Property taxes in New Jersey are supposed to be allocated based on the market value of real estate, so that a house worth more pays more, while a house worth less pays less. But if municipalities don’t update their property assessments to keep up with changes in the market, things can get out of balance.
Homeowners at the lower end of North Jersey’s housing market — still suffering disproportionately from the real-estate slump — are now taking another hit in the form of inflated property tax bills that may be costing them hundreds of dollars extra per year.
An analysis by The Record shows that municipal tax offices across the region have been slow to respond to a prevailing trend of the recent tepid recovery — property values in most towns rising more slowly in modest neighborhoods — saddling those homeowners with an increasingly larger share of the property tax burden.
Specifically, property assessments used to calculate taxes have not been updated in many municipalities to accurately reflect the weaker markets for lower-priced homes, resulting in those owners being overassessed and, by extension, overtaxed. At the same time, higher-end homes that have increased in value faster are now underassessed and undertaxed.
The much-reviled property tax system in New Jersey, where homeowners pay more than their counterparts across the nation, is based on a requirement that all property owners be assessed at roughly the same percentage of market value, so that the tax burden is fairly distributed.
The Record’s analysis — focusing on residential sales data for 2015 — shows the disparities are hurting the lower end of the housing market, experts and officials said.
“Homeowners there are paying more then they should,” said Rick DelGuercio, president of a real-estate appraisal company based in Glen Rock. “Not only are the lower-end properties not benefiting from the market recovery, but based on the formula for determining property taxes town by town, they are now shouldering more of the property-tax burden. They’re suffering from both ends.”
Art Carlson, the assessor in Hackensack, Saddle Brook, Ridgefield Park and Edgewater, which had some of the region’s largest disparities in 2015, said: “Facts are facts. The higher-end property owners aren’t paying the same percentage as the lower end. The burden is on the lesser homes and people with lesser incomes.”
Disparities vary widely from town to town, with some places seeing only minimal differences well within the norms allowed under law. But in the worst cases, owners of lower-end homes would have saved upward of $1,000 if assessments were updated to reflect conditions last year.
Local municipalities with the biggest gaps in Bergen County in 2015 included Bergenfield, Cresskill, Edgewater, Garfield, Hackensack and Ridgefield Park. Some of the widest in Passaic were in Hawthorne, Paterson and Pompton Lakes.
The inequities were largest in the northeastern part of the state, also afflicting Hudson, Essex and Union counties. Bayonne, East Orange, Jersey City and Newark were among the most severely affected municipalities.
Individual homeowners can pursue a remedy by filing a tax appeal themselves, and data show owners at the lower end of the market have been more successful there in recent years.
But for the most part, fixing the problem involves updates by municipal officials — called revaluations or reassessments — which aim to adjust assessments to current market levels townwide.
However, when to do them is often a politically charged issue as they cost hundreds of thousands of dollars and can anger those property owners whose taxes go up as the playing field is leveled. Even when they are done, the analysis shows, they can go out of date quickly as market conditions change.
Such programs have been done since 2012 — or are under way — in about 35 Bergen and Passaic communities.
The Record’s analysis “is a warning shot across the bow that there may a problem going on,” said Mark Pfeiffer, a former state official who’s now assistant director of the Bloustein Local Government Research Center at Rutgers University. The analysis provides “an indication that in those places where there is a rising gap, there may be a problem that may warrant government officials and their tax assessors having a discussion about it.”
Some municipal and county officials who oversee the property-tax system reacted cautiously when asked about the analysis. They either did not respond to requests for comment, declined to comment or said they wanted to review the data more closely before discussing any need for assessment updates.
Several said that the trend should be monitored but that the gaps, as they exist now, remained within state guidelines that define how much disparity can exist in assessments from town to town.
“I would think the board would be concerned” with any disparities, said Robert Layton, director of the Bergen County tax board. But he noted that “they would have to do more analysis to see what the outcome would be and what the remedy might be.”
Jay Schwartz, his counterpart in Passaic County, did not respond to requests for comment.
Officials did acknowledge that imbalances in the tax burden can grow quickly — even in a single year — if assessments remain the same amid the kind of unusual trends currently affecting different levels of the market. While it is common for different segments of the market to change in value at different rates, what’s unusual now is how quickly it is changing and to what extent it is affecting the low end of the market.
A handful of towns are now doing reassessments, which are generally less expensive than full revaluations.
Among them are Hackensack, where an update took effect this year, and Saddle Brook, which is planning one next year, Carlson said.
Regular updates are endorsed by other assessors, including George Reggo, tax assessor in Bergenfield and nine other communities.
“I think it’s time” for communities to update their assessments where significant gaps are appearing, he said.
“If everyone is at true market value, you have equity with everybody and everybody is paying their fair share,” Reggo said.
But even that requires annual diligence as gaps hurting cheaper homes have opened quickly in places like Teaneck, Hillsdale and Paterson, which updated their assessments in 2013 or 2014.
James Tighe, the assessor in Teaneck and Garfield, cautioned against drawing too many conclusions form one year’s worth of data, adding that he had started noticing lower-priced home gaining in value, which could reverse many inequities. He also noted that the law did not require revaluations or reassessments as long as the typical property was not over- or underassessed by more than 15 percent.
“I think you have to give it more time,” Tighe said. “If, over two years, it becomes obvious that this is the way these markets are diverging, then you might have to consider some type of rectification.”
But in Hackensack, which plans to do them annually over five years, Carlson said, regular updates should keep gaps to a minimum. As inexact as the results may be, he and other assessors said those updates were the best way to preserve a fair system.
The coming year, they say, will be important in seeing whether they can return parity or if the burden continues shifting to those who often are least able to afford it, assessors and others said.
“I think the next year will be very significant,” said DelGuercio, president of the Glen Rock-based Appraisal Systems, which does assessment updates throughout the state. “It’s a crazy market that we are in right now.”
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