A Tale of Two Tax Rates.

This November, Barnegat will see another election. Two of five Barnegat Township committee positions are up. Soon we will be told Barnegat's tax rate is too high, much higher than surrounding towns.

This assumes the size of the tax rate tells all. A higher tax rates means over spending? A higher tax rate means inefficient government? The rules of algebra, economies of scale and state aid tell is this is not true. The issues are too numerous and complex for a full discussion with this blog. I will review how the structure of the assessments of one town versus another greatly affect residential taxation.

Barnegat is compared with our neighbor Stafford. All data comes from public records available at the Ocean County Board of Taxation web site. The data is from 2011. 

Chart 1, chart 2 and chart 3 show Barnegat and Stafford residential properties are both about 87 percent of total assessments. Barnegat residential assessments are a slightly higher proportion than Stafford's This means for every $100 thousand dollars of property taxes raised, Barnegat residences pay $400 more than Stafford residences (this is not per home but for all homes). Hardly a difference. 

Assume Barnegat and Stafford raise $50 million from property taxes. How much comes from residents in each town? Barnegat and Stafford tax similar amounts from their residences. Barnegat residences pay about 0.45% more than Stafford residences. This is not to say the two towns spend at similar levels. Stafford has many more residents. The reason the comparison is based on the same level of spending will come later. How do the two towns differ? 

Stafford and Barnegat residences are both about 87 percent of total assessments. Stafford’s total assessments are about twice Barnegat’s. This means the total value of residential assessments are about twice that of Barnegat. The $43,000,000 tax dollars raised from each town’s residents are distributed among more dollars in Stafford. If there are the same number of homes in Stafford the total taxes paid per home would be the same. The tax rate would be lower but the total dollars collected per home would be the same. How many homes are there in each town? 

homes. This means the tax dollars raised from residents is distributed among more homes. The average assessment for each home is about 26 percent higher in Stafford. informationChart 10. How does all this affect taxes on the average residence? Barnegat residences pay about $2,000 more per home if both towns raise the same $50 million dollars from property taxes. 

The situation described is not realistic. It is used to show the advantage Stafford has over Barnegat. Stafford is much larger in terms of population and property value than Barnegat, and this means their budget should be larger as they have more students to teach and roads to repair.

However, there are certain expenses that are similar. Both towns have only one school business administrator, school superintendent, police chief among other positions. Stafford may pay their officials slightly more than Barnegat but the total dollar amount for these expenses will be similar. Stafford has a built-in advantage over Barnegat for these expenses.

Stafford's larger tax base will mean a lower tax rate for fixed expenses. There are also expenses that will be higher in Stafford and may be higher per home. Stafford may have higher school, road and total police expenses. This means the actual tax dollars paid per residence will not be 26 percent higher in Barnegat after all expenses are taken into consideration (state aid is ignored for this discussion). 

A better measure of tax efficiency may be the average taxes collected per residence. This number not only takes the tax rate into consideration but also factors the average assessed home value. Both numbers, tax rate and average taxes collected per residence, should be compared. Here is what the average home in Stafford and Barnegat paid in property taxes for 2010. 

TAX RATE

  AVERAGE ASSESSMENT

        AVG TAXES

BARNEGAT  

$1.895 

         $238,167

          $4,513

STAFFORD

$1.846

         $300,969

          $5,556

Stafford's 2010 tax rate is lower than Barnegat’s The average home assessment is about $62,000 more. This means Stafford will collect more money with a lower tax rate. This is what happened in 2010.

Is Stafford’s tax rate lower because of more efficient spending practices or higher assessments? We need more information than numbers to determine this. I do not have the answer. This fall when you hear politicians speak of tax rates and not much else, be skeptical. Their facts may be accurate but their conclusions may not be true.