TAX NEWS - 2010

US Tax: Tax cap lets elected officials off the fiscal hook

Maybe we should call it the 2 percent solution.

Or, more accurately, the gimmick to beat all gimmicks.

Gov. Chris Christie and state Senate Democrats have come to agreement on a property tax cap that supporters say will help rein in the out-of-control growth of local tax bills.

Under the agreement, municipalities and school districts would not be able to increase their tax levies by more than 2 percent, according to press reports. Costs associated with health care, pensions, debt service, emergency spending and unusual school enrollment would be exempted from what has been described as a hard cap. The plan also allows towns and school districts to exceed the cap by passing a referendum.

The compromise plan came after a special legislative session called by the governor last week following approval of the state budget. Gov. Christie had been pushing a constitutional amendment that would have set the tax cap at 2.5 percent and required local governments and school boards to get 60 percent of the vote in a public referendum to exceed the cap for any reason.

The Legislature, however, countered with a 2.9 percent cap proposal that included a number of exemptions.

The governor conditionally vetoed the Democrats' bill Tuesday, rewriting the language to reflect the compromise and sending it back to the Legislature. The Legislature is expected to allow the conditional veto to stand (a vote was expected Wednesday).

The tax cap is being hailed by politicians of both parties and editorials in many of the state's daily newspapers as the first step toward "real property tax reform," but it's nothing of the sort. Rather, it is an abrogation of executive and legislative responsibility and an admission of failure on the part of the state's elected leaders.

Property taxes have been and continue to rise in New Jersey, driven upward by a mix of bad policy and the high cost of health insurance. The bad policy part, a belief that we could avoid making hard decisions without paying the cost of those decisions, cannot be addressed by a cap. Those decisions have been made already.

As for health costs, we can only control them by going beyond what the Obama administration has drawn up and completely restructuring the national health-care system and disconnecting coverage from employment.

The problem here is not just spending. There is no doubt that we can save some money on the appropriations side of the ledger, but only by cutting deeply into the bone. A good chunk of the money the state spends is on programs its citizens want: Good schools, police officers, open space, senior drug coverage, etc. The real problem is that state government has ignored the revenue side of the ledger for years, preferring to offset rising costs with one-shot gimmicks and magical sleight-of-hand accounting tricks that delayed the day of reckoning.

And it has been a bipartisan magic show that goes back at least seven governors and has included such questionable tactics as:

- Shorting the state pension fund (reducing expenditures in the short-term without thought to what happens when the bill comes due).
- Selling Route 95 in Bergen County to the Turnpike Authority (essentially using tolls to fund upkeep of a non-toll road).
- Borrowing against the state's portion of a settlement of federal litigation against the tobacco industry.

Municipal governments benefited from much of this — each time the state delayed a pension payment, for instance, it also allowed towns and schools to do the same.

The shell games may have allowed governors and legislators to balance the budget, but they did nothing to keep property taxes from rising and the largely ineffectual Gov. Jon Corzine, who took some small but essentially meaningless steps toward fixing the problem, paid at the ballot box in November.

Now it's Gov. Christie's turn to try and clean up the fiscal mess. While he has talked a good game, he has not foresworn the use of the same kind of tricks used by his predecessors (shorting the pension funds, using accounting tricks to mask his theft of local school budget surpluses and the like).

The tax cap is just the biggest gimmick of all, an artificial ceiling on the amount that can be raised. That sounds good now. But, as the folks in California and Colorado and elsewhere are finding out, it is going to come back to haunt us down the road.