Eatontown Mayor Gerald Tarantolo A bit of reallocation of monies may go a long way in paying for education in the state of New Jersey. Not to mention, it could save up to $3,000 on residents’ property tax bills.
“We really have to do something about property tax reform. The way property taxes work is very regressive. What’s happening is you’re paying taxes on an asset and essentially as the asset increases in value, your property taxes increase accordingly,” said Eatontown Mayor Gerald Tarantolo in a recent interview.
“However, your real income could remain flat or decrease. So it’s not really based on income, it’s based on an asset.”
Over the past four years, Tarantolo has been working on a property tax reform plan that could change the way taxpayers fund education. Now he’s ready to introduce it.
“The concept is to remove educational funding completely from the property tax. If you look at statistics, about 50-60 percent of your tax bill is related to education. It’s either your local schools or your regional schools, but nevertheless 50-60 percent of your tax is related to educating kids,” he said.
“The proposal was that we should come up with a way of paying for our schools, not through the property tax but through some other mechanism; that was the first part of this. The second part is, well, we’ve got to pay for education. The money has got to come from somewhere; it’s not magic.” The Joint Legislative Committee on School Funding created under former Gov. Jon Corzine’s administration inspired the mayor, he explained. The committee’s 2006 report recommended that education be funded on a per-pupil basis.
According to Tarantolo, the report identified a technique where each student is given a different weight based on demographics and whether or not the students has special needs.
“For example, kids in the urban areas like Trenton and Newark, they would have a higher weighting because typically those are the Abbott districts and more money is required for Abbott districts,” he explained.
“Whereas in suburban and rural areas there’s a different weighting for kids. So it’s done on demographics and the location of where these kids live.”
Using numbers directly from the joint committee’s report, Tarantolo created a hypothetical suburban school district of 1,000 students that reflects the Eatontown area.
For example, a district that has 400 elementary students, 200 middle school students and 400 high school students could have a school budget of $10.38 billion if based on a weighted cost per-pupil equation. Using basic multiplication, the mayor said, would simplify the process immensely.
“Now you have a standard way of creating a budget,” he said.
Through a simplified budget, the Eatontown mayor seeks a more uniform way taxpayers could fund education in what he calls “a progressive taxing system.”
“In other words, you pay in accordance with your annual income, not your asset,” explained Tarantolo.
“So if you’re on Social Security, you do pay, but you’re not paying as much because your income is much less than what it would normally be.”
To prove his concept, the mayor has teamed up with Harry Pozycki, chairman and founder of the Citizens Campaign; Peter Reinhart, director of the Kislak Real Estate Institute at Monmouth University; and Mark Magyar, adjunct professor at Rutgers University.
Tarantolo said that the new alliance received a $30,000 grant from the Dodge Foundation to fund the analysis of the data that the mayor had collected from the state Treasury regarding residents’ incomes versus what they pay for property taxes.
“Mark was the grunt guy and he was the one who did all the analysis. Harry kind of oversaw it from the point of view that he was going to point me in the right direction to give me the support I need,” the mayor said of his partners.
“Peter Reinhart was certainly interested because he recognized that if this thing was successful it would have a major impact on the real estate industry here in the state of New Jersey.”
Tarantolo said that Magyar compared property taxes in New Jersey to the rest of the country and found that of the highest paying counties nationwide; seven of the top 10 are in New Jersey. Monmouth County ranked 13th.
“We are paying the highest property taxes in the whole country; here’s the data that proves it right here,” said Tarantolo.
As chair of the New Jersey League of Municipalities (NJML) Tax Reform Steeing Committee, Tarantolo works with 16 other mayors on the committee to advocate for reform across the state. To date, over 150 mayors have signed statements of support for the concept.
But the proposal has hit a few bumps in the road with many stakeholders like state legislators, the New Jersey Education Association (NJEA) and the New Jersey School Boards Association (NJSBA), all wanting more concrete numbers that prove the theoretical concept.
In analyzing the data, Tarantolo’s team discovered that only about 40 percent of the education portion of the property tax could be eliminated due to insufficient external revenue sources.
“Right now you can’t remove it all. You have to have some of it in there because it’s all revenue sensitive. If the revenue is not there, where do you get the money? It’s got to come from the people,” he explained. It doesn’t help, he said, when New Jersey receives only 3.3 percent of federal aid monies — 5.5 percent below the national average. According to Tarantolo’s analysis of 2008 state data, if the federal government contributed 7.3 percent to school funding, as in New York and Pennsylvania, the state would receive $1 billion more in aid.
Tarantolo cited other revenue sources that could be tapped in order to lower the education portion of the property tax, including income tax, sales tax, corporate tax and tolls, casinos and lottery.
“We don’t deal with education properly here in the state of New Jersey. It’s going in 10 different directions. We have to reel it in and we’ve got to solidify how we educate our kids and how we pay for it,” said Tarantolo.
The mayor seems optimistic that his team is off to a good start based on the data they have been analyzing. In fact, the mayor said there will soon be a website available where individuals can submit their taxable income, property taxes and state residence into a calculator that would crunch the numbers using Tarantolo’s tax reform concept.
“We have a calculator that will show that you’ll pay ‘X’ amount of additional income tax and you’ll pay less property tax and the net shows that you’re saving probably $2,000-$3,000 more a year through this mechanism,” he said.
For example, Magyar’s analysis illustrates that if a resident has a property tax bill of $8,000 a year, through Tarantolo’s proposed tax plan that removes 35 percent of the education component, that taxpayer would have an annual savings of $2,500.
“It’s a reallocation of your funds and what makes this fair is it’s all based on income, not on the asset. And that was the thing that I recognized way back that was unfair — the regressiveness of property taxes paying on an asset.”