The 5th page of the user friendly budget (“UFB-5”) provides a detailed view of your town’s tax base. This is a very informing lens into your property tax bill because the tax bill helps determine the tax rate:
Property Tax Revenue ($) needed to fund your town budget / Tax Base Assessed Value = Town Tax Rate
I wanted to highlight two main observations about the tax base:
1-If you hold property tax revenue constant, but grow your tax base, then the tax rate will go DOWN (this is basic numerator/denominator math at work within the tax rate formula). This is why local elected leaders will often talk about “growing the tax base” or “increasing ratables” — they are attempting to grow the denominator of the tax rate formula, which in turn lowers the tax rate overall and eases the pressure on taxable properties overall (including homeowners).
2-If you have more business property included on the tax base, the pressure on residential taxpayers can be eased.
Let’s use the UFB-5 tab to dig a bit more into this. Generally speaking, a town’s tax base consists of two types of property:
- residential properties including 1-4 family homes (e.g. a house or brownstone) or 5+ family homes (e.g. a condo or rental building)
- business properties including commercial property like a mall or office building or industrial property like a laundry or a warehouse
We can see these properties in the state law broken out as:
- Property class “2 Residential” – residential 1-4 family homes
- Property class “4c Apartments” – residential 5+ family homes
- Property class “4a Commercial” – income producing property likes malls, office buildings, theaters, etc
- Property class “4c Industrial” – industrial property like warehouses
- Property class “6b Business personal property” – machinery related to petroleum products
The User Friendly Budget, page 5 breaks out the value of these property classes and thus sheds light on the degree of tax burden borne by residents vs businesses in your town. For example, Montclair’s tax base is a 90% / 10% residential / business split. This means the approximate $60 million property tax revenue needed to fund the town 2021 budget is being funded 90% by residents and 10% by businesses.
And, some fine print: “4c Apartments” are technically income-producing property for the landlord, but in substance they are residential properties for the renters who live there. Also, while renters do not pay property tax directly, they do pay it indirectly. The landlords pay property tax and then pass that cost through to the renter. Also, there are other classes of property like vacant land, farmland, and railroads. For purposes of this post (and the visual below), I’ve bucketed these into an “Other” category.
Residential vs. Business Growth – A Community Dialog
How the tax base grows – for instance adding a new residential rental high rise vs a new low-rise condo complex vs building a new mall, or some combination therein – is a community dialog involving myriad factors like zoning, jobs creation, add-on costs needed to support the growth (eg new roads, new fire equipment, new town employees), and more. While this is all very important, it’s not my focus here; rather my focus is lifting up public data and tools that can help inform the dialog. To that end, I created the visual below which can help supplement your town’s User Friendly Budget, page 5 view. Comparing and contrasting your town with other towns can be a helpful exercise, and it’s something the team I worked with in Montclair did for the Jan 26th webinar.
Data Visualization and Town Comparisons Across NJ
Below is a Tableau of tax base data by town, showing assessed value of each tax base and the percentage split between residential and business property. Essex County is the default choice because that’s where Montclair is located, but you can filter into any county in NJ. A few caveats:
- The data behind this visual is from the “2021 Property Value Classification” MS Excel file located on this NJ Department of Community Affairs website (the data below is not from the actual User Friendly Budgets). I used this state dataset because it’s easy to pull and it should align closely with what you’ll find in your town’s 2021 user friendly budget.
- This data is based on assessed, not market, values. So, if a town has not revalued recently, these values may be low compared to current market values.