By Stephen Stirling andTom DePoto/The Star-Ledger
Elizabeth Mayor Chris Bollwage does not look forward to April 1.
While others revel in goofy pranks on their friends and co-workers, Bollwage – and mayors across New Jersey – know this date for an entirely different reason, one that has cost towns billions of dollars in the last decade and put an added strain on already fragile budgets.
April 1 marks the last day for New Jersey residents to file property tax appeals. More than 116,000 tax appeals were filed in New Jersey by April 1, 2012, the highest in more than two decades, and it resulted in more than $4.6 billion in reduced assessments in New Jersey municipalities.
While the number of tax appeals this year has yet to be tallied, experts, town and county officials expect the number to be high yet again. And people aren’t only filing appeals in droves, they’re winning.
A Star-Ledger analysis of tax appeal data shows nearly 70 percent of all appeals filed in 2012 ended in either a revised assessment or were settled out of court, the vast majority of which end up as victories for homeowners, experts say.
“You don’t go try a case when you know the judge is going to find against you. It’s math, not emotion,” said Alan Hammer, a senior member of the real estate tax appeals practice at Brach Eichler in Roseland.
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The reductions in property tax revenue come directly and solely out of municipal budgets across the state, and Bollwage and others want to see that changed.
“The system is broken,” he said. “This year we got about 800 tax appeals, and many of them could be successful. (The tax appeal refunds),all of that comes off the city’s base and the city is still left running. That money has to come from somewhere … It consistently points to cities laying off police, firefighters and reducing other services.”
Bollwage and others are pushing for legislation, introduced in the Senate and state Assembly, that would spread the fiscal burden caused annually by tax appeals to school boards and counties, which currently are not affected by the problem, though they are funded by property taxes.
“Many municipal governments are trying to reduce their cost on these appeals, which have been skyrocketing,” said Bill Dressel, executive director of the League of Municipalities. “They don’t want to spend additional money on legal fees because, from experience, they know they’re going to lose. It’s another cost that the municipality has to bear 100 percent.”
Hurricane Sandy only figures to complicate the matter further.
The storm wreaked havoc on the housing market, which experts say will make the tax appeals process a quagmire for years to come, particularly as new federal flood maps go into effect and alter the landscape further.
“It’s going to be a real mess to get that straightened,” said James Hughes, dean of Bloustein School for Planning and Public Policy at Rutgers University.
A statewide issue
When the bottom dropped out of the housing market in New Jersey and across the country during the last decade, home sale prices dropped like a rock.
But in the years since, hundreds of thousands of state residents have been taxed as if it never happened, because many towns last conducted reassessments or revaluations when the market was at its peak.
That’s quickly changing due to a storm of tax appeals, and it’s costing towns dearly. Since 2006, the number of tax appeals has gone up more than 400 percent, according to data from the state Department of Community Affairs.
“The housing bubble was extraordinary, perhaps a once in a lifetime,” Hughes said. “We’re still not fully recovered. Until that time comes, we’re likely going to continue to see this high level of tax appeals.”
The appeals can mean big problems for towns, who are forced to refund tax overpayments of residents who win or settle their appeal and it can mean higher taxes for the community at large.
Potential Fixes
Two years ago, Monroe Township was forced to issue a $5 million emergency bond to cover the cost of a record number of appeals, which local officials said had a “devastating impact” on the town’s finances.
To Dressel, of the League of Municipalities, and others, the fix seems obvious -- force school boards and counties, whose budgets are also based on property
taxes, to share the load. A bill introduced to the state legislature by Anthony R. Bucco (R-Denville)and Anthony M. Bucco (R-Randolph) last year does just that.
Tax Appeals since 1990
Unsurprisingly, it does not have the support of the New Jersey School Boards Association and the New Jersey Association of Counties, who argue their budgets aren’t structured in a way to handle refunds.
John Donnadio, executive director of the New Jersey Association of Counties, said if the measure were to pass,counties would have to borrow money or cut services.
“There’s not a county now that has those reserve funds to pay out.”
Another option is being tested in Monmouth County – simply moving up the appeals deadline to January.
Monmouth County Tax Assessor Matthew Clark says towns’ financial planning is hindered by not being able to account for the hit that tax appeals will have because the process plays out parallel to most towns’ budget planning cycles.
Municipalities often finalize their budgets in the first months of the year, ahead of the start of the fiscal year, which for most towns begins in July. Budgets are typically set in stone before the tax appeals process is completed, which can leave towns scrambling to amend their budget when they have to fill a hole left by millions of dollars in reduced assessments.
“In a depreciating market there are losses, but the budget has already been set. By moving the appeal process up a couple of months, then we have very solid number to create a budget on,” he said.
Next year, two other counties will experiment with moving the appeal deadlines forward.
“If me and my team are successful, it is a model that will easily be employed,” Clark said.
The Sandy Factor
As if Hurricane Sandy hadn’t caused enough trouble along the New Jersey shore, town officials and tax experts say storm damage is likely to turn the appeals process into an unmitigated mess for several years to come.
“Everyone is sort of making things up on the fly because something like this doesn’t happen every year,” said Charlie Walsh, who owns ValueAppeal, a website that helps residents file tax appeals. “They’re still trying to figure everything out. We don’t know what the rules are.”
When a homeowner files a tax appeal, they make the case that their property is over assessed based on the market value of similar homes being sold in neighborhoods around them.
Sandy destroyed that market, and no one, from tax assessors to residents to real estate experts, knows what it will look like when it does return.
“We don’t know what the ultimate market effect is going to be,” Hughes, of the Bloustein School, said. “The rebuilding process is going to take a long time. One scenario could be that the shore loses some desirability because of this. We don’t know. Then you’ll have the new (federal) flood maps being released. You’ll have homes that are in compliance and ones that aren’t. It’s going to be problematic. Sandy is going to have long term impacts on the appeals process.”
For town officials in places like Brick, still dealing with Sandy’s devastating impacts today, it puts a weary eye on an uncertain future from an unstable present.
“If we get a downturn from the stigma the storm created, that will set the new assessment. And that will cause a ripple effect,” said Brick Business Administrator Scott M. Pezarras. “Next year is going to be a tough year.”
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