The local levy as connection between taxpayer and the local budget

This is part of a 2023 series about property tax in NJ. View the series landing page here.

An upfront caveat: the levy is a topic with vast scope beyond what I can and want to cover here. There is a lot more you can reference; for instance, a good read if you have the time and interest is “A Short History of the Property Tax & the Long Road to Reform” from the NJ State League of Municipalities. Please also see my References page.

Every local budget has multiple revenue items used to fund the related expense. The “levy” is the revenue line item in the local budget funded by property tax. As I mentioned in a previous post related to the local budget timelines, the levy is what connects taxpayers to the local budgets.

There are three local levies: the school levy, the municipal levy, and the county levy.  The levy is often the primary funding source for local government, particularly the schools; by contrast, municipalities and counties have other revenue sources they can use including PILOT fees, court-related fees, and local revenues (e.g. parking related monies).  And the state can (and does) impose levy “caps” that limit the levy from increasing by certain threshold percentages each year; this nuance is beyond the scope of this post but is still worth noting.

There are two key insights I want to focus on in this post as it relates to the levy:

  1. The levy is a politically important revenue item. Approving the levy amount is among the most important tasks that a local government body (eg Board of Education or City Council) can undertake
  2. Historic levy data can inform us about our own community, in terms of collective spending priorities

Let’s dig into each insight.

The levy as a politically important revenue item

Imagine we have a city budget with $100 in expense to fund firefighters, police, and EMS. There is public support for these services. Now we need to fund them. In this small imaginary town, imagine we have:

  • +$25 in parking meter fees
  • +$15 in license (e.g. pet license, marriage license, etc) fees
  • +$10 in state aid
  • +$5 in construction fees
  • =For a total of $55 total revenues to fund a $100 budget. The town is short $45; this is what is needed to “plug” with property tax. So the levy needs to be $45.

Once this levy is determined, it is then divided into the tax base to create the tax rate (tax rate = levy / tax base). The tax rate is then used in the tax bills. 

Now let’s say that, despite there being support for the services we named above, there is not political support for $45 levy because that will create a politically unsupportable tax rate. And people simply do not want to pay that much for the related service. What next? Well, the elected have to figure out how to cut the services down … or… build support for the tax rate. So the elected are faced with perhaps cutting a few firefighters, perhaps not buying new police cruisers, or maybe not investing in that new EMS call center. Or, perhaps they go into community and dialog about why these services are needed, so that taxpayers accept the higher tax rate. This is some of the work of governance.

This is an oversimplified example to illustrate the process of public budgeting and the importance of the levy within that process. The levy plays a critical, linchpin role between the elected and taxpayers. The levy is needed to fund services in community. And the levy is infused with political importance for the elected because because taxpayers have recourse if they are unhappy with their tax bill: they can vote in the next election for a different elected.

Where to find the levy in the public documents

The levy is one of the most important factors to understand about property tax, yet it’s often hiding in plain site in the public documents, sitting as a key line item on the revenue-side of the budget.

Budget data is shown in a standardized report format in NJ; regardless of your town or city, the format will be the same. Shown below is a callout from the 2022 Jersey City municipal budget. Notice the “Sheet 11” caption at the bottom of the page; this “Sheet” indexing is standardized in every local budget, such that regardless of where you live in NJ, you’ll find the tax levy information on “Sheet 11” of your local municipal budget.

If you want to see historical data going back five, 10, or perhaps 20 years, you can use data provided by the NJ Department of Community Affairs, which shares tax data (including annual school, municipal, and county levies) stretching back to 1998. The data is shared by the state in standalone Excel files but I compiled and visualized it in Tableau below. While this visual shows Jersey City as the default community, you can use the filter to pick another town, village, city, and so on.

Historic levy data can inform us about our own community

Let’s use Jersey City as an example to see how this levy data can inform us about our own community. You can hover over the graph to see tooltips on the numbers and observe how the levy invites us to dig deeper into the budget paradigm itself.

We can observe:

  • Notice how all three local levies have increased between 1998 and 2024 (not that surprising) but there were noticeable spending increases in the municipal levy between 2005 and 2010 and then also between 2013 and 2020. We can point to Jersey City’s known development as one potential, and logical, factor here. But other factors may also be at play and this is an invitation to dig into the individual budget files to investigate why the levies went up. For instance: was state municipal aid cut, such that levy spending had to make up the shortfall? Did the city invest in new fire or police resources given the influx of new residents? And so on.
  • There is a disparity between municipal spending (blue) versus school spending (red) between 2005 and 2020 and the state played a role. This shows more local tax dollar investment in municipal resources (public safety, public works, etc) and less local investment in schools. But there is additional context that is not so obvious; the red line (school levy) is restricted by a 2% “levy cap” imposed by the state. In effect, there is an invisible state hand pressing down on the red line, keeping it from rising more than 2% per year (plus allowable ‘banked cap’). In 2018, however, the state would remove the 2% cap and force Jersey City taxpayers to make up for lost time through enactment of the “S2” school funding law (I wrote the connection between S2 and rising school tax here). There is a lot to unpack here, but these are a few insights we can draw by looking at the two levies during this time period.
  • Notice how from 2019 to 2020 and beyond, how the school levy (red) starts to goes up dramatically from $133 million in 2019 to $353 million in 2022. This time period coincides with the state withdrawal of school aid from Jersey City’s public schools, the state’s lifting of the 2% levy cap, and local advocacy to push for a higher school levy. As state aid was taken away, local advocates (including me, as full disclosure) pushed for more local school investment (aka the local school levy) to keep the schools open and functioning.
  • Notice the dip in the municipal levy between 2020 ($280 million) and 2021 ($223 million). This municipal levy cut coincided with a school levy hike that left overall levy spending relatively flat, meaning: no net tax hike that year (no hike passed through to tax bills). A note on the politics: that was a mayoral election year and the municipality had federal COVID aid to help offset a levy cut. I wrote about this municipal tax cut in my 2021 post, “Jersey City 2021 Budget: A focus on revenues (including how the city is achieving a property tax cut).
  • But then notice the subsequent jump the next year, from 2021 to 2022 in both the school levy and the municipal levy; this resulted in a net tax hike that residents experienced in mid- to late-2022. I wrote about that tax hike more recently in my 2022 post, “Jersey City’s 2022 tax hikes & Q3 and Q4 tax bill flux, explained.”

The point is: we can look at this levy data and glean initial insight about our local government; this data, over time, helps tell the story of our community.

Another view of this levy data is a one-year split of the three local government taxes; I shared one such view in 2021 with a comparison to the state average, because I was asked how Jersey City compared to the rest of the state.

I have a break out of the 2022 levies on my most recent property tax dashboard, shared as part of this series. You can also see the 2020 levies here and 2019 levies here which I posted in prior years.

Wrapping up…

The local levy is a tool to fund public services in our community. If you pay property tax (either directly through your tax bill or indirectly as a function of rent), you collectively contribute to the levy to fund our three local governments.

The levy invites us to look at the annual budgets and focus on the expense side to see what it is that we’re funding.  To that end, in 2020 I did a series about local budgets using NJ’s “user friendly budget” as a lens. I will point readers to that series because it contains highlights about the “what” in “what do we fund in local municipal government?”

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