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An ongoing discussion about conservatism in New Jersey.
It's best that the constitutional cap on property-tax increases failed
Peter C. Hansen  (July 7, 2010, 10:58 am)

There is something inherently satisfying about constitutional amendments one likes – they're more permanent, and all that. Christie's effort to impose a constitutional cap on property-tax increases (at 2.5%) was, however, never a very sound one. The reason is simple: it would freeze one moving part in a complex machinery, and cause no end of disruptions.

Let's say that inflation kicks up again, to a modest 3%. This means that property taxes would have to rise 3% just to stay the same in real terms. Those who received cost-of-living increases would have 3% added to their incomes, so they would not feel any worse pinch. If property taxes could legally rise only 2%, however, people would pay 1% less in taxes and localities would have 1% less spending power than they did a year before.

(Given current federal spending, the Fed's easy-money policies, and the political need to let house prices fall in real terms without appearing to fall, it is possible that inflation could go much higher than this for a while.)

If you are overtaxed (i.e. if you live in New Jersey), this sounds absolutely wonderful - inflation will silently reduce your tax burden. The problem is that such glories never really happen in practice. Don't expect towns to retroactively adjust their contracts and plans according to each year's unpredictable inflation tallies. What would happen instead is that sales taxes would be raised, new taxes ("school book tax," anyone?) imposed, state income tax "aid" to localities increased, and rebates of various kinds slashed. The battles over spending can't be avoided by letting inflation work its reductive magic. The battles will just move to new areas.

This is why a statutory cap is a much better idea. It is binding, harder for localities to work around (because the Legislature could always pass a waiver or adjustment if things were really so bad), and yet susceptible to adjustment to future economic realities – like a spell of high inflation that could severely disrupt local government.

If this is unsatisfying, that's just life. The only potentially durable constitutional cap (or statutory cap, for that matter) would be one where property taxes rises were indexed strictly to inflation. This means that local tax revenues and property-tax burdens could never be higher than they are now. That isn't great, but it does at least set something of an upper limit on politically acceptable spending.

Of course, if you want to read a superb study of why unfunded pension plans may make all this talk of caps a bit of a frolic, check out the new Norcross-Biggs working paper for Mercatus, "The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey." It makes for depressing reading, and signals that the great budget battles still lie ahead.