You've got a friendlier formula for homeowners in Pennsylvania

Tuesday, October 10, 2006

BY DEBORAH HOWLETT AND DUNSTAN McNICHOL

Star-Ledger Staff

DOYLESTOWN, Pa. -- Pennsylvania's gubernatorial campaign is under way, and the television commercials spilling across the Delaware River will have a familiar ring to New Jersey residents.

The big issue? Property taxes.

For the past half-century, lawmakers in Pennsylvania, like their counterparts in New Jersey, have grappled with ways to reduce property taxes. Taxpayer groups have railed, study commissions have come and gone, and governors have proposed and scrapped plans for change. The latest solution -- using revenue from newly legal video slot machines to ease local taxes -- doesn't promise relief for most residents until 2008.

Nonetheless, Pennsylvania has become the refuge of first resort for many people fleeing New Jersey's high property taxes. Over the past five years, 19,000 New Jerseyans have moved to nearby Pike and Monroe counties alone, according to U.S. Census data. Real estate agents in Pennsylvania border towns use property taxes as part of their sales pitch.

Property taxes across the Delaware are lower -- in some cases, much lower.

For example, Christina Nisbet owns a three-bedroom Cape Cod on a one-acre lot in a well-to-do neighborhood in this Bucks County town. She pays $5,277 in property taxes. A New Jersey friend of hers, Barbara Curran, lives in Clinton Township, also in a three-bedroom Cape Cod on a one-acre lot in a well-to-do neighborhood. Her property tax bill tops $9,000.

"We live in almost carbon copies of each other," said Nisbet, a real estate agent.

Pennsylvania's property taxes are lower partly because of more frugal municipal spending habits and the economy of scale that comes with bigger school districts.

The Keystone State also provides a higher percentage of state aid and gets more money from the federal government. And it allows towns and schools to get revenue from taxes not allowed in New Jersey -- most notably local income taxes. In Doylestown, Nisbet and her neighbors pay a 1 percent local income tax on top of their property taxes.

Some Pennsylvanians warn New Jerseyans who are thinking of moving that they will not find as much relief in eastern Pennsylvania as they think.

"You can jump the Delaware, but keep walking west," said Cheryl Zaleski, a homeowner in Coatesville, Pa., who organized a grassroots taxpayers revolt three years ago when her school board floated a 25 percent property tax hike. "You do not stop in Montgomery County, Bucks County, Delaware County or Chester County. Keep moving."

Tax experts on both sides of the river, however, say even the higher-taxed Pennsylvania counties bordering New Jersey have lower property taxes. A study for the Hall Institute of Public Policy-New Jersey says Bucks County, the highest taxed county in Pennsylvania, is less expensive than all but three rural counties in South Jersey.

SHARING THE DISTRICT

One reason is the cost of education. In Pennsylvania, there is one school district for every five towns. In New Jersey, there are more local school districts (603) than towns (566).

In Doylestown, for example, a single district -- the Central Bucks School District -- serves 20,000 students from nine communities in kindergarten through high school.

Across the river in Clinton, the township's K-8 school district serves 1,800 students. After middle school, they move to the North Hunterdon/Vorhees Regional High School, a separate district with 3,300 students and its own superintendent, administrative staff and school board.

The per-student cost for Central Bucks is $11,822. In Clinton, it's $15,722.

In fact, the Central Bucks district educates nearly the same number of children as all 29 Hunterdon County districts combined, and does so for $129 million a year less. Central Bucks has one superintendent drawing a salary of $186,000. Across Hunterdon, 27 superintendents collect a combined $3.7 million in pay.

Pennsylvania forced consolidation of school districts about a half-century ago, and that step is a big topic for the special legislative session on property tax reform currently under way in New Jersey. Supporters say it would save money, but educators argue that smaller districts allow for smaller classes, with more individual attention to students.

Clinton schools, for example, have one teacher for every 13 students; in Central Bucks the ratio is closer to one teacher for 19 students.

"When you have a student/teacher ratio of 13 to 1, it means there are specialists working with the kids," said Lynn Maher, a spokeswoman for the New Jersey Education Association. "And that improves the quality of education."

Both school districts are highly rated. Nisbet, who has children in fourth grade and kindergarten in the Central Bucks district, says she "is thrilled" with the school system.

"Central Bucks has a reputation for being a stellar school district," she said. "I sell real estate, for crying out loud, and people are coming here because they want to get into the school district."

Pennsylvania tax experts caution that school districts still rely too heavily on property taxes and there are problems with how the value of homes is assessed. Several tax studies also have found that poorer communities get hit with a bigger property tax burden than more-affluent districts such as Central Bucks.

"It's just gotten too expensive to support them," Zaleski said. "We want the state to take control of public education. How well you're educated depends on where you live, and a child can't help that, so why should a child be penalized?"

'TAX ANYTHING' LAW

One of the most controversial issues facing New Jersey lawmakers in the special session is whether other taxes should go up to allow property taxes to go down. In Pennsylvania, property taxes pay about 28 percent of the cost of local government, while in New Jersey property owners pick up more than half the tab.

In Doylestown, the 1 percent earned income tax adds an average of $815 per household in municipal government taxes for residents. The more residents make, the more they pay: Those with family incomes of $150,000, for example, pay an extra $1,500.

Such taxes are allowed under an old statute dubbed the "Tax Anything" law. Supporters say by reducing property taxes, local income taxes help senior citizens and those on fixed incomes. The new reforms seek even more local income taxes to shift the burden away from property taxes.

The Nisbets, who asked that their income not be disclosed, say their combined local income and property tax payments are still substantially less than the property taxes paid by the Currans of Clinton. Without the payroll tax, the Nisbets' property tax bill would rise by about $490. They pay more than that through the local income tax, but Chris Nisbet said she is content with the trade-off.

"I'm okay with that," she said. "I believe we all should pay our taxes."

Tomorrow: Michigan.

The revolt that shot down taxes

Proposition passed in 1980 has had big impact on residents' bills

Monday, October 09, 2006

BY STEVE CHAMBERS

Star-Ledger Staff

DALTON, Mass. -- Twenty-six years ago, fed up with the nation's most crushing property tax burden, Massachusetts voters revolted.

First, they gave themselves the power to tax business and industry at higher rates than homeowners. Then they imposed an annual cap on local spending.

The 2 1/2 percent cap imposed by Proposition 2 1/2 has had a huge impact on the overall tax structure, slowing growth in property taxes but forcing state officials to step in with billions of dollars in aid to local governments.

The result, in bottom-line numbers, is the average Massachusetts resident pays about $550 less a year in property taxes than a New Jerseyan, according to the Tax Foundation, a Washington, D.C., nonprofit organization. But the same resident pays about $525 more in state income taxes.

"There is no magic bullet," said Robert A. Nakosteen, an economics professor at the University of Massachusetts in Amherst, who edits Massachusetts Benchmarks, a quarterly journal analyzing the state's economy. "The money has to come from somewhere."

Still, Nakosteen and other tax experts in Massachusetts said Proposition 2 1/2 has placed more control in the hands of taxpayers and forced those of greater means to pay an increased share of tax levies.

New Jersey lawmakers are struggling with similar issues as they meet in a special session aimed at finding ways to reduce the state's property tax burden. As recently as Wednesday, Gov. Jon Corzine proposed a property tax cap of 3 percent to 4 percent for New Jersey municipalities and urged the Legislature to consider such a measure when it makes its recommendations next month.

While Massachusetts's cap has been effective in stabilizing property taxes in general, it has a number of loopholes that have been used in ways that surprised and shocked its original proponents. Chief among them is a provision that allows local officials to ask voters' permission to override the spending restrictions.

"Property taxes are still too high, but one of the reasons is that voters are voting to override the limit," said Barbara Anderson, whose Citizens for Limited Taxation organized the 1980 campaign that got "Prop 2 1/2" passed. "I never thought taxpayers would tax their neighbors to pay teacher salaries."

And yet they have. This year, about half of the 150 override efforts passed. In places like the affluent Boston suburb of Weston, such measures have never been voted down.

"There is clearly a dedication and a commitment to education in our town that has been reflected in override votes," said Michael H. Harrity, a college professor who serves as Weston's top elected official. "I would add that it is not done lightly."

As a result of its generosity, Weston has maintained one of the best school systems in the state. The average property tax bill is about $12,865 in the bedroom community, where easy highway and train access into Boston have helped boost average home values to almost $800,000.

Officials have had to get creative about helping senior citizens who struggle with their tax bills. They've opened up 10 part-time positions in town hall, where taxpayers can work off their debt.

DIFFERENT OUT WEST

Things are different in Dalton, a town of 7,000 nestled in a Berkshire Mountain valley of western Massachusetts, where taxpayers have rejected all nine attempts to override the cap.

The tiny town hall -- an 1892 red-brick structure that shares space with the police department, museum and library -- is closed on Fridays, with salaries based on a 32-hour week. There is no senior center, and parents have to provide school supplies like paper and crayons.

Most voters surveyed said they wouldn't have it any other way.

"The town has had to tighten its belt some," said resident Jerry Guild. "But then again, so have we."

Guild and his wife, Pat, both 77, have never voted for an override and consider themselves strong supporters of Proposition 2 1/2.

Eating a free lunch of grilled hamburgers served by the local Rotary Club one crisp fall day, the Guilds detailed steps they've taken to make ends meet. Despite their advanced age, they gather twigs and branches to fuel a wood-burning stove, and she still substitutes as a teacher several days a week.

"Every year things get leaner," she said, noting their $5,000 annual property tax bill is almost double the town average of $2,943. "Remember, the taxes still go up by 2 1/2 percent each and every year. They never seem to go down."

Mike Widmer, president of the Massachusetts Taxpayers Foundation, said there is no question Proposition 2 1/2 has slowed the growth rate of property taxes. But he sees problems ahead.

A recent study by his nonprofit, nonpartisan group found the state's tax burden as a share of personal income -- a measure that attempts to gauge one's ability to pay -- has dipped far below the national average (charted on a per capita basis, Massachusetts numbers remain high: fourth in the nation for property taxes and eighth when all taxes are considered; New Jersey ranked first and third).

But Widmer said Proposition 2 1/2 has remained feasible only because inflation stayed low throughout its history. Now, with energy and health costs on the rise and taxpayer anger swelling, he predicts a showdown.

Placing more of the burden on industrial properties -- something the New Jersey Constitution bans -- brought an additional $1 billion into Massachusetts' coffers last year. But even that subsidy is eroding, Widmer said, because industrial property values have stagnated while housing prices are skyrocketing.

"Over the next decade, we're going to see the toughest test for Prop 2 1/2 to date," he said. "I sense mounting public frustration with the property tax burden, and costs are rising faster than inflation. It's a volatile mix."

ANGER DESPITE THE CAP

At the Dalton Restaurant, a diner along the state highway that serves as the town's main drag, Daniel and Patricia O'Hanley counted themselves among the frustrated.

"We've always voted 'No,'" said Daniel, a retired mill worker with Crane & Co., a local company that produces the paper U.S. currency is printed on. "Anything to keep it somewhat in control. But you're never going to get out of it. You know what they say about death and taxes."

The Guilds, O'Hanleys and other tax conservatives in Dalton are girding themselves for a battle royale that was supposed to have taken place this November.

The town narrowly missed a deadline for adding to the ballot a debt-exclusion measure -- another loophole that allows exemptions for one-time capital projects. Town officials want to refurbish an abandoned school, turning it into a new library and senior center, but the cost has ballooned upwards of $13 million.

Residents Jim and Catherine Rivers, both 72, support the project and have long been concerned that fellow taxpayers are being shortsighted.

While voting for overrides hasn't been the popular position -- Catherine said her friends don't raise the subject to avoid arguments -- the couple is hopeful the senior center will get built.

"The thing to think about is how much you are willing to pay for services you want and need," she said. "If your taxes go up $100, would that be too much? People seem to find the money for things they want. Cigarettes are $5 a pack, but people still smoke."

"You don't need to look beyond Iraq and The Big Dig (a massively expensive highway project in Boston) to find tax projects that weren't worth a piddle," her husband added. "I don't think we are wasting tax dollars in Dalton."

Town Manager Ken Walto and Thomas Szczepaniak, a trucker who is the town's top elected official, agree. But they say it's not always easy to run a town filled with tax skeptics.

"Taxpayers don't want to see services cut back, but they don't want to be taxed more than they already are," Walto said. "It's getting tougher every year to balance the budget."