New Jersey's Equalized Valuations are out for Tax Year 2020, thereby allowing us to make an informed guess about FY2021 state aid deficits and surpluses, plus infer some key trends about New Jersey's economic churn.
In case you are new to this blog, "Equalized Valuation" the value of all the taxable property in a town. It is used to apportion county taxes and, theoretically, K-12 school aid.
The state's weighted increase for Equalized Valuation was +2.7% (+$35 billion, from $1,288,305,163,962 to $1,323,232,621,731).
However, that gain was concentrated in a relatively small number of towns (20 towns had half the statewide gain), and the median town's Equalized Valuation increase was only 2.18%.
Continuing a trend of recent years, Hudson County had, by far, the biggest gain in Equalized Valuation.
Much of that gain is Jersey City's alone. Jersey City's $6.1 billion gain in Equalized Valuation is 17% of the state total gain.
Because you shouldn't infer anything based on one year's worth of data, here's the five year look, with the counties listed in the same order as the one-year look above.
As you can see, for most of New Jersey, real estate is a poor investment, lagging inflation or barely beating it. Much of the gain that does occur is from new construction too, not appreciation of the existing housing stock.
One of many erroneously reported trends in American life today is gentrification, which is often used as a synonym for the displacement of low-income residents.
Yes, gentrification and displacement are real and worthy of attention, but it's a geographically concentrated phenomenon and most American post-industrial cities aren't touched by it.
Aside from Jersey City, most of New Jersey's other post industrial cities, including Newark, Paterson, Elizabeth, and Trenton, have very little gentrification to speak of.
Newark, which had had a $2 billion gain in Equalized Valuation for Tax Year 2019, strangely lost $2 billion, and is now back to its 2018 Equalized Valuation.
Equalized Valuation, along with Aggregate Income, is used to determine a district's Local Fair Share and thus its eligibility for Equalization Aid.
The formula for Local Fair Share is tweaked annually, but this is the 2019-20 version:
= (Equalized Valuation x 0.014523812)/2 + (Aggregate Income x 0.049819447)/2 =
0.73% of Equalized Valuation + 2.49% of Aggregate Income
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Jersey City merits special attention because it is NJ's second largest school district and is getting $182 million in Adjustment Aid in 2019-20 ($5,936 per student).
Jersey City's Equalized Valuation grew from $34 billion to $40.1 billion between 2019 and 2020 alone (+18%). Based on the 2019-20 formula for Local Fair Share, that $6.1 billion increase would cause a $44 million increase in Jersey City's Local Fair Share.
That $44 million increase from the growth of the Equalized Valuation, with tens of millions in increase from Aggregate Income growth too, should be enough to increase Jersey City's Local Fair Share to approximately $550 million for the first time.
The short-term importance of this is that Jersey City should lose much more state aid for 2020-21 than the $27 million it lost for 2019-20. The $60-70 million increase in Jersey City's Local Fair Share, combined with the increased pace of Adjustment Aid redistribution laid out in S2 (23% for 2020-21 versus only 13% for 2019-20), means a bigger loss for 2020-21 and the necessity of the Jersey City Board of Education to get real about raising its tax levy. The longer-term importance is that since Jersey City's K-12 enrollment is very steady and its Adequacy Budget grows due to inflation only, in only 3-4 years, Jersey City's Local Fair Share will exceed its Adequacy Budget ($623 million for 2019-20) and Jersey City will join "wealthy" suburban districts as ineligible for Equalization Aid.
Other Hudson County towns like Bayonne, West New York, Union City, and Guttenberg also had large gains in Equalized Valuation, although there are nowhere near being overaided, let alone ineligible for Equalization Aid.
Other Districts to Note:
- Edison also had a big year, gaining $1.6 billion to reach $19 billion, the second most in NJ (+9%).
Edison was eligible for $21 million in Equalization Aid for 2019-20, which it didn't get because it was coincidentally underaided by the same amount. It is possible that Edison's increase in Local Fair Share will be sufficient to erase Edison's theoretical Equalization Aid and its state aid deficit. - Despite a lot of PILOTing, Asbury Park gained $137 million (+8%).
That $137 million increase should be enough to reduce Asbury Park's Equalization Aid by $1 million. - Lakewood also gained $980 million (+9%), but since Lakewood is already ineligible for Equalization Aid, it is hard to say what the consequence of this will be. On one hand, it should make it politically easier for the Lakewood BOE to raise the tax levy, but the increase in tax base also might make it harder for Lakewood to argue that it needs more state aid.
- Harrison, in Hudson County, grew by only $37 million, or 2.6%. This tiny increase might be due to the fact that Harrison has PILOTed much of its new development.
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- Changes in Equalized Valuation for FY2019
- The Divergent Fates of NJ's Big Cities
- 2016 Equalized Valuations Out (for tax year 2017)
- Biggest Real Estate Gains, Losses in NJ
- Two Cheers for County Taxes!
- New Jersey and Its Neighbors Job Growth, County by County
- 2017 Changes in Equalized Valuation: the Urban Core Grows
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How is Equalized Valuation determined?
Equalized Valuation is determined by calculating the ratio of sales prices to a town's official assessment for its own local taxes. If sale prices are, on average, 110% of properties's official assessments, then Equalized Valuation would equal 110% of a town's total official assessment. If sale prices are 93% of official assessment, then Equalized Valuation would equal 93% of a town's total official assessment.
Because Equalized Valuation based on a ratio of sale prices to official assessment, a town's refusal to do a reval does not affect Equalized Valuation.
Contrary to assertions from Sen. Mike Doherty and the Toms River Board of Education, Jersey City's decades-long refusal to do a reval did not distort its state aid since JC's Equalized Valuation constantly grew along with its real estate market. Jersey City's state aid was distorted by Adjustment Aid and PILOTing, not the lack of a reval.
If a town's Local Fair Share exceeds its Adequacy Budget, a change in Equalized Valuation has no theoretical impact on state aid at all, since it doesn't matter if a Local Fair Share exceeds Adequacy Budget by 5% or 150%. Equalization Aid is $0 in either case.
Note: Equalized Valuation is not the same thing as the aggregate assessed value, which is the sum of all the individual assessments on properties and will not reflect real market value if the reval was not done recently. Assessed values are only used for a town's internal tax apportionment.
How is Equalized Valuation determined?
Equalized Valuation is determined by calculating the ratio of sales prices to a town's official assessment for its own local taxes. If sale prices are, on average, 110% of properties's official assessments, then Equalized Valuation would equal 110% of a town's total official assessment. If sale prices are 93% of official assessment, then Equalized Valuation would equal 93% of a town's total official assessment.
Because Equalized Valuation based on a ratio of sale prices to official assessment, a town's refusal to do a reval does not affect Equalized Valuation.
Contrary to assertions from Sen. Mike Doherty and the Toms River Board of Education, Jersey City's decades-long refusal to do a reval did not distort its state aid since JC's Equalized Valuation constantly grew along with its real estate market. Jersey City's state aid was distorted by Adjustment Aid and PILOTing, not the lack of a reval.
If a town's Local Fair Share exceeds its Adequacy Budget, a change in Equalized Valuation has no theoretical impact on state aid at all, since it doesn't matter if a Local Fair Share exceeds Adequacy Budget by 5% or 150%. Equalization Aid is $0 in either case.
Note: Equalized Valuation is not the same thing as the aggregate assessed value, which is the sum of all the individual assessments on properties and will not reflect real market value if the reval was not done recently. Assessed values are only used for a town's internal tax apportionment.
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