This the first post in a series about property revaluation in Jersey City.
Jersey City has been growing at a breakneck speed for the past fifteen years. As a city grows, it is required to stop along the way and revalue its real estate. This process is termed “revaluation.” Revaluation is about ensuring that tax assessed values – the number you see on your tax bill – are equal to current market values. As Jersey City has grown, it has failed to revalue itself. As a result, current market values have been allowed to grow grossly out of synch with outdated tax assessed values. But in November 2015, Jersey City’s 15-year joyride was put on notice: NJ treasury officials turned on their proverbial police car sirens and ordered Jersey City to pull over. The charge: Jersey City was deemed to be “dramatically out of compliance with Constitutional and statutory provisions requiring fair and uniform property tax assessments.”
It is imperative that the public have an educated dialog about this issue and understand what a revaluation is (and isn’t), the merits for revaluation, and context as to why elected officials have failed to revalue Jersey City over the years.
Let’s get civic and start to break it down.
Property Tax Basics: The Equalization Ratio
When the state announced that Jersey City was noncompliant with state tax law, it cited Jersey City’s equalization ratio as evidence. The equalization ratio is a key concept to understand; it measures a city’s current market value as compared to its assessed value.
All of Jersey City’s taxable property, when added together, is called the tax base. The tax base has two values: (1) current market value and (2) assessed value.
(1) Most of us are familiar with current market value. If you went to a realtor and said “I want to sell my home,” the current market value is what a reasonable third party buyer would pay for it. According to state tax data available here, the 2014 market value of Jersey City’s tax base was $19.6 billion.
(2) Assessed value is different from market value. Assessed value is used to compute your tax bill. It is a moment-in-time-valuation, generally established during a citywide revaluation. Jersey City’s last citywide revaluation occurred in 1988. You can look up the assessed value of your home at the NJ Assessments Records database. Your home’s assessment value is subject to “re-assessment” in specific instances, like when you make major renovations. Otherwise, your assessment value is “frozen in time” from when it was last assessed in 1988. At the time of the last revaluation in 1988, the total assessed value of the tax base was $5.6 billion. In 2014, the assessed value of Jersey City’s tax base was $5.9 billion. (Note: new properties do get added to the tax base over time, but they are valued, roughly speaking, using 1988 base year dollars. Also, Jersey City’s 146 PILOTed buildings are not part of this assessed value since they are not part of the tax base.).
So Jersey City’s tax base has two values: a market value of $19.6 billion but an assessed value of only $5.9 billion. If you divide $5.9 billion by $19.6 billion, you get 30%. This 30% is Jersey City’s equalization ratio.
The equalization ratio is one gauge the state uses to determine if a city is compliant with state tax law. When a city’s equalization ratio dips below 85%, it is noncompliant(1). The last time Jersey City had an equalization ratio of 85% or greater was 1999. So the city has been noncompliant since 2000.
Let’s view the equalization ratio from another angle. The chart below shows Jersey City’s tax base, bifurcated over time by assessed value (the blue bars) and market value (the green bars).
When market value (green) starts to grow above and beyond assessed value (blue), the equalization ratio starts to go down, and revaluation needs to occur.
The reason revaluation needs to occur: fairness.
Property Tax: It’s About Paying Your Fair Share
NJ’s property tax system is premised on everyone paying their fair share. In NJ, “fair share” is measured by the current market value of your home. For example, a person who owns a house with current market value of $1 million should pay a larger share of the tax burden than a person who owns a house with a market value of $100,000. But if both homes have outdated assessments of $100,000, those two homeowners will pay the same amount in tax. And this is unfair.
When compared to other towns in NJ, Jersey City is ranked among the most noncompliant municipalities. In 2014, Jersey City had the 13th lowest equalization ratio among all 565 municipalities in NJ.
Additionally, the state has another metric, called the coefficient of deviation, which measures how uniformly the equalization ratio is applied throughout the city. Meaning, is every home assessed at a third of its market value, or are some homes assessed at only 10% of their market value and others at 90% of market value? In Jersey City, the data tells us that we are dealing with the latter; our equalization ratio is not uniformly applied throughout the city. NJ Education Aid, a local blog, reports:
The Department of the Treasury’s guideline is that any a town with a Coefficient of Deviation greater than 15% should reassess. Jersey City’s Coefficient of Deviation is 39%, this is the highest in the state of New Jersey, and is virtually an outlier. The town with the next most unbalanced tax assessment, Newark, has a Coefficient of Deviation of 35.39% and there is not a third New Jersey town with a Coefficient of Deviation above 30%. Counting Jersey City and Newark, there are only 27 towns (out of over 560) with Coefficients of Deviation above 20%.
I will dive into the coefficient of deviation in greater detail in my next post.
Revaluation as Remedy
Revaluation is clearly required, but challenges abound.
First, local officials do not seem inclined to deal with this issue, as evidenced by Jersey City’s 15 years of non-compliance. And on January 27th of this year, Mayor Fulop announced at a Ward E community meeting that he was opposed to revaluation, claiming that those advocating for a revaluation were motivated by a “hatred” for him personally. We need our public officials to face this issue, not spin away from it.
Second, taxpayers will have divergent priorities and interests depending on the current market value of their homes. For instance, taxpayers living in housing that has appreciated the most in value since 1988 will see an upward correction in their tax obligation. But on the flip side, taxpayers living in housing that has not appreciated as much since 1988 will see a downward correction in their tax obligation. All homeowners would have been better served by a government that revalued their appreciating values incrementally over time.
In my next post I’ll dive into the coefficient of deviation, or “statistical measure of unfairness” in the tax code (I like this layman’s term coined by NJ Education Aid). Then I’ll look at the mechanics of revaluation and the impact to individual homeowners.
For more information on property taxes, please see:
- Handbook for NJ Assessors issued Department of the Treasury State of New Jersey. See page 554, “903.04 Ratios and Coefficients-Assessment-Sales Ratio,” for information on the 85% Equalization Ratio requirement.
- Hudson County Website
- NJ Department of Treasury – Table of Equalized Valuations
- NJ Department of Treasury Announces Initiation of Property Revaluation Investigations, Nov 18, 2015.
- NJ Department of Community Affairs – Property Tax Data
- NJ Administrative Code (NJAC) Title 18. Department of Treasury–Taxation Chapter 12A County Boards of Taxation