“Reliance on the property tax not only results in big property tax bills for individual homeowners, it also creates broader incentives that have powerful, distorting effects on land-use decisions. From a fiscal perspective, residential development generally does not “pay for itself”—that is, the cost of the services demanded by residents generally exceeds the tax revenue generated by residential property—whereas nonresidential property generally costs less to service than it generates in revenue. Thus every municipality has an incentive to court nonresidential development—shopping centers, office parks, hotels—while discouraging residential development, thereby keeping costs low relative to revenues. This is the infamous “ratables chase.” Further because public school funding is by far the largest component of local government expenditures, municipalities endeavor to control costs by excluding children, favoring senior housing complexes, and ..." Property Tax Reform & Land Use, Smart Growth Recommendations from New Jersey Future, Issue 14, July 2006.
“Particular attention should be paid to solutions that minimize municipal competition for tax revenues, since that competition is the direct cause of many unwanted land-use effects. Such solutions include: shared services, tax-base sharing, increased state aid to municipalities, particularly for education.” Property Tax Reform & Land Use, Smart Growth Recommendations from New Jersey Future, Issue 14, July 2006.