| EQUALIZATION ORIGINEqualization for State school | | | | in the equalization process --- lots of trouble. State |
| aid purposes is the process of determining the | | | | government cannot hope to moderate the force of |
| aggregate true value of all real property in each of the | | | | inflation that impact on the changes in the sale prices |
| State's 566 taxing districts. This figure is established by | | | | of property which sale prices determine the |
| a program of assessment to sales ratio analysis. The | | | | assessment to sale ratio that is used in the equalization |
| aggregate true value of real property, together with | | | | process.However, underlying the use of the |
| the value of second class railroad property and the | | | | assessment to sales ratio for equalization purposes |
| assessed value of locally assessed business personal | | | | has been a tacit belief that most real estate values will |
| property, is known as the "equalized valuation."The | | | | be largely stable from year to year. As a matter of |
| present equalization program had its origin in 1954 | | | | course the State relies upon an equalization process |
| when a considerably expanded State aid program for | | | | which is based on this assumption. Most changes in |
| education was enacted, with the distribution formula | | | | value for equalization purposes are expected to be |
| based on "equalized valuation," rather then upon | | | | gradual rather than large or sudden. |
| assessed valuation. Equalized valuation has been | | | | CAUSES OF INCREASES IN PRICES OF REAL |
| carried forward as a basic component of newer | | | | ESTATEMany forces of demographic change, large |
| formulae set forth by the Legislature from time to time | | | | stock market capital gain realizations, desire to live in |
| to calculate the distribution of State school aid | | | | the municipalities with the best school systems, trends |
| funds.The equalization process is intended to provide | | | | in personal tastes for larger homes, an increase in real |
| stability in the total market value of a municipality over | | | | personal income, and so on, have been operating on |
| time. This is an important goal for the sake of stability, | | | | real estate prices. All of these wants of people raise |
| predictability, and fairness in municipal and school | | | | the demand for housing and for places to work and |
| finance. It is intended to completely reflect changes in | | | | play. And, they are not making any more land on which |
| market value each year, and thus to bring the | | | | to satisfy these wants. Therefore, the increase in the |
| assessments in all municipalities to a common standard. | | | | demand for space will continue to have a relatively |
| On the other hand, it is constrained not to change "too | | | | larger influence on land prices. Also, the prospect of |
| much" by the averaging together of two years' true | | | | inflation leads some investors seeking protection from |
| values to prevent large fluctuations in municipal | | | | inflation to acquire real property. While inflation at the |
| equalized values. This two year averaging is used in | | | | same time induces other owners to hold property |
| order to preserve stability in municipal and school | | | | when sale would have been the normal action, thus |
| finance.THE SALES RATIO PROGRAMThe sales | | | | hyper inflating property sale prices. Historically, through |
| ratio program is based upon a comparison of the | | | | innumerable inflations, the possession of land and |
| assessed values of parcels of real property which | | | | buildings has preserved real value when money and |
| have been sold, and for which deeds have been | | | | may other assets have lost much of their worth. Our |
| recorded, with their sale values. It is assumed that the | | | | own recent history seems to confirm the principle. |
| assessments on the properties sold will be | | | | Within a locality the specific changes can diverge |
| representative of the assessment practice in the | | | | significantly. These specific changes can create wide |
| taxing district. Thus, if the assessment of the | | | | swings in the price people are willing to pay for |
| properties sold average 90 percent of the sale prices, | | | | property and in particular land.State government must |
| the assumption is that all similar properties in the taxing | | | | learn to live, somehow, with an annual equalization |
| district are being assessed at an average of 90 | | | | process that conforms to a frequency of value |
| percent of their true value or market value.DIVISION | | | | changes that in the past were brushed aside because |
| OF TAXATION RESPONSIBILITYResponsibility for | | | | the amounts involved seemed too small to be troubled |
| the sales ratio program rests with the Property | | | | about.Perhaps one way to stabilize the annual |
| Administration Section in the Division of Taxation. | | | | equalization process would be to double weight the |
| Procedures of sales data collection and analysis have | | | | previous years' true value when the "Hyper Land |
| been developed by that section, but the success of | | | | Change Factor"is one. A factor of one means that the |
| the process requires the cooperation of every county | | | | percent change in land assessed values statewide |
| board of taxation and every local assessor. The | | | | have increased at a rate of growth twice the rate of |
| results of the section's work, in the form of the Table | | | | change in the State CPI in a particular year. During the |
| of Equalized Valuations, is certified by the Director of | | | | period from 1971 to 1999, a period of 29 years, a |
| the Division of Taxation on October 1 of each year to | | | | factor of one occurred ten times in New Jersey. |
| the Commissioner of Education for State school aid | | | | Remember, that 43% of the CPI index is comprised of |
| purposes, and delivered to each county board of | | | | housing. This periodic adjustment to the equalization |
| taxation for the purposes of apportioning the costs of | | | | process would serve to stabilize the total market value |
| county government and of school districts covering | | | | of municipalities in the State over time. This is an |
| more than one taxing district. This calculation of | | | | important goal for the stability, predictability, and |
| equalized values is one of the most important tasks of | | | | fairness in municipal and school finance. It would |
| the Division of Taxation. The results of the calculation | | | | remove the sudden increases in equalized values |
| have widespread ramifications for the fiscal condition | | | | reflected in periods of hyper inflation as reflected in |
| of the municipalities and school districts in the State, | | | | land prices and thus bring the annual equalized values |
| and therefore (indirectly) the welfare of every resident | | | | in all municipalities to a more common stable standard. |
| of the State.THE SAMPLEThe utility of any property | | | | In preventing large fluctuations in municipal equalized |
| equalization program, including the one used for State | | | | values from year to year in this manner stability in |
| school aid, is contingent upon the extent to which the | | | | municipal and school finance could be preserved. |
| sample of sales-assessment ratios is representative | | | | Perhaps many suburban and rural municipalities have |
| of all property assessments within the taxing district. | | | | their county tax apportionment costs increase rapidly |
| Although it is generally assumed that a large sample is | | | | when double digit land increases occur. Other |
| preferable to a smaller sample, this is not necessarily | | | | municipalities may lose State school aid dollars |
| true in all cases. The test concerns the randomness of | | | | because of becoming property rich in short order. |
| selection in a manner to represent all areas of the | | | | Stability has a lot of friends in local public |
| taxing district and all characteristics of property within | | | | finance.Biography: Gerald 'Jerry' Dowgin "The Property |
| the tax roll of the taxing district. The implied appraisal | | | | Tax Doctor" and the author of the Homeowner's |
| of the sample requires information not presently | | | | Assessment Review Guide ( a former tax assessor |
| available in any centralized tabulation of "usable sales." | | | | worked in the field of public finance at the State and |
| One way to increase the randomness in the process | | | | local levels in New Jersey for more than three |
| of estimating market values is to use sales data from | | | | decades until his retirement in 2001. As a Supervising |
| a period of time longer than one year. The equalization | | | | Tax Analyst in the Office of Research and Statistics |
| process currently in place does exactly this by | | | | in the Division of Taxation in the New Jersey |
| averaging the estimated market values from both the | | | | Department of Treasury he worked principally on local |
| current and previous year when calculating the | | | | property tax issues. Then he joined the Office of |
| equalization ratio. More precisely, the current system | | | | Legislative Services (OLS) in 1983 and served as the |
| averages two year's values each computed using one | | | | Secretary to the New Jersey Property Tax |
| year's worth of useable sales data.INFLATION / | | | | Assessment Study Commission for four years. |
| DEFLATIONEither inflation or deflation assures trouble | | | | |