towns making those tough decisions, including consolidation, that were once considered a luxury; pragmatic, but luxurious nonetheless. A quick aside: the governor's braggadocio and blind ideals do him no favors and will likely keep him from being at the helm of any real progress.

Brian Donohue from The Star-Ledger validates many of the pro-consolidation ideas documented in the late, great Alan Karcher's Multiple Municipal Madness in this NJ.com video clip. In it, you'll see some clips of Gov. Christie making some pretty good arguments in favor of municipal consolidation, using his native Mendham Township and Borough as an example of two municipalities that suffer from duplication of services, including two libraries and two school boards, not to mention two separate governments, police departments, etc.

Gov. Christie hopes Cap 2.5 will force town consolidation

When I covered the Princetons as a reporter for the local paper there, I came to understand several important things about consolidation. First, the idea that so-called doughnut towns -- both the hole and doughnut as is the case with Princeton Township (doughnut) and Princeton Borough (hole) -- share a community is kind of bogus. I mean, the Princetons share far more than other doughnut towns like Metuchen Borough and Edison Township, and Highland Park and Edison Township, and any other town swallowed by the mammoth, sprawling, Edison Township (once part of the even mammoth-er Raritan Township). But for the most part, the people living in Princeton Township and Princeton Borough are different. They do, however, share schools and a library, which, culturally speaking, is very important.

Second, as Donohue points out in his video, most arguments against consolidation are sentimental. Some very vocal groups would create specious arguments against consolidation, but those were fundamentally based on a desire to remain as two towns, just because. There are no good arguments against consolidating smaller towns like the Princetons.

Third, I will always remember something the current mayor of Princeton Borough, Mayor Mildred Trotman, said when she came into office: that consolidation would probably not be explicit, but that the towns would eventually "backdoor into consolidation." While the state does need to be more aggressive in getting towns to merge, especially towns that don't have as much in common as the Princetons do, her approach makes sense here.

Sadly, it appears that Gov. Christie's setting a 2.5 percent tax cap, while resonating well with make-believe penny-pinchers, exploits the genuine beliefs of mayors like Trotman. The tax cap is mostly propaganda, because towns have mandated expenses and contractural pay increases that exceed 2.5 percent are not addressed by the 2.5 percent cap and that those increases continue to mount, regardless who crafts the municipal budget.

Anyway, Governor Christie is speaking out against a "top-down" mandate to consolidation, but it's exactly what he's doing. That's not to say consolidation is not a fantastic, cost-cutting idea that increases efficiency and potentially improves public safety and schools, but starving towns of funds to force them to make potentially unsustainable, and life-changing decisions, is beyond reckless.

Drilling For Finances From Tax-Exempt, Non-Profits?

It's tight here in New Jersey.

It's crowded. With 8.7 million people, we are 11th in the country in population, but first in population density in the Union with over 1,100 people per square mile. We're also wealthy -- 2nd in the country -- but you wouldn't necessarily know it by looking at those areas that make us the most densely-populated state in the country.

The Garden State, as it so happens, also as the highest imbalance of any state in the country in terms of what it gives and receives to and from the federal government. According the the New Jersey State League of Municipalities, the Garden State gets back just less than two-thirds of every dollar it sends to Washington.

So there are demands here. There are spatial demands, housing demands, demands for resources, infrastructure, you name it. As such, New Jersey is often at the vanguard in dealing with all kinds of issues facing the nation. The state hits a major stumbling block, however, when it comes to property taxes.

In New Jersey, where we rely on a property-tax-based system to largely fund our public schools and governments, rising municipal costs are taxing people out of towns. The state has mandated a four percent cap on municipal budget increases, and as home values are reassessed and towns are revaluated, property tax rates will adjust -- either up or down. But obviously the worst-case scenario is an increase, so that's what we'll examine.

In 2006, the average tax bill of the wealthy Township of Montclair was $13,547, and that was based on an average home assessment of $252,742. According to NJ.com's "New Jersey by the Numbers," if you equalize that assessment for comparisons with other towns, that $13,547 bill applies to a house worth $624,207. So often is the case that you have a homeowner who can no longer afford the tax-related costs to their homes, even if they were smart and took out a 30-year fixed mortgage.

So what to do? We've increased taxes on the highways, per Gov. Jon Corzine's asset monetization plan to raise tolls on select highways and increase the state sales tax to 7 percent. Both of these can be regarded as regressive as they pose a greater burden on the poor.

So what next? With the New Jersey Legislature in constant "hold on" mode when it comes to the long-anticipated "property tax convention," towns, facing affordable housing development mandates, and approaching complete build-out with little area left to develop tax-ratables, are looking at those who, by law, do not have to pay taxes.

According to the New Jersey Policy Perspective, the assessed value of all property -- buildings and land -- in New Jersey in 2000 was $648.5 billion, and of that, 13.5 percent paid no property tax. Under law, that 13.5 percent was tax exempt. This tax-exempt property is largely composed of public, private and religious schools, state, county, and municipal buildings, churches and charitable institutions, hospitals, and cemeteries. Other partial exemptions include those for water and sewage facilities, urban enterprise zones.

New Jersey's Princeton Borough, a 1.1-square-mile, 12,000-resident municipality lies right smack in the middle of the state, and is a pretty good example of "if it can go wrong, it will." Princeton Borough is a donut-hole municipality -- a town that is physically surrounded by another town, in this case, Princeton Township. Both towns consider "downtown" (Princeton Borough) its downtown, share a school district, a municipal library, and more than a dozen other municipal agencies. In fact, the only agencies the two towns do not share are administration (government), public works, and police.

However, as you might have guessed, Princeton is home to Princeton University, and, alas, most of Princeton University's tax-exempt land lies in tiny Princeton Borough, which is already strapped for cash. About 50 percent of the Borough is tax exempt.

The Borough's annual operating budget is roughly $23 million, and Princeton University, which is the largest employer in the Princetons, and pays the most in what is taxed -- sewers, buildings with full, or partial, tax levies, etc. -- holds an agreement to give about $1 million a year in voluntary municipal funds, used however the Borough sees fit. Princeton University also funds other community projects, adding value to the town-gown relations.

There has long been a tension between the local government and PU regarding these in-lieu finances, but this year, the local Democratic Party has upped the ante, gathering signatures as part of a petition asking if PU pays its fair share.

The petition contends that a resident's property tax levy would drop a whopping 24 percent in the Borough. The average resident there pays in the $13,000 range per year in property taxes. The Democratic Party there is lobbying for local officials to support efforts to negotiate a fairer payment from Princeton University. PU currently pays tax on its commercial property, and maintains voluntary tax roll inclusion for grad and faculty housing where schoolchildren might live, and pay its "fair share" of all taxpayer-supported services.

The petition does not call for the removal of federally authorized tax-exempt status -- granted to all nonprofit educational institutions

According to a report in The Times of Trenton, the university's tax payments in 2006 amounted for about 8.5 percent of the $9.5 million in municipal taxes the borough collected from all taxpayers in 2006. According to the story in the Times, "when school and county taxes are included in the calculation, there was a $27.9 million gap between the $7.1 million in property taxes the university paid in 2006 and what it would have paid if all its property in the Princetons were taxed."

The state legislature has so effectively slept on working with localities in creating a sensible solution to rising property taxes that towns are now taking it upon themselves to drill for oil, er, money in local reserves, rather, $15 billion university endowments, that had been largely untapped, not counting the annual contributions, agreements, and institutional presence. As is the case with so many institution-based towns, the existence of the town is based squarely on the existence of the institution -- is there a formula that quantifies that value?

Other heavily-endowed private institutions like Harvard University in Cambridge, Mass. have devised long-term in-lieu-of-tax deals with their municipal hosts. In 2005, Harvard and Cambridge came to terms on a deal that would bring the city more than $60 million over the next 20 years.

But Cambridge, with more than 100,000 people, is the fifth-largest city in Massachusetts, has a far higher annual city operating expense budget, and has far more tax-ratable property than Princeton ever could. So, in effect, it's incomparable.

Just another example of New Jersey being the science laboratory for social progress, but with so much at stake, this issue is far too big for a couple hundred local residents to swallow. The legislature must step in, and step in soon, to find broad-based creative ways to amend what is quickly turning into a statewide property tax crisis.