Exclusive: Fighting New Jersey’s property tax crisis

First in a week-long series.

Like many newlyweds, Matthew and Nazia Stevens searched for the best home to start their life together. They visited house after house in pursuit of a serene and secure setting for the children to come. The home would be close to work, close to family — all perfect for a lifetime of happiness. ● The houses they visited all fit within their budget. ● The property taxes did not. ● For a $600,000 three-bedroom house, a modest home in the upscale community of Montclair in Essex County, the tax topped $20,000 a year. Local taxes were just as high, or higher, in neighboring towns.

The Jersey City couple, both employed as financial experts, made the calculations and quickly saw the harsh reality of New Jersey’s high costs and highest-in-the-nation property taxes: They had to find a new future outside the state.

Matthew, 31, a Toms River native who sports a bow tie and a broad smile, let friends know that he wanted another job in another state. He found one in California. The Stevenses moved 3,000 miles across the continent in August.

“Leaving New Jersey was a tearful goodbye,” said Matthew, who left behind his parents and the house he grew up in. “I love Jersey. All my family and friends were there.”

The couple landed in San Francisco, one of the most expensive cities in the nation. However, they found that it had better economic prospects than New Jersey. Yes, the housing prices were higher – about $1 million for an average home – but the taxes were much lower. A million dollar house is taxed at $10,000 a year, property records show. As Matthew sees it, any extra money he pays toward the mortgage will go to building equity faster rather than vanishing into the realm of high taxes.

The irony of his move is that the taxpayers of Toms River and New Jersey spent upwards of $100,000 to educate Matthew through public high school before he headed to college. That investment is now lost, with California the winner of his future spending, taxes, income growth and talents.

The other irony is the move would never have happened if the Stevenses felt secure in New Jersey, and saw a promising future of job growth.

Even if new opportunities “were really, really great, we probably wouldn’t have left,” Matthew said. “I feel like I’m on the path to brighter prospects.”

New Jersey’s future has concerned Matthew for years. On a cold, windy January night in 2013, he called into Gov. Chris Christie’s “Ask the Governor” radio show on FM 101.5.

How can anyone afford to live in New Jersey? Matthew asked. “What is the solution for people like me who work, pay taxes and play by the rules in the state?”

Christie, a Republican who then was running for re-election in a state controlled by Democrats, hit his talking points: cut government spending and you cut taxes.

“We got on a train going 100 mph in the wrong direction,” the governor said. He would dedicate his second term to “pushing that train back now.”

Two years later, Matthew gave up waiting.

An independent voter, Matthew said he would tell the governor and Legislature today that they have “unfinished business.”

Leaving was the culmination of “the uncertainty of what was going to happen in the next five or 10 years,” Matthew said. “It is only going to get worse.”

READ MORE: Coverage of New Jersey's property tax crisis http://php.app.com/taxpain/

State of crisis

New Jersey’s regressive property tax system has long drained the wallets of workers and retirees.

As the experience of the Stevenses shows, this ballooning levy has crossed a terrible threshold, one that is pushing homeowners out of state and changing the way we live.

When Gannett New Jersey media examined this issue in 2009 and 2010 in a ground-breaking investigation, it found the tax burden was nearly intolerable, especially since the nation was enthralled in a deep recession, with falling wages, rampant foreclosures and job losses not seen since the Great Depression. Yet, in New Jersey, property taxes actually rose as people lost their jobs.

What’s more, as the national economy improved by 2014, New Jersey lagged in most economic indicators. The state continues to hemorrhage jobs — and residents — to fast-growing southern and western states. Those fleeing are taking billions of dollars with them – money that isn’t being replaced – leaving less capital for the state’s long-stalled economy, and a tax burden resting more heavily on remaining residents.

Moreover, the loss goes deeper than dollars and cents.

Property taxes are tearing apart the very fabric of communities: Families. Security. Peace of mind.

Wake up and smell the garbage

Dan Peters, who has lived in Piscataway for all of his 73 years, said he gets “absolutely nothing” for his property taxes.

When he bought his house 50 years ago, his property tax bill was $450. Now his tax bill $6,767. That’s why he thinks of moving to Myrtle Beach, South Carolina, where he’s bought two two-bedroom condos.

”Taxes for each are $1,260," he said. And if he became a permanent resident senior citizen, that bill would drop to $300.

“I would move to Myrtle Beach in a heartbeat,” Dan said. “The grandchildren are the tie that keeps us here in New Jersey.”

Perth Amboy resident Emil Kiyak has lived in New Jersey all of life.

“We would like to stay in New Jersey, but it is economically impossible,” he said.

Even government workers who collect “lucrative” pensions are leaving, he said

The amount of tax dollars that go for education frustrates Emil.

“Now that we are retired there is no reason we should have to pay a school tax,” he said.

But the problem runs deeper.

“This state is comprised by the haves and the have-nots and the middle class is being squeezed out," Emil said. ”At the rate we’re going in this state, we will eventually have a state of nothing but have-nots and in turn, wind up like Detroit — bankrupt.”

Emil is not optimistic that things will change in New Jersey.

“When are these politicians going to wake up and smell the garbage?” Emil asked. “If we don’t do something real soon, there will be nothing left for the next generation.”

$540 million tax hike

What has happened to New Jersey, where, just a generation ago, the state had some of the lowest taxes in the nation? Now it is at or near the top for income, business and sales taxes, with property taxes running out of control for the last decade.

Gannett New Jersey newspapers will show this week how we got to this point, why the state is on the brink of disaster – and our recommendations on how to dig out of this hole.

Our investigation will show how homeowners have become victims of cleverly crafted deceptions that allow local property taxes to fuel huge profits for insiders and special interest groups — while politicians thrive by doing nothing to fix the biggest problem in the state.

How is that possible?

Consider this statement:

“I pledge to raise your taxes by $540 million this year. I will raise them another $540 million next year — and even more every year after that.”

If the governor made such a proclamation today, he would be looking for a new job in short order.

Nevertheless, raising taxes by a half-billion dollars each year is exactly what happens under Gov. Chris Christie’s 2 percent tax cap.

Christie, who is running for president, said if all his tax plans were approved by the Democrat-controlled Legislature, property taxes would have been frozen. Regardless, just one major tax cut came in 2009 with the sunset of the so-called millionaire’s tax on people earning more than $400,000 a year. There is another one pending: cutting the sales tax in half for luxury yacht buyers. It passed the state Senate this month by 37 to 1. Proponents say it will create jobs. The Legislature’s own fiscal review says the tax cut will cost the state treasury up to $4 million.

No end in sight

The property tax is New Jersey’s sword of Damocles — archaic, destructive and an intractable harbinger of doom that hangs over the head of each homeowner. The law cares not a whit about your ability to pay, even if you just lost your job.

As much maligned as the property tax is, it remains the government’s single most important source for life. It funds schools, police, road repairs, trash collection and a multitude of other government functions.

Five years ago, at the height of the recession, which claimed tens of thousands of jobs and forced sizable salary cuts, the tax drained $25 billion from households. It cost an average of $7,281 per home.

Now, half of all tax revenue comes from this levy — $27 billion in 2014 — to fuel 565 towns, 586 school districts and dozens of local agencies with nearly boundless powers to hit your wallet. That’s an average of $8,161 per home.

By 2020, at its current pace, the tax will top nearly $30 billion.

That will mean an average statewide property tax of $9,000 per home.

Today, tens of thousands of homeowners would cheer a $9,000 bill. The average property tax has already topped $10,000 in three of 21 counties and 127 towns. It is more than $15,000 in 25 towns.

With New Jersey ranking among the bottom in the nation for economic growth, incomes are not about to skyrocket to pay for the escalating local tax costs. In fact, the average household income has gone backward since the recession, when inflation is factored in.

Upside-down tax

The property levy is the perfect tax – for an alliance of politicians, special interests and profiteering insiders.

It is the worst possible tax for 2 million homeowners, young families and the poor.

In the upside-down world of this regressive burden, low-income homeowners actually pay a larger chunk of their incomes to local towns while the rich pay a much smaller share.

Fixing the property tax system has been the top concern of New Jersey voters for the last nine years, said national pollster Patrick Murray of Monmouth University, West Long Branch.

“We never had an issue like this stay at the top of the list for so long,” said Murray, who reviewed 40 years of state polling, “because what happens is someone deals with the No. 1 issue and the public moves on to something else.”

The frustration has morphed into abject surrender, he said. Residents no longer have a sense of hope.

“When we ask people if they would consider moving out of New Jersey, about half the public said they would like to go,” Murray said. “The No. 1 reason they give is property taxes.”

Losing homes

Nationally renowned economist Lawrence J. McQuillan of the Independent Institute in California said his state was in the same netherworld nearly 40 years ago – until a popular tax revolt through a ballot initiative called Proposition 13 forced a stark reversal in the overtaxing of property. Citizens in other states soon followed with their own tax rebellions.

New Jersey is now where California was in 1978. “You never really owned your home because you always lived in fear it could be taken from you tomorrow from a ballooning, exorbitant property tax bill,” McQuillan said.

That isn’t true anymore in California.

That’s not the case for 146,000 homeowners in New Jersey last year who fell behind on their local taxes, some by just a few hundred dollars, according to data from the National Tax Lien Association, an industry trade group based in Florida.

Towns reaped a $320 million windfall from tax lien sales, where private buyers can collect up to 24 percent interest and penalties on unpaid taxes from the homeowner – and eventually seize the house through foreclosure if the debt remains unpaid for two years.

An average of 400 homeowners risk losing their homes each day in New Jersey.

It’s the highest per capita rate in the nation.

Chapter Two – Mad as hell

There are many straws that are breaking the camel’s back.

For many New Jersey residents, it’s not just property taxes that are assaulting their pocketbooks and savings accounts they have built up over decades.

It’s the accumulation of taxes and other costs that are prompting seniors and others to think about leaving the state where they were born and raised their families.

Warren Township resident Marilyn Amsterdam, who recently retired, was born and raised in New Jersey. She and her husband are “seriously contemplating” joining the exodus from New Jersey.

“We really don’t want to leave our longtime home, friends, physicians, etc.,” said Marilyn, but the best choice is obvious.”

It’s the high cost of existence in New Jersey that’s making Marilyn ponder a life outside New Jersey

“So far, we can still afford to live in New Jersey, but we can truly cannot see the overall sense it makes to be spending so much of our nest egg on living here and being able to leave more of our hard-earned savings to our children and grandchildren.”

Marilyn wants to see the state legislature eliminate the state’s inheritance tax and give a 50 percent tax credit to people over a certain age who do not have children in school.

She also believes that the state’s 565 municipalities have “developed creative ways around the (2 percent) cap, rendering it an ineffective tool.”

“If nothing is done,” Marilyn said, “it will be too late to end the financial drain of this exodus.”

Marilyn’s story is not unique.

‘Desperate to leave’

Robert Fennel and his wife Mary Jane moved from New York City to Bedminster almost 50 years ago.

They got out of New York City because of the taxes. New Jersey didn’t have an income tax then.

And, now because of taxes, they will be moving back to New York.

Robert attended high school in New York and went to St. John’s University on a full scholarship. After he and Mary Jane moved to New Jersey, Robert attended night classes for five year at Stevens Institute of Technology and earned a masters degree in management science.

With his skills and intelligence, Robert’s steadfast work ethic and commitment to excellence led him to become president of Electro Nucleonics in which employed more than 600 workers. ENI was acquired by Pharmacia in 1988.

Robert then went to a startup company, Cirrus Diagnostics in Chester as resident. In two two years Cirrus was acquired by a California company that was eventually acquired by by Siemens.

With generous stock options in Cirrus, Robert retired. He paid a substantial alternative minimum tax when he exercised the options and went on to invest in the stock market and New Jersey bond market.

But now Robert is very ill and is not expected to recover.

And that’s where the trouble is.

“We think it’s preposterous that the State of New Jersey has a $675,000 cap on estates,” Mary Jane said. “Life insurance is included in estates. Although I am exempt from the death tax upon Robert’s passing, our son would face a very large tax bill if I am a New Jersey resident at the time of my passing.

“If our estate remains at its present value, my son would face an inheritance tax of more than $140,000, “ Mary Jane said. “ For this reason, I am desperate to leave this state as soon as possible.”

They refuse to accept the inheritance tax.

“As senior citizens, we are now suffering with the high property tax, the income tax and what is called the death tax,” Mary Jane said. “We’re mad as hell and we’re not going to take it anymore.”

Robert and Mary Jane plan to be out of New Jersey by the end of the year.

Zero benefits

Joseph Petracca, a CPA in Bound Brook, said his clients have three major reasons why they’re planning to abandon New Jersey­ --- the inheritance tax, property tax and “out-of-control” regulations.

Petracca believes the state’s $675,000 threshold for the inheritance tax is “ridiculous.”

“The average house value in the state is around $325,000,” he said. “Add to that a 401K or IRA and you’re over $675,000.”

Petracca suggests the threshold be raised to $2 million or $3 million.

With the average property tax bill $6,000 to $8,000, “you quickly find that property ownership --- and living --- in New Jersey is becoming impossible.”

And if you try to build equity in your home by making improvements, Petracca said homeowners are handicapped by code enforcement officers who are “out of control.”

“Trying to get a permit to make improvements on your house requires a major undertaking,” he said. “Just to put in an above-ground pool requires plans for an architect.”

What makes many senior citizens particularly irate is they don’t believe they’re getting their money’s worth from their property taxes.

“The taxes here are ridiculous and I haven’t had children in school for many years,” said Green Brook resident Molly Lowande. “You don’t get a lot for your money.”

Molly’s kids have moved out of state where they are paying “half the taxes and half the prices for their homes.”

“Green Brook is a very nice community, but we get zero benefits,” she said.

When Michael Goldman moved to the Somerset Run community in Franklin 11 years ago, his property tax bill was $6,600; now it’s more than $10,000.

“This is a senior community,” he said. “We don’t add anything to the cost of town and we don’t have any kids here going to school. We pay for our own snowplowing. We pay for our own garbage collection, so we use almost no municipal services.

“I think we’re a pretty good cash cow for the town.”

Like many residents, Michael is irked by the amount of tax money that goes to public schools in New Jersey.

“We have 600 school districts with 600 superintendents and every superintendent has an assistant superintendent,” he said. “You have to start looking at these things and nobody wants to let go of home rule. Towns need to try to consolidate expenses with other localities to reduce expenses, but nobody wants to do it.”

Even expanding a property tax base with more development doesn’t ease the tax burden.

For example, in Monroe Township, Michael Olesky said the “root cause of the increases in the local portions of our property bills is the building of numerous housing developments throughout the township primarily single-family homes which are overloading our school system.”

Because the school district has slipped into “overcrowded chaos,” Beth Kelly of Perth Amboy sends her kids to schools outside the city.

“I am stuck in Perth Amboy paying a premium on property taxes for a school system which would rank subpar in any state, including Mississippi where I grew up,” she said. “In Perth Amboy, I get ‘high’ everything, except education, property values and standard of living.”

’What do I do?’

Though the focus of spiraling property taxes often spotlights the squeeze felt by property owners, the taxes also affect those who live in rental properties.”

Michael Silas, who lives in the Pleasant View Gardens apartment complex in Piscataway, is on disability. He lives on $1,500 a month. The rent on his 675-square-foot one-bedroom apartment that he shares with a daughter and special needs son is $1,145.

“I want to work but the doctor won’t let me,” he said.

Every dollar is important to Michael. “My daughter’s birthday is coming up. Christmas is coming up. What do I do?” he said.

The owner of the apartment complex notified Silas and the other tenants that, under Piscataway’s rent-levelling ordinance, they would be responsible for a $405 surcharge because of a rise in property taxes caused by a property revaluation.

The surcharge, based on the square footage of the apartment, can be paid in monthly installments of $33.75.

That’s enough to break the bank for Michael.

“I don’t know what to do,” he said.

What can you do?

You have just one chance in the next month to have your voice heard.

Vote.

The 80-member Assembly is up for grabs in the Nov. 3 election. One topic candidates won’t want to talk much about is fixing the property tax system. Both parties will ballyhoo the 2 percent tax cap, which is really a 2 percent-a-year tax increase.

Now it is your turn to tell them you want your taxes fixed.

Sign the Change.org petition at http://bit.ly/NJtaxcutnow that calls for a solution, by year’s end, that will cut property taxes.

It won’t ask for a 2 percent cap.

Or to keep taxes flat.

It is a petition for a tax cut.

Choices for tax solution

How that will happen is up to the lawmakers. Gannett New Jersey has proposed a five-point solution, but lawmakers have a host of choices. They can convene another special session on property taxes; they can pass a series of bills to change the taxing formula; they can ask voters to hold a special citizens’ convention to hammer out the needed fixes. Such a convention rewrote the state constitution in 1947.

The Change.org petition is sponsored by this paper and Gannett New Jersey. We will deliver the results personally to Gov. Christie, state Senate President Stephen Sweeney and Assembly Speaker Vincent Prieto before the Nov. 3 election.

If you don’t make your voice heard now, there is another $540 million tax increase for you next year.

And the year after that.

Until you are finally driven out of the state.

Mike Deak and Susan Loyer contributed to this report.

Gannett New Jersey talked to dozens of business leaders, economics experts, political leaders and homeowners in the past year, all with their own ideas about how to fix New Jersey’s tax problems. Here is our distillation of the most promising ideas:

1) Create focused economic zones across the state – funded by their own success. The state already has economic zones – pharmaceutical and petrochemical in the north, tourism along the coast, agriculture in the south. They can grow faster if part of the business tax and sales tax is reinvested into those zones. More growth will increase tax revenue, which ultimately will help reduce property taxes across the state.

2) Consolidate smartly to cut expenses. More shared services and elimination of redundant overhead costs, such as superintendents, police chiefs and the accompanying support structure, can save millions at the top of the pyramid.

3) Freeze public salary increases and instill lower starting salaries for new government employees so it will take longer for them to reach the top pay scale. Consider one unified statewide contract for school, police and public workers.

4) Swallow the medicine. Be prepared to accept part of the pain — school, town and police consolidation, partial sales tax on some now-exempt items — to cut your overall taxes. Lower property taxes also means cutting costs, and that can’t come without some sacrifice.

5) Vote. As much of a cliché that it is, your vote still matters. Just a fraction of all voters cast ballots in the primaries and off-year elections. If you don’t make your voice heard through the ballot box and town halls, nothing will change. Demand action and push lawmakers for a constitutional convention on taxes if they take no action this year.

Findings

Highest in the nation. Property taxes cost homeowners $27 billion last year, for an average tax bill of $8,161.

Big tax hike – every year. Even if the 2 percent property tax cap were strictly enforced, local taxes increase by $540 million each year.

Migration is killing the state’s future. More than 88,000 residents left over five years and were not replaced by people moving into the state. The imbalance has cost the state $8.2 billion in lost taxable income.

Losing homes. On average, 140 homeowners a day see their homes go into a tax lien sale for non-payment of taxes. It is the highest per capita rate in the nation.

The poor pay more. The property tax takes a bigger bit out of low-income salaries than those in the upper income tax brackets. This inequity puts New Jersey on the same plane as Bolivia. And the imbalance has gotten worse since the recession.

Voter lock out. Taxpayers can’t fix the tax issue because there is no constitutional mechanism to place a referendum on the ballot. All changes have to come from the Legislature.

Insiders win. Political favorites win tens of millions of dollars in government contracts and jobs by playing the system 565 municipalities, 586 school districts and dozens of other agencies with tax power.

High salaries. The state has the highest average police patrol salaries and one of the highest average teacher salaries in the nation. Combined, they cost taxpayers $12 billion a year – nearly half of all the property tax raised.

Sound off

Sign the change.org petition to demand lawmakers find a way before the end of the year to cut your property taxes. Visit http://bit.ly/njtaxcutnow and share the link with your friends and family. The Asbury Park Press will present the final petition to lawmakers.

Citizen event

Join the Asbury Park Press “Taxed Out” town hall meeting Oct. 15 at the Asbury Park Press building (3600 NJ-66, Neptune City 07753). Visit on.APP.com/taxedout for free registration and more information about the event.

What your leaders say

What is your plan to lower property taxes?

Gov. Chris Christie, Republican: Finish the toolkit ideas he pitched in 2010. “If we put the other reforms in place that I wanted, which the Legislature would not do, we would be at zero.”

State Senate President Stephen Sweeney, Democrat: The Assembly should pass his shared-services bill. “Until more shared services take effect, taxes are going to be higher.”

Assembly Speaker Vincent Prieto, Democrat: No specific plans at this time, but says less local government is needed. “The 800-pound gorilla in the room: We have 565 municipalities, a lot of the home rule. So we have to look at that.”