With many types of commercial real estate still reeling from the downturn, New Jersey faces a tidal wave of property tax appeals from thousands of weary, often cash-strapped building owners across the state. And it's only likely to get worse.
Exactly how much worse will become clearer after April 1, the deadline for filing property tax appeals in most towns in New Jersey. But the backlog already is staggering: Nearly 44,000 cases were pending before the state's tax court through last June, according to the annual report from the judiciary.
That includes more than 25,000 new cases that were filed during fiscal year 2013, a total that's more than double the new filings in 2008 and one that has grown in all but two of the past 10 years, the report said. Half of those new cases came just from Bergen, Essex and Passaic counties — which have large concentrations of commercial property — while Morris, Monmouth and Middlesex each had more than 1,500 new filings.
Experts say there are no signs of a slowdown on the horizon. Frank Ferruggia, a McCarter & English attorney who specializes in property tax appeals, said the market for properties such as office buildings has not recovered to pre-recession levels — and expenses are rising as rental and occupancy rates remain stagnant.
That means their assessments "tend to lag behind the market," Ferruggia said. Compounding the issue is that municipalities, "by and large, are not staying current with the market" and have gone years without a revaluation. Under such a process, a town appraises all property within its borders to ensure the tax burden is spread equitably.
But revaluations can be expensive, Ferruggia said, and a town typically can settle an appeal without having to pay interest.
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"There's really very little incentive for towns to reassess and reflect a declining market," said Ferruggia, a partner with the Newark-based firm. "People have to file appeals and get their remedy, and those are not happening that quickly."
Whether a revaluation is beneficial to a town can vary, said Bill Dressel, executive director of the New Jersey State League of Municipalities.
Some have found it helpful in leveling the playing field, but "it's not necessarily going to be the panacea" — it can simply mean shifting the property tax burden without finding new revenue, often during a process that's controversial before and after it's completed.
"It's hard to set forth a uniform standard across the board because I've heard of cases where it would create severe fiscal shock," Dressel said. "So it's not something that's necessarily going to be advantageous in every case."
Local governments are taking any number of steps to deal with the avalanche of appeals, Dressel said. They include trying to set aside extra cash in their budgets for settlements, short-term financing, reducing services and even raising taxes, he said.
It's a perfect storm that is only adding to New Jersey's backlog of pending property tax appeals, one that has been swelling since the downturn. Ferruggia said the state's tax court, which currently has six judges, is "trying to manage their case load as best they can," but the sheer volume means it can take more than a year to settle a case.
"I think the bar does its best, too," Ferruggia said. "I think cases get resolved, but with the increasing volume, it just becomes more of the little kid with his finger in the dike trying to hold back the flood of cases."
The state also is grappling with appeals for residential property, which are lumped in with the tax court data. But experts say those are largely handled by county tax boards, which hear appeals for property assessed below $1 million and tend to resolve cases more quickly.
That leaves large commercial property owners with the prospect of lengthy cases — often lasting two to three years — if they're seeking relief. David Wolfe, a Livingston-based property tax attorney, said suburban office and big-box retail centers are particularly vulnerable because shifts in the economy have pushed their rents downward.
"Wherever you see the most softness in the market, that's where you're going to see an increase in appeals," said Wolfe, a member of Skoloff & Wolfe P.C. "We settle a lot of those cases for significant refunds."
Still, that doesn't do anything to ease the backlog, which can be frustrating to property owners who spend money to pursue their cases in court.
"It's almost broken," said Alan Hammer, a Roseland-based attorney with Brach Eichler who specializes in property tax appeals, referring to the state's system for tax appeals. "A backlog of four years is just very hard to explain to clients."
It's a quandary that requires attorneys to tell prospective clients, "you're overtaxed and we can help you — of course, it's going to take us four or five years to help you."
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