New Jersey's Municipalities Feel the Pinch

A sign advocating a "Yes" vote on a town budget that will increase property taxes by 24 percent, in Brick, New Jersey.

For New Jersey's 566 municipalities, the next fiscal year could be one of the toughest yet.

Towns and public schools are funded by billions of dollars in revenue from locally levied property taxes. For decades, local budget makers and homeowners could count on property values going up year after year.

But, thanks to the lingering foreclosure crisis, real estate prices have been declining. The Philadelphia Federal Reserve last month reported the slide was most pronounced in southern Jersey, with year-to-year declines ranging from 7 to 10 percent.

That kind of slide enables New Jersey property owners to appeal their property taxes if it’s based on valuations that pre-date the housing bubble bust.

Bill Dressel, executive director of the League of Municipalities, said local governments have been inundated with such appeals, and it has resulted in hundreds of millions of dollars in appraisal markdowns.

“If you have successful property tax appeals, which we experienced an unprecedented number of them in 2011, that means that you have reduced you’re tax base," Dressel said.

The latest numbers from New Jersey's Treasury office indicate that state tax revenues are running more than $300 million below projections. Last year's state budget was close to $30 billion dollars.

Compensating for an eroding tax base is not municipal governments’ only challenge.

Trenton imposed a 2 percent cap on local property tax increases last year. A recent Star Ledger analysis documented that the cap appeared to be taking hold with the average increase in local property taxes held down to just over 2 percent, the smallest increase in twenty years.

Dressel said locals are also bracing for the impact of cuts in federal aid, as well as the end of stimulus funds that helped municipalities avoid some layoffs.

"Right now we are very uneasy as it relates to what’s happening on state street under the gold dome on west state street and we’re also very concerned about what the prospects are on the Potomac in Washington, DC,” Dressel said.

Local governments and public school districts will learn how much in state aid they will be getting out of Trenton when Governor Chris Christie presents his budget proposal in February for the fiscal year that starts July 1.