One of the new arguments in favor of implementing the 2.5% constitutional limit on property taxes for New Jersey municipalities and school districts is that it would not only force these municipalities and school districts to operate within their means and much more efficiently (an unfounded argument I address here), but that the caps would also encourage consolidation because of the fiscal constraints. This logic is wrongheaded for a variety of reasons, a few of which I will touch on here.
For starters, I have written on the topic of consolidation and potential cost savings on several previous posts and have spoken on this issue around the state. There are certainly savings to be found by consolidating very small school districts – especially those with fewer than 300 students. My slides on this topic, and its relation to racial isolation of towns in NJ can be found here: https://schoolfinance101.files.wordpress.com/2009/08/race-cost-in-nj1.ppt
What we know about property tax limits with an override option from states like Massachusetts is that those property tax limits tend to highlight the differences in property taxing capacity of towns and of the ability of local voters to override caps if they wish to maintain high quality schooling or other public services. Some towns hit the cap sooner than others, having little ability to improve services within the cap and other towns have much more latitude to raise revenues before hitting their cap. Some towns have little difficulty overriding the cap, while others find it near impossible. In New Jersey, even without these caps differences in tax base and voter behavior (preferences for public service quality) are relatively obvious to local voters in adjacent municipalities that fall into different categories. As it is, these differences create substantial barriers, insurmountable barriers to consolidation when left to votes among each municipality.
The cap would make these differences far more apparent and, as a result, would decrease the likelihood that a municipality that has room under its cap and/or the ability to override if necessary would ever consider merging with a town that would reduce its cap flexibility and/or dilute its pool of “yes” votes on an override.
Even if towns did consider merging while caps are in place, it would only be in the interest of affluent towns to merge with other similarly affluent towns (or towns in similar position with respect to the caps and public service preferences), reinforcing the already striking patterns of inter-district racial and socio-economic segregation.