Toward the end of a long session at the high-ceilinged New Jersey Assembly Building in early May 1967, Assemblyman Vito Albanese rose to his feet and announced that someone had tried to bribe him to kill a bill.
The assembly floor exploded in response, with members shouting and leaping to their feet, as the speaker banged his gavel to quiet the crowd. “There’s no question,” Albanese, a stout, white-haired Democrat, shouted over the noise. “Yes, I tell you, I was approached!”
The bill in question would have dissolved the town of Teterboro, New Jersey — a tiny municipality that at the time consisted of only two residential streets, 17 residents, and 50 businesses. Spread across a square mile of converted swampland, Teterboro was designed as an admitted tax haven, a legal gimmick in which a friendly regulatory environment and low tax rates would lure business investment to the bare bones town. The 17 Teterboroans paid no property taxes and the 50 businesses enjoyed an industrial tax rate of 59 cents per $100 of assessed value, by far the lowest in northern New Jersey. Albanese’s bill aimed to legislate the tax haven out of existence, spreading its substantial property tax wealth among several more resource-poor neighboring towns.
A high-stakes investigation played out over the next few months, detailed in New York Times archives. Albanese laid out his allegations, accusing a former prosecutor of approaching him at a meeting of business leaders and whispering, “You can name your own price,” in his ear. Another New Jersey politician added that he’d received a call from the Teterboro police chief who had warned him of “implied bodily injury and personal and business losses,” if he continued to support the bill. In the end, the legislature’s investigation dismissed Albanese’s bribery charge for lack of evidence, describing his accusations as an instance of “McCarthyism.” The bill to dissolve Teterboro collapsed.
To this day, the bizarre town continues to exist. Teterboro is more a mall than a town, with a Walmart, a Costco, an Outback Steakhouse, and dozens of industrial businesses flanked by two highways — and about 60 residents. It holds $455 million in property tax wealth, or $7.3 million per resident, 45 times more wealth per capita than Teterboro’s surrounding metro area. The Teterboro website boasts that they offer the lowest tax rates in the county. Taxes are so low, says Teterboro Municipal Manager Nick Saros, because the town doesn’t fund a local school system and most services are provided by surrounding towns via interlocal agreements.
“We have a tremendous, terrific tax rate, and we’re geographically located in a beautiful area,” says Saros. “We’re a unique town.”
Teterboro is pretty unique, but it isn’t entirely alone. The United States is dotted with hundreds of similar enclaves that function as miniature tax havens for property tax wealth.
In a new study published in the Socio-Economic Review, the researchers Brian Highsmith and Robert Manduca analyzed 138 million property tax records across America to assemble a list of more than 500 municipalities in which the taxable wealth per capita is more than three times that of the surrounding metro area. They describe these places as “municipal tax havens,” because they hoard vast sums of taxable property tax wealth that could otherwise be distributed amongst the surrounding region.
These include famously wealthy suburbs like Beverly Hills and various towns dotting the Hamptons, but also relatively unknown industry-friendly towns with few residents like Teterboro. “These jurisdictions effectively function as tax shelters for their residents and corporations, allowing access to the broader metropolitan economy without contributing to local spending programs benefiting neighboring jurisdictions,” Highsmith says.
The wealth these municipal tax havens hold is enormous — they’re filled with multimillion-dollar homes and prosperous business centers. The top 100 most fragmented enclaves the report identified hold more than $200 billion in property tax wealth. The top 500 hold more than $1.2 trillion.
Since taxation methods are different state to state, the extent to which these towns actually shield their tax wealth varies. But generally, being incorporated allows these places to hoard significant chunks of their taxable wealth.
Because property taxes are the most substantial funding source for local governments, accounting for 72 percent of total local tax revenue, this fragmentation of property tax wealth impacts local budgets. The report finds that while wealthy enclaves benefit from this setup through lower property tax rates or higher revenue, their neighbors are often financially strapped, losing out on revenue and struggling to make local budgets pencil out.
“This fiscal distress is not inevitable, nor even necessarily linked to deindustrialization or broad economic trends,” says Highsmith. “It reflects, at least in part, the way that the US fiscal system allows wealth to evade redistributive local taxation.”
In early 20th century America, new towns were popping up left and right. Lax incorporation laws led to thousands of small suburbs breaking off from their larger metro area to become Hills, Heights, Woods, and Villages. Today, there are more than 90,000 independent jurisdictions in the United States.
“It’s common that manufacturing concerns or businesses would incorporate their little area to avoid regulation and higher taxes,” says Jon Teaford, a professor at Purdue who studies urban history. In some cases, “it was a snob thing,” he says. Certain wealthy enclaves were incorporated and zoned specifically to ensure that they would “remain a high class residential area.”
This is what happened in Indian Creek Village, a tiny island city of 80 people off the coast of Miami that now sits at the top of Highsmith and Manduca’s list of municipal tax havens. Dredged from the Biscayne Bay and incorporated in 1936, the town was envisioned from its earliest days as a haven for the super-rich. It’s centered around a $500,000-a-year golf club, which takes up 80 percent of the island, and is surrounded by a ring of mansions owned by millionaires and billionaires like Jeff Bezos, Jared Kushner, Carl Icahn, and, most recently, Mark Zuckerberg — earning its nickname, the Billionaire Bunker.
Due to its status as an independent municipality, much of Indian Creek’s $934.8 million in property tax value ($11.1 million per resident) is shielded from the broader metro area. The town keeps property tax rates low and spends its $6 million budget almost entirely on personal security, chartering a police force of 20 officers who run a non-stop patrol in speedboats, ticketing any boaters who roam too close to their shores. Visitors get the distinct sense that the island is a fortress, with a level of security more similar to a military installation than a town. The one bridge to the island is guarded by Indian Creek police, who only allow residents and those with approved business to enter. The perimeter is dotted with cameras and the red lights of a newly installed radar-system follow the movements of passing boats.
Of the 500 tax havens that Highsmith and Manduca identify, 100 are considered “corporate enclaves,” where 75 percent of tax wealth is non-residential. One extreme example of the corporate enclave is Champ, Missouri. It was founded in 1959 by Bill Bangert, a 6’5″, blind-in-one-eye, self-described “World’s Strongest Mayor” who dreamed of building what he called a “controlled municipality” that would facilitate the construction of a massive mall and a $89 million stadium in hopes of luring the Olympic games to the St. Louis suburbs. By 1967, the town had only 12 residents who paid no property taxes.
Champ’s Olympic dreams never came to fruition, but the town retained its status as anindependent municipality, eventually attracting an industrial landfill. Today, its population has declined to 10, according to the census. The landfill now makes up the bulk of the town’s property tax wealth, $20 million, or $2 million per resident.
A more recent incorporation occurred in 2005 in the Village of Sagaponack near the tip of Long Island. The village, which has been home to artists like Kurt Vonnegut and Drew Barrymore, along with scores of millionaires and billionaires, is an unusual mix of rustic pastoral charm and unimaginable wealth. The recently remodelled Sagaponack General Store has a gilded log cabin feel, offering free range rotisserie chickens and a $24.99 six-pack of Corona. It’s run by Mindy Gray, the billionaire wife of Blackstone Chief Operating Officer Jonathan Gray.
At the epicenter of Sagaponack wealth sits billionaire Ira Rennert’s mega-mansion, which he’s christened “Fair Field.” The property, whose indoor floor space would span two football fields, features several swimming pools and tennis courts, a bowling alley, synagogue, 100-car garage, and private power plant. It’s valued at $450 million, about 1,000 times more than the average American home.
All told, Sagaponack holds $6.3 billion of taxable property wealth, or $8.2 million for each of its 771 residents. Though most of its taxes are still paid to the larger town of Southampton, Sagaponack has managed to keep its property taxes low and often reports the lowest effective tax rates in the state.
Today, while laws around incorporating new municipalities have made the practice increasingly rare, the impacts of the incorporation rush remain. In their research of town budget data from the U.S. Census, Highsmith and Manduca conclude that this sort of fragmentation meaningfully shapes public spending. “While tax base-poor jurisdictions partially compensate by turning to other revenue sources or taxing local property wealth at higher rates, this is not sufficient to compensate for their lower levels of own-source fiscal resources,” they write.
Just 10 miles away from Teterboro is one such have-not jurisdiction, Newark. The city has $49,050 in property tax wealth per capita, about 150 times less than their tax haven neighbor. Newark struggles to obtain bonds for infrastructure and is frequently cash strapped, relying on loans from the state to cover budget shortfalls. Voters rejected a proposal to increase the city income tax last November, and they now face a projected budget deficit which may lead the city to cut back on street paving. It’s a struggle that can be at least partially attributed to their small tax base.
Highsmith and Manduca hope their research can push policymakers to consider addressing the advantages and disadvantages caused by fragmentation.
Over the last two decades, a version of this effort to address fragmentation was taking place in New Jersey, which is among the most fragmented states in the country. Particularly relaxed incorporation laws have caused New Jersey to be dotted with dozens of odd tiny municipalities, including “donut hole” towns, where one town is entirely surrounded by another.
Gina Genevese, a tennis pro turned Mayor of New Jersey’s Longhill Township, created the nonprofit Courage to Connect NJ in 2009, with the goal of consolidating some of these towns. It was an effort that had some success, Genevese says, but it also faced tremendous backlash from entrenched interests who benefited from the additional government jobs created by multiple small towns, along with prosperous towns who hoped to keep their tax wealth to themselves. “They don’t want to share,” Genevese says.
During this push, Teterboro found itself in the crosshairs once again. In 2010, then State Senator Bob Gordon put forward a bill to dissolve the town, which he describes as the “Cayman Islands of New Jersey.”
“It’s a huge tax base that is just sitting there exclusively for the benefit of the people that own the real estate in Teterboro,” says Gordon. His plan was the same as Albanese’s back in the 1960s — divide the town’s property tax wealth among the surrounding communities. The move was projected to provide hundreds of dollars in annual property tax relief to homeowners in surrounding towns, he says.
“It was like walking into a buzzsaw,” he says. “What we didn’t appreciate is that there were some very powerful interests quite satisfied with the status quo.” While there were no accusations of threats or bribery this time, Teterboro business interests lined up against the move, launching a lobbying campaign. Teterboro residents voted against dissolution 20-1 in a 2010 referendum, and the bill died in the legislature.
“We were certainly against that,” says Saros, Teterboro’s municipal manager. “What business owners — and we have big corporate owners here — would say, ‘that makes a lot of sense, my tax rate will go up.’ I mean, who would want that?”
Guthrie Scrimgeour is an investigative journalist based in Brooklyn, covering wealth and power.
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