23 Aug 2014
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Op-Ed: Getting to the Root Causes of NJ's Soaring Property Taxes

The property tax burden needs to be reduced but not by simplistic solutions that concentrate on one part of the problem

Op-Ed: Getting to the Root Causes of NJ's Soaring Property Taxes

By Joel L. Naroff, NJ Spotlight.com

New Jersey’s property tax burden is a massive barrier to growth that borders on being confiscatory. But the discussion about changing the tax is filled with political bluster without much economic thinking.

Before any solutions are proposed, it would be nice if we knew why New Jersey’s property taxes are so high compared with other states. If you don’t know the root causes of the high taxes, solutions become guesses not answers. High property taxes result from spending decisions and thus are a symptom not the illness.

Currently, education, which makes up so much of the tax bill, bears the largest part of the blame for high property taxes. But saying that education costs are too high is meaningless. We don’t even know what is meant by “too high.” Too high compared with returns or other states? Do we want to look like low-spending, low-attainment states? What is the relationship between spending and quality and how much is New Jersey out of line?

Spending levels are like so many other things: Where you sit determines where you stand. Many people with schoolchildren believe that no amount of spending on education is too much. In contrast, those without students frequently feel that anything but minimal spending is too much. When times are good, we like to lavish funds on education. When we don’t have the money, it’s time to cut.

Worse, we don’t know why costs are too high. Do we get a fair return for expenditures and if not why and where? Are high costs due to teacher salaries, pensions, union rules, administrative expenses, and/or inefficient sizes of school districts? Can anyone say that state-mandated expenditures are not excessive, especially in comparison with other states. Has New Jersey funded its responsibilities for federal and state requirements at levels comparable with other states or called for by law?

Until we know the real reasons that education costs are too high, “solutions” could turn out to be no more than short-term palliatives. They might exacerbate the problem instead of reducing costs and raising educational performance. I have not seen a cost-benefit analysis of any suggested solutions. Those of us who are researchers know that just because a program sounds good doesn’t mean it will work in the real world.

An example of a potentially disruptive solution is the popular idea of ranking workers by performance and then providing merit pay. That sounds like a totally logical approach and it has been used in the private sector. However, recent experience indicates that this may be exactly the wrong way to go.

Companies have found that the forced ranking of performance for merit and termination decisions is a poor way to create cohesiveness and inspire imagination, since it discourages teamwork. The percent of so-called high-performing firms using this reward/penalty system dropped by 70 percent in two years.

Improving educational attainment while controlling costs requires more than a one-size-fits-all approach that the private sector is abandoning. It requires multifaceted solutions that few are willing to even talk about because complexity is not easy to explain. Simplicity, though, is not necessarily the best way to go.

I am not saying that education costs are not a cause or even the major reason for high property taxes. I am not arguing that we are efficiently and effectively using school tax revenues or that there are no failing schools. I am not saying a restructuring of the education system, especially in those places where attainment does not match expenditures, would not be beneficial. I am saying we should not implement something because it sounds good. Education is the key to world economic competitiveness, and we could sacrifice significant economic growth if we choose the wrong method of controlling costs.

The property tax debate has to move past blaming education and start adding other issues into the mix. That requires discussing additional topics, such as the role local government structure plays in creating the high-tax environment. How much would property taxes fall if consolidation occurred? Would the benefits to society be greater and the costs less if local government consolidation and/or other cost control actions were taken rather than imposing most of the spending reductions on education? Until we know the answers, we are simply tossing out ideas rather than suggesting real solutions. 

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