Jersey City last conducted a citywide revaluation – its first in 30 years – in 2018. But property tax data published in October 2019 by the NJ Division of Taxation reveals Jersey City may once again be approaching the need for another revaluation. A driving factor is the market growth of Jersey City’s taxable real estate.
NJ law states that property should be assessed according to its market value for local property tax purposes. However, that only happens if the taxing authority (the city) keeps tax assessed values in sync with market values. These two values grow disconnected when market values change but the tax assessed values remain pegged to what is on record in the city tax office. Revaluation is the process of updating the tax assessed values (what the city uses to compute property tax bills) to equal market values (what a house is worth on the open market).
Three key metrics published each year by the state help us understand this relationship between assessed and market values. These metrics are also used to help determine the case for revaluation.
The Tax Base
The “tax base” is the sum total of all taxable real estate in the city. Each year, the city must estimate the market value of the tax base, which it does so via a process based on recent home sales data. The market value of the tax base is then factored into both the apportionment of county taxes and state education aid.
To ensure residents are taxed fairly, assessed values should be kept in sync with market values, as state law mandates. Thus, as market values grow out of sync with assessed values (as is happening in Jersey City), a question of tax fairness arises. The state uses the equalization ratio and the coefficient of deviation to gain insight into this question.
The Equalization Ratio
The “equalization ratio” is the assessed value of the tax base divided by the market value of the tax base. An equalization ratio of 1.0 indicates that assessed values are in sync with market values. As the equalization ratio decreases, it points to disconnect: the market value (the denominator of the ratio) grows as compared to the assessed value (the numerator of the ratio) which remains pegged at whatever was established in the last revaluation.
Jersey City’s “equalization ratio” decreased from 1.01 in 2018 to 0.88 in 2019. The NJ Division of Taxation states in its “Handbook for NJ Assessors” that an equalization ratio of 0.85 or lower “may denote noncompliance.” Further, it states that a “continual decline…shows a lack of assessment maintenance and may indicate a need for reassessment/revaluation.”
To dig deeper into the question of tax fairness, we have to ask: was market growth even across Jersey City in 2019? Another way to put it: are market values growing disconnected from assessed values at the same pace throughout the city?
The Coefficient of Deviation
The state uses the “coefficient of deviation” to shed light on this question.
Each taxable property in the city – for instance, a person’s home – has an “assessment-sales ratio” which is the property’s assessed value divided by its market value. This is the per-property equivalent of the citywide equalization ratio.
The coefficient of deviation evaluates the degree of variance between individual assessment-sales ratios to the equalization ratio. As the coefficient of deviation increases, it indicates more variance, suggesting that market values of individual properties are appreciating at different rates as compared to the equalization ratio. Another way to put it: assessed values, which are the basis of property tax bills, are growing more obsolete at varying rates across the city.
Jersey City’s “general coefficient of deviation” increased from 16.5% in 2018 to 18.1% in 2019. N.J.A.C. 18:12A-1.14 states, “A coefficient of deviation greater than 15 percent generally indicates a need for revaluation.” Additionally, the “Handbook for NJ Assessors” states “The current acceptable figure for Coefficients of Deviation is 15%, although some authorities advocate 10% in light of improved assessment practices, computerization, and increased valuations.”
What does this mean for taxpayers?
To understand the impact of these citywide trends on individual taxpayers, a detailed analysis could be conducted using recent property sales records. Such an analysis could point to how the disconnect between market values and assessed values is playing out in terms of location (neighborhood), property class (for example 1-4 family home vs. commercial property), and dollar size of the transaction. This analysis could help point to whether or not the city should conduct another revaluation.
Until then, taxpayers can use the tax appeal process to obtain tax fairness if they are over-assessed (over-taxed). The county administers the tax appeals process. To file an appeal, taxpayers can visit the Hudson County website and access the “Tax Appeal Filing Handbook.” The appeal process is for taxpayers who believe their property is over-assessed. There is a technical, mathematical process for determining over assessment which the Handbook explains. Taxpayers can personally petition for an appeal or engage an attorney to represent them before the County Tax Board.