HOST COMMUNITY TAX EQUALIZATION

I think that most people accept the idea that State and County Government Services have been created to support the people of the State of New Jersey. We also understand that Not-For-Profit Organizations (NPO) are created in order to conduct socially desirable activities, for the benefit of the People of New Jersey, which are generally beyond the traditional functions of Government.

It is also economically beneficial and administratively prudent to cluster governmental units proximate to one another. Having widely scattered offices would doubtless increase the cost of governmental operations. It would also verge on a physical impossibility to require that governmental operating units be proportionally located within both the State and variously Counties of the State so that their costs would be equally shared by each municipality. Hence they tend to be located within the municipal borders of (what I call) a “Host Community”.

Naturally, governmental service units and NPOs occupied buildings, which if not owned by said organizations, would be considered to be a ‘ratable unit’ subject to real estate taxation by the Municipal Governmental Unit (City, Township, Boro, etc.) within which said building is located. Currently, government and NPOs occupied buildings are exempt from all state and local taxation in order to reduce the overall cost of operations – leaving more funding to support programs and activities.

KEY POINT

The problem rests with the past (and on going) explosive growth of Government and NPO Groups; as they carryout their prescribed functions for the overall betterment of society, at the expense and detriment to the economic well being of their Host Communities. “Clustering” government operating units produces an economic burden to the aforementioned Host Municipal Governmental Unit, by:

(1) Utilizing municipal services (Police, Fire, EMT, Environmental Protection, Municipal Administration Services, Building Code, etc.) without appropriate compensation (through Real Estate Taxation or other occupancy fees). POINT: In fairness, many State and County governments do provide “compensation” to their host communities – however such payments (in cash or kind) are not legally required and are subject to political influence, as well as not always being inadequate for the level of municipal service consumed or ratables lost.

(2) Depriving said “host community” of a commercially viable ‘ratable unit’ were such a unit subject to real estate taxation by the said Host Government (for example: consider the effect of State and County operations on the tax base of Municipal Governments of: Trenton, Mount Holly and Woodbury)

(3) The “free ride” on municipal service also acts like a subsidy to the non-Host Communities; because these communities are spared the added expense of governmental operations, while enjoying all of the resulting benefits of government services.

(4) Without the imposition of any additional marginal costs; State and County Governments (as well as NPOs) are free to grow and propagate without limitation, which creates an economic “crowding out” effect within the Host Community (much the same way a swamp moss kills a tree by smothering its leaves).

SOLUTION?

Given New Jersey’s propensity for “Home Rule”, the number and scope of existing State and County Governmental Operations (as well as those of NPOs) - it seems only reasonable that a Real estate Tax Rate should be applied to these (previously tax exempt) units. The additional tax revenue would easy the burden on the Host Community, while allocating the cost of government and NPO services more fairly among a larger (consumer / client / tax) base.

The problem then becomes a matter of allocation, since the Host Community would receive ALL of the additional revenue and the additional expense would be borne SOLELY by the NPO or Governmental Unit. The matter of allocation fairness could (in my opinion) be solved as follows:

FIRST - The Secretary of the Treasury of the State of New Jersey shall be empowered to develop a Statewide Real Estate SERVICE Rate of Taxation (based upon the stated value of all previously tax exempt property by County) which shall be applied to all: State, Country and NPO charted or doing business within the State. This tax shall be known as the SERVICE TAX RATE (and Service Property), and be freely published and distributed to all Municipal Governments.

SECOND – Service Tax Rate shall be shall be recalculated once every five (5) years, based on the rate of increase in the Cost of Living Index, as verse a periodic reassessment appraisal – which is not practical for special purpose buildings (like a Correctional Center).

THIRD - Each Municipal Unit shall be required to identify each State Government Services Unit, County Government Services Unit, and Not-For-Profit Organizations (hereafter Service Units) and determine a value for each property within its border. Service Property values shall be based upon the most recent contract sales price of the property, as recorded in the deed which resulted from the purchase agreement, or the value of the Bond Issue or Capital Expense Appropriation which was used to fund the property’s original construction. Such valuations shall not be subject to any periodic reassessment, because of the single, unique functionally of the buildings in question, except that any modifications which shall be significant to require building code inspection or zoning variance shall be treated as adjustments to the value of said property. All newly constructed buildings or acquired properties shall be registered with the appropriate taxing unit having jurisdiction or such parcel, on an on going basis.

FOURTH - A property valuation calculation shall be required to be prepared by each Municipal Unit and distributed to each Service Property within 90 days of the enactment of the authorizing legislation. In order to mitigate the impact of this new process, the initial assessment shall be phased in proportionally at the rate of 20% / year over a period of five (5) years from the date of enactment.

FIFTH - County Governments shall be empowered to grant a “Request for Reimbursement of Service Tax Assessment” from any NPO within their border which has been assessed, and thus: (a) reduce the cost of operation of the Service Unit and (b) spread this cost (transfer) across the tax population (service community) of the entire county through the County Tax Assessment.


POSTSCRIPT: Naturally some organizations would continue to be “Exempt”, such as Federal Government operations (U.S. Constitutional prohibitions), Churches (under the doctrine of Separation of Church and State) and Public Schools (because they are already part of the Municipal School Board*).

Comments?

* See my previous BLOG Posting relating to School Funding alternative to Real Estate Taxation.