Why Property Revaluation is a Social Justice Imperative in Jersey City

Jersey City property taxes, as seen through state compliance data:

Jersey City’s last citywide revaluation was in 1988.
Jersey City’s 2017 equalization ratio is 23.66%.
Jersey City’s 2017 coefficient of deviation is 35.66%.

On this map: Green = under-taxed | Red = over-taxed

NJ property tax law is based on this foundational premise: assessed values are supposed to equal market values. Put another way: your tax bill is supposed to be based on the market value of your home. The state tracks how compliant a city is with this premise with something called an “Assessment-Sales Ratio” which is defined as:

Assessed Value / Market Value = Assessment Ratio

This map shows the wide disparity in assessment-sales ratios throughout the city. Two examples to illustrate this concept:

The green areas show census blocks dominated by LOW ratios. A good example of a low ratio is a Downtown brownstone that was assessed in 1988 for $100,000 (at the time, that was its market value) but in 2017 that brownstone is now worth $1,000,000. In this example, the Assessment Ratio is:

$100,000 / $1,000,000 = 10%

The red areas show census blocks dominated by HIGH ratios. A good example of a high ratio is a house in the heart of Greenville that is surrounded by blighted storefronts. In 1988 this house was also assessed at $100,000 (at the time, that was its market value), but that house is now worth only $200,000. In this example, the Assessment Ratio is:

$100,000 / $200,000 = 50%

Revaluation will update all assessed values to be equal to 2017 market values. That will re-institute fairness into the system.

STATE PROPERTY TAX LAW: KEY FACTS

These are key facts to understand when understanding property tax law through the prism of Revaluation:

(1) The state defines property tax law. The municipality (e.g. Jersey City) is supposed to carry out the law. The county (e.g. Hudson County) is supposed to carry out some oversight capacity, including ensuring municipalities share the county tax burden equitably.

(2) Your tax bill is computed as follows:

Assessed Value X Tax Rate = Your Annual Tax Bill

And here’s what is essential to understand: your Assessed Value is supposed to equal your Market Value.

(3) Revaluation is intended to make your assessed value equal to your market value.

In April 2016 the NJ Division of Taxation ordered Jersey City to conduct a Revaluation.

You can read the order here. It’s a sobering assessment of Jersey City’s non-compliance with state property tax law. The letter details:

That Jersey City “is not in substantial compliance with the law”.
That Jersey City’s equalization ratio is 27.63%, indicating outdated assessed values. You can read more about why that’s a problem here.
That Jersey City’s coefficient of deviation is 39.17%, indicating non-uniformity of assessments. You can read more about why that’s a problem here.
That Jersey City has seen notable zoning changes since 1988, which is a cause to revalue.

TAX INJUSTICE IN JERSEY CITY – A 2-HOUSE EXAMPLE

We can see Jersey City’s unfair property tax system by comparing two homes that sold in 2017. The recent sale price is a good proxy for market value.

Here is what actually in happened in 2017 with these two houses:

(1) A home on Van Nostrand Ave (in Greenville) sold for $370,000. The 2017 tax bill for this home was $10,614.

(2) A home on 5th Street (in Downtown) sold for $1,250,000. The 2017 tax bill for this home was $7,120.

Here’s what’s so unfair: the 5th Street property is worth more than three times the Van Nostrand property, yet it pays less in property tax. This is because the assessed values of these properties – the basis for computing annual tax bills – are “frozen” in a 1988 paradigm (the last citywide revaluation in Jersey City occurred in 1988). And in 1988, the Van Nostrand property was likely worth more than the 5th Street property.

But…Jersey City has changed a lot since 1988!

Here’s what Revaluation will do: it will update all assessed values to be equal to true market value. The tax rate also changes with Revaluation. In December 2017, Jersey City published a Revaluation update that stated the 2018 tax rate is estimated to be 1.6%.

Here is what should happen with these two homes, after Revaluation:

(1) The Van Nostrand home’s assessed value should increase to about $370,000. The new tax bill should be about $5,920 per year.

(2) The 5th Street home’s assessed value should increase to about $1,250,000. The new tax bill should be about $20,000 per year.

Per state property tax law, a home that is worth more should, in turn, pay more in property taxes. Revaluation is meant to ensure that this happens.

It’s worth also pointing out that both under-taxed and over-taxed resident are harmed by a failure to conduct regular revaluations. Consider:

Residents such as the Van Nostrand homeowner have been over-taxed, probably for years, which is unjust for myriad reasons. Revaluation will finally – and rightly – fix this injustice.
But with Revaluation, the 5th Street homeowner will see his/her tax bill more than triple. The steepness of this corrections is also unfair (even if it’s necessary). Jersey City has had potential rationale to conduct a citywide revaluation as early as 2000. If Jersey City had conducted a Revaluation in the 2000s, the corrections would not be as steep in 2017.

Here’s what’s fair to everyone: revaluations that occur as soon as market values start to get disconnected from assessed values.