D R A F T F O R D I S C U S S I O N
Death (of Communities) and Taxes
Death and taxes may be inevitable, but each can take many forms -- some more painful than others. A form of taxation now under scrutiny by New Jersey's Legislature and Supreme Court, is the state's dependence on local property taxes as the primary source of school funding. The question they are deciding is how should New Jersey provide a thorough and efficient education in every municipality -- as is required by our Constitution -- when each municipality varies so widely in its ability to raise the needed money from their ratable base? It has been framed as a question of equity. We at MSM argue that the difficulty in providing equity in education is a symptom of the much larger problem of our current public policies supporting the flight from cities and investing in suburban sprawl.
Over 23 years, there have been nine challenges to our current system of school funding. These challenges led to the introduction of a state income tax in 1976, Governor Florio's ill-fated tax increase in response to Abbott v. Burke in 1990, and to the current "Comprehensive Plan" proposal from the Department of Education. All of the challenges have asked the State to come up with more money for poor districts, and all of the responses, so far, have fallen short.
The current proposal from the Whitman administration has a new twist: it places a great deal of emphasis on an outline of what is a "thorough and efficient" education, estimates how much that would cost, and then develops a system for ensuring that that amount is available for each municipality. But in terms of a funding solution, it too falls short, since it offers only a short-term fix for some municipalities at the expense of others. The proposal does not address the structural changes that are needed to reverse the policies that have led to this inequitable situation, and therefore will not achieve the desired results over time.
Because the urban tax base has been drained by the decline of industry and the flight of many individuals and corporations to the suburbs, cities cannot produce the money needed from their emaciated tax base to invest in their children's education. The result is a significant difference in the amount of money spent on education in urban versus many suburban districts. The current proposal does nothing to address this underlying development problem and pits urban and suburban schools systems against each other.
The current debate should reflect the fact that the fate of cities and suburbs are interconnected. Our land use practices, which reflect our current tax policies, have produced unmanageable growth rates in both directions -- declining cities and burgeoning suburbs -- both of which adversely affect the quality of a community's education system. A tax policy that appears on the surface to produce a clear winner and loser, is actually producing, in the long run, losers on all sides.
The flight from the cities has largely been uncontrolled by public policies. In fact, a strong case can be made that the flight has been encouraged by government actions such as investments in highways and sewers outside of cities. It is clear that the result has been devastating to inner cities. Abandoned factories, shops and houses, deteriorating public infrastructure, and populations relatively underserved by the high rate of taxes that they pay.
Unmanaged growth in the suburbs has also had its costs: sprawling new communities must find the money to reproduce the infrastructure (including schools) that has been left behind in the cities. These spiraling costs lead suburban communities to try to halt residential development (raising the cost of housing) because of the costly school children who will move in, and to woo even more arduously the "revenue-producing" commercial development (away from cities or their neighbors, if need be) to balance their local budgets.
This situation is what is called the "ratables chase". It is called a "chase" because there is only so much development to go around, and, ironically, if you "win" and attract ratables, your fiscal gains are quickly dissolved by spiraling new costs, encouraging you to chase more. This is the fiscal "tail" wagging the community "dog", and it is the result of being overly dependent on local taxes to fund services.
It is not just the education system that suffers: housing, natural resources, community facilities, transportation, and infrastructure systems suffer as well. Having to pay for schools sets suburban planning boards against housing; not paying for roads, on the other hand, makes them more cavalier about new commercial development. In the end, we not only have an inequitable education system, but we have traffic jams, environmental degradation, loss of farmland and open space, continued disinvestment in cities, and inefficient public services. Our urban and suburban communities are being destroyed. Since land use planning and tax policy are so connected, it seems clear that a policy constructed to solve both problems will inevitably be more effective than a policy focused on either one.
Besides the public debate over the proposal to create a more equitable education system, there is another over how to change land use patterns to achieve many state, regional and local goals. This second debate is over the implementation of New Jersey's first State Development and Redevelopment Plan, adopted in 1992, but which remains largely unimplemented. The Plan was mandated by the State Planning Act to develop a growth management strategy that would result in revitalizing cities, promoting economic growth, protecting the environment, providing affordable housing, conserving resources, and providing adequate public facilities at a reasonable cost.
A growing number of state, county and local officials now agree that the growth management principles in the State Plan are essential to New Jersey's economic, social and environmental health. Local officials claim, however, that they are powerless to implement many of the Plan's comprehensive goals because they are forced to participate in the "ratables chase" -- pursuing their community's fiscal goals at the expense of other community, regional and state goals. Eliminating a prime motivator for participating in the "ratables chase" -- having the state take on school funding -- would go a long way toward achieving this comprehensive list of goals.
Any proposal for reforming school funding must, therefore, be evaluated in light of its effect on development in cities and suburbs. Without this connection as part of the new policy, school funding will fail to produce enough money to pull the cities up to an equitable system because the suburbs will continue to suck away resources in their never-ending chase to recreate infrastructure. Only a real release from property tax dependence, a real release from the "ratables chase", will allow cities to compete, or even better, to cooperate, with suburban communities on a more equal footing. It is the only solution that will produce sustainable results.
- The results we can expect would include, but not be limited to:
- Schools could improve everywhere, because cities would have more funding and suburbs could reduce costs by phasing growth to a more manageable rate.
- If city schools improved and city tax rates came down, cities would become more attractive to development, thereby aiding immeasurably the results of revitalization investment and reducing growth pressure in the suburbs.
- Suburbs could look more favorably on housing development of various kinds, reducing housing costs, supporting an adequate workforce, increasing our competitiveness, etc.
- The costs of infrastructure could be reduced throughout a region by reducing the need to duplicate facilities in the suburbs, when capacity is available in the cities.
- With less competition for ratables, suburbs could cooperate more with their neighbors to achieve common goals, such as corridor planning, natural resource protection, infrastructure construction, centers planning to support public transportation, and other regional goals.
This list is not complete, but is intended to suggest the range and magnitude of changes that can be brought about by changing the property tax system. The goal of reforming school funding must be pulled away from looking for winners and losers, because the current system overall is too costly for every community.
The standard for evaluating any proposal should be how it will affect the "ratables chase". Will the new proposal release our communities from their dependence on property taxes to fund education? Will it support an equitable education for cities and suburbs and support our community development goals? If a proposal were to meet this standard, it would produce better schools, transportation services, natural resource protection, affordable housing, and other public benefits at the same time.
It is our opinion that the current proposal from New Jersey's Department of Education will not meet such a standard, and should be sent back to the Governor and the Legislature for re-drafting. They need not look far to develop a new proposal. There are many ideas that have been developed throughout the 23 years of debate on this issue. Some of the best ideas for reforming our tax structure were written into the 1988 final report of the State and Local Expenditure and Revenues Policy Commission (the SLERP Report). It is a report based on a broad, bi-partisan coalition of many interests, and its comprehensive set of recommendations should be closely examined.
Focusing on one or two recommendations in the SLERP Report would do an injustice to the Commission. In striving to achieve a proper and equitable balance in the state's fiscal system, the Commission proposed both expenditure and revenue reforms. These reforms are interlocking: achieving the goals set by the Commission can only be accomplished by implementing all of the recommendations. We contend that these interlocking recommendations would also provide us with the structural changes needed for a more equitable and sustainable basis for school funding in the state.
In spite of our support for a comprehensive reform of the state's fiscal system, there are two innovative proposals within the SLERP report that deserve special attention. Both of these proposals require constitutional amendments in order to be implemented, but because they specifically address the "ratables chase" that continually undermines the cities ability to achieve an equitable tax base, they are worthy of attention. These are the proposals for a property tax on new construction on pages 73 -77 and for farmland preservation on pages 77-79 of the 1988 SLERP Report.
According to SLERP's proposal, the tax rate on new construction would differ according to the State Plan's policies for different planning areas, with the lowest rates in areas targeted for growth, and the highest rates in environmentally sensitive areas targeted for conservation. This rate would be a state-mandated increment on top of the locally set tax rate. This would help remove the disincentive of the present tax structure to building in cities, and encourage new development in accord with the State Development and Redevelopment Plan.
In addition, the SLERP Commission felt that the current Farmland Assessment Act has been an ineffective deterrent to the development of farmland because the penalty for development bears no relationship to the gain realized by developing the property. The Commission's new recommendation, to allow the state to acquire equity in the property in exchange for preferential assessment, was intended to retain agriculture as a viable industry in the state and to preserve farmland and open space. The report outlines several options on how to implement this idea.
The "ratables chase" must be stopped by reducing local governments' dependence on the property tax, particularly to pay for schools. At a minimum, this must be achieved through a significant increase in state funding for schools. A more comprehensive policy would achieve more long-lasting results: reverse investment decisions that favor suburban development and refocus public policy on redevelopment, rather than suburban sprawl.
Revising school funding mechanisms attracts passionate debate from all sectors. Limiting the focus, as the current proposal has done, will neither achieve an easier consensus nor a more sustainable solution. Considering the education system broadly, as a piece of the public's infrastructure, and developing solutions that address the underlying problem of long-term urban disinvestment, is necessary to achieve sustainable results. We ask for nothing less than the best for our children's education and future quality of life. With a comprehensive, regional approach, we will be able to afford it.
Written by Dianne Brake, President of the member-supported, land use
research and advocacy organization, MSM Regional Council. Ms. Brake is
a regional planner, a former member of the Council on Affordable Housing,
and a current member of the State Planning Commission