NJ versus CA property taxes

[Guest]

With all the talk about the shocking tax increases, and how it is putting a particular strain on long-time residents of older homes, I thought some might find a comparison to how it works in California interesting, good and bad…

We all know how it works in NJ: Property is appraised periodically across a township to determine relative values, then a variable tax rate is assessed. Each year the tax rate may change to reflect the overall change in tax collection necessary and it generally goes up, so that we end up with effective rates of 3+% of the assessed property value. From year to year you cannot be confident what your tax rate will be and as we have seen there are restrictions on the potential rate increase. When a new home is built, it initially receives a low assessment the first year. The following year the assessment is revised and then not again until the next town-wide assessment. Some NJ townships assess the newer homes at fair market value, others, like Cranbury, use a formula that tries to mitigate for the disparity with the older homes (had Cranbury not done this, the reassessment adjustment for older homeowners would have been even larger and newer home owners, instead of a small increase, would have seen a reduction).

Since the passing of a sweeping tax reform bill in the late 70’s in CA (Proposition 13), the system there is utterly different. At that time tax rates for all existing homes were frozen as-is for existing owners: Exactly 1% for the State and the ability for a local county to add an additional 0.25%. So if your home was worth $300,000 when you bought it, your tax would be $3,750 year after year with an absolute certainty. When your neighbor with a similar house sells years later, now for $900,000, the new owner will know before they even close that their tax for a similar house will be $11,250 for as long as they own.

This presents some obvious pros and cons…

Advantage to the CA system:
* Long time existing homeowners cannot find themselves unable to afford their existing homes because of tax increases
* Homeowners can rely on what their tax rate will be and factor it into their purchase decisions
* Overall, the tax rate is much lower for an equivalent value home than places like NJ
* Local and state governments cannot look to property taxes as a basis to fund budget increases or shortfalls. They either need to find alternative means (sales taxes, which are much higher than NJ, gas taxes, bonds, etc.) or cut spending to make the numbers work
* Tax for existing homeowners is completely insulated from changes in market value, up or down, or changing relative values of property versus business and industrial users

Disadvantages to the CA system:
* Potentially huge disparities of tax burden between older and newer home owners, even within the same neighborhoods. See the example above. And because property values in some parts of CA have risen so dramatically, the reality can be even much worse than that example. In parts of the Bay Area a home purchases in the late 70’s for $200,000 could be worth over $2,000,000 now, meaning that one neighbor could be paying 10-times what another is for a similar property and similar City, County and State schools and services.
* While it varies by community and there are exceptions, generally the public services, particularly the schools, are not as good. Where they are it is where there are small towns with high property values and generally little diversity of income ranges (i.e. there are not lots of poorer neighborhoods to dilute the wealthier ones).
* While not specifically a problem with the tax system, the surge in property values means that the net tax rate for an equivalent home for new buyers is much higher in CA than NJ because they have to pay so much more for the home and that defines their tax payment.

It would seem some of the people posting here would have benefitted from the CA system much more than our own...

[Guest]

Although the CA system can show huge disparity of tax rate even between two similar homes that were built around the same time, it is well defined and takes into considerations of owner's ability to pay. If a buyer can afford to buy the home, he or she can afford to pay the property tax. The current owners are not affected by the current market price and can also afford to stay in their homes. So everyone is happy.

Now, look at the NJ system. Buyers buy homes at inflated market price. The neighboring existing owners have to suffer and pay the inflated tax rate. It forces those owners who cannot afford to pay the tax to sell their home. It probably was designed by people related to the real estate business.

[Guest]

Michigan has that same structure. It works well.

[michigan]