Property Tax Post: Municipal Consolidation May Not be the Route to Lower Property Tax Bills, Rutgers Study Says

State and local governments across the country—especially those with high property taxes—have been toying with the idea of municipal consolidation to create efficiencies in city services and to save taxpayers money. A new report, however, has dumped cold water on that idea, finding that consolidation does not actually save much, if any, money.

The report, entitled “Size May Not be the Issue,” came out of the Bloustein School of Planning and Public Policy at Rutgers University, and is authored by Raphael J. Caprio and Marc H. Pfeiffer.  It looks at two widely held beliefs of New Jersey municipal consolidation proponents: (1) that New Jersey has too many municipalities, and (2) that smaller municipalities are more expensive than larger ones.

Caprio and Pfeiffer found that New Jersey actually ranks towards the bottom on the ratio of governments to population— ranking 34th out of the 50 states—and that the cost per capita of municipal government does not correlate to the size of the cities.

Instead, the authors find that there are other factors that make a far greater difference in the cost of city governments, namely, which New Jersey Department of Education District Factor Group (DFG) each city falls into, and how the city is categorized according to the New Jersey State Police Uniform Crime Reports (e.g. rural, suburban, urban). 

The DFG works as a surrogate for the socioeconomic status of a city or district and takes into account the educational achievement of the adult population, poverty rate, unemployment rate, and median income, among other factors. The study found that the highest cost cities come from the highest socioeconomic group, followed by the lowest socioeconomic group as the second most expensive.

Regarding the Police Uniform Crime Report categories, the study found that the most costly municipalities are those located in “rural” and “rural center” areas. One of the reasons for this is that large proportions of rural and rural center areas receive state-provided police and public safety services, which would be one of the largest costs to a municipal government.

These two factors have a much greater impact on city costs than the sheer size of the city. The report concludes that consolidating small cities will have only a nominal impact on the property taxes of residents, if at all.

The authors urge policymakers to “focus on the underlying problem that ‘consolidating our way to savings’ is intended to solve,” such as high government costs and the high taxes to pay for them.

Either way, this report should cause policymakers who present consolidation as a panacea to high tax bills to second guess this policy option.

Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: What factors other than tax savings should be taken into account before cities consolidate?

By: George Lynch

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