The Basics of Taxes and Assessments

In cities and towns, your share of owed property taxes is based on your property's assessed value. The assessed value is calculated by professional assessors. This process is actually enshrined in New Jersey's constitution.

Because assessed value is part of the tax formula, many people assume that their assessment going up means that taxes go up. Some will go so far as to say that a town seeks new assessments in order to raise taxes. But, this is not how it works.

The total assessed value in a town is one of three factors that determine your taxes: assessed value, tax rate, and tax levy. Another town described this best: "your assessment and the overall tax rate move together like they are on a teeter-totter, staying in balance in order to equal the total amount of taxes your elected officials voted to spend (tax levy)." At the end of this document, I link to a YouTube video that provides a good explanation of how this works.

If the levy stays the same and assessments go up, the tax rate goes down and your tax bill is unchanged.

If the levy stays the same and assessments go down, the tax rate goes up and your tax bill is unchanged.

In Chatham Borough, the Borough Council passes a budget and is provided with budget numbers from the school district and the county. These added together, minus any money collected in fees, equals the tax levy. The Borough is responsible for collecting all taxes even though they receive less than 1/5 of the taxes. The tax levy depends on the budget of the four entities, not based on assessments.

The only time that an assessment is the cause of a tax change is if your home increased or decreased in value relative to other homes.

This is most commonly the case if you do a renovation or addition, or if a small home is torn down and replaced. However, this is captured completely outside of the revaluation / valuation cycle, whether that is done every year or not. If you do an addition or renovation, the building permit for this work is provided to the town's tax assessor and the value is adjusted in real time based on that. This is the case in every town no matter whether they are doing a revaluation or not. Those property cards get updated. Unfortunately, if there is a major degradation in your home (say a basement floods and becomes uninhabitable), if there's no permit associated with that, the assessor has no way to capture that.

The year to year impact of annual reassessments does not address permitted improvements, since those are entered into the "grand list" of property as they occur.

The only way that annual revaluations affect your tax bill is if your specific home increases relative to every other home for reasons other than improvements. For example, if suddenly being on Fairmount becomes trendy, Fairmount homes may increase by 3 % and everyone else's homes increase by 2%. The overall tax rate would decrease by slightly more than 2%, but the total tax dollars by Fairmount Residents would go up a bit and everyone else's would go down a bit. These relative changes on a year by year basis are minimal. However, if we don't do assessments regularly, the relative changes can be much greater and much more of a shock to the system. This is what everyone experienced in 2022.

This is why the revaluation does not increase revenue to the Borough at all. The only goal is to ensure that the way the tax levy is distributed across the town is fair and equitable.

When revaluations are done every 10, 15, or 20 years as is very common around here, the allocation of taxes among different residents becomes increasingly unfair and inequitable. In addition, the logistics of the process and the shock to residents can cause a lot of issues as we saw with the Borough's most recent reassessment. Not only was that process extremely costly, it showed that the market value was disconnected from the assessed value on average by 40% and that there were massive disparities between homes in terms of relative assessed value versus market value. That means some people had been over-paying taxes for years and some had been under-paying taxes for years. Then, because taxes are collected on a quarterly basis, that change had to be absorbed in the last two tax bills. For some, they overpaid for the first two quarters and had money stuck in escrow. For others, they ended up having a big bump - twice their tax increase - for those last two quarters and did not have the money to pay. It was incredibly confusing, time consuming, and frustrating across the board.

There will be a presentation from assessment experts at the next Council meeting to discuss options for changing our approach to assessments. It would be great if residents could attend and be informed.

This is not an easy decision, but it is definitely not a political one either. There are pros and cons of the different approaches and the more information we all have, the more likely we are to make an informed choice.