New Jersey Property-Tax Relief Goes Down as One Tax Break Goes Up


NJ Spotlight

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Gov. Phil Murphy’s latest budget calls for flat or even reduced state funding for popular property-tax relief programs that provide targeted financial help to thousands of New Jersey’s low-income homeowners, seniors and people with disabilities.

At the same time, Murphy is asking to increase the share of state spending on tax breaks that go to homeowners regardless of their income — and where the biggest write-offs go to those with the biggest property-tax bills.

The divergence in spending on programs offering targeted help to those who need it most and on tax breaks for homeowners no matter their income is largely a function of separate policies that have been put in place over the years for each relief program.

But the current trend for divvying up the more than $1.2 billion in annual funding for the relief programs comes as Murphy, a first-term Democrat, regularly talks about enacting fiscal policies that will make New Jersey “stronger and fairer.”

It also comes as progressive groups in New Jersey routinely call for fairer tax policies while pointing to  studies that show those in the state’s highest-income brackets generally pay a smaller percentage of their annual income in state and local taxes than those in middle-income brackets.

The issue of property-tax relief is likely to come up over the next two days as State Treasurer Elizabeth Maher Muoio is set to discuss the governor’s new budget plan for the first time with lawmakers in the Senate and Assembly.

The Murphy administration has projected significant revenue losses through at least the middle of next year as New Jersey continues to struggle with the coronavirus pandemic. Spending in several key areas is being cut under the $32.4 billion, nine-month budget that Murphy proposed late last month, including operating aid for county colleges and mental-health services for children.

Murphy budget hikes spending during pandemic

But Murphy’s budget plan also calls for a number of proposed spending increases, and overall spending would go up on a year-over-year basis to more than $40 billion, which would be a record high for New Jersey.

Among the initiatives in line for more funding is the property-tax relief program that lets New Jersey homeowners deduct from their state income taxes the full cost of their annual property tax bills, up to $15,000. The property-tax write-off is offered to homeowners and also some tenants regardless of their annual income, and the biggest tax breaks typically go to those with the biggest property tax bills.

Murphy expanded the cap on the tax deduction in 2018, lifting it from $10,000 to $15,000. That policy change came around the same time President Donald Trump and the then-Republican Congress put a $10,000 cap on what had previously been an unlimited federal write-off for state and local taxes, including property taxes. Murphy and other Democrats loudly criticized that move.

Following the governor’s expansion of the state tax-deduction cap in 2018, the cost to provide that tax break to New Jersey homeowners has been steadily rising.

For Murphy’s new budget, Treasury is projecting it will cost $730.6 million to fund the tax deduction, according to figures that were provided to NJ Spotlight by Treasury that were not included in budget documents released by the Murphy administration last week.

The proposed spending represents a more than 6% increase over what Treasury was expecting it would spend on the tax breaks during the state’s prior fiscal year. And it’s significantly higher than the roughly $450 million that funded the tax-deduction program in fiscal year 2018 under the final budget enacted by former Republican Gov. Chris Christie, according to Treasury records.

Homestead benefits

On paper,  the state’s popular Homestead benefit program appears to see a big increase in funding in the new budget. Homestead benefits are provided to seniors and disabled residents making up to $150,000 annually, and to other homeowners making up to $75,000 annually. Most receive the benefits as a direct credit on their property-tax bills.

Murphy is setting aside $275 million for Homestead benefits in fiscal 2021, according to budget documents. But that amount is actually less than what the administration originally planned for the Homestead program the prior year, according to Treasury. That was before a spending freeze enacted in response to the coronavirus pandemic ended up wiping out funding for all of the Homestead credits due to be paid in May.

Spending on the Homestead program has generally been on the decline for several consecutive years as the respective $75,000 and $150,000 annual income limits have remained unchanged for roughly a decade. That’s occurred as the size of the average New Jersey property-tax bill has risen by nearly 20% over the past decade, from $7,576 in 2010, to $8,953 in 2019, according to Department of Community Affairs data.

Murphy and lawmakers have also been artificially holding down the size of an individual’s Homestead benefit by using outdated property-tax bills from 2006 as the basis for calculating that benefit.

Under a little-known budgeting trick that started well before Murphy took office and continues to play out every year in Trenton, fine print is inserted into the annual appropriations bill to effectively change the Homestead program’s rules to prevent more recent bills from being used as the baseline for calculating benefits.

While it’s hard to measure the exact impact of this practice on each Homestead recipient’s benefit, the average property-tax bill in 2006 in New Jersey was nearly 40% smaller than last year’s average bill, according to the DCA’s data.

Senior Freeze

Holding flat at $219.7 million in Murphy’s new budget is the funding that will be devoted to another popular property tax-relief program known as Senior Freeze. Officially called the Property Tax Reimbursement, the program gets its more recognizable nickname from state-funded checks sent annually to thousands of senior citizens and disabled recipients to effectively “freeze” their property-tax bills.

To qualify for the program, homeowners must be at least 65 years old or disabled and a New Jersey resident  for at least 10 years. They also have to be the owners of their residence for three years and be up to date on their property taxes.

Until last year, governors and lawmakers had routinely been using budget language to prevent many seniors and disabled residents from receiving reimbursement checks even though they were legally qualified. They did so by setting an annual income ceiling at a flat $70,000 instead of following state law that requires annual inflationary adjustments.

With that practice halted, the Senior Freeze annual income limit for the 2018 tax year was $89,013, according to Treasury’s website, and it is supposed to be $91,505 for the 2019 tax year, pending approval of the final budget.

In all, Murphy’s planned spending on the Homestead and Senior Freeze programs will total just under $500 million in fiscal year 2021. Another nearly $50 million will fund separate tax deductions related to property taxes that are provided to seniors, disabled individuals and veterans, according to budget documents.

But the combined roughly $545 million in spending on those programs comes up well short of the $730.6 million that has been budgeted by Murphy for the tax breaks that go to New Jersey homeowners regardless of their income.

In contrast, the state provided nearly $560 million in funding for Homestead and Senior Freeze in a budget enacted five years ago by Christie, whose fiscal policies Murphy has frequently criticized as having favored the wealthy. But the same Christie budget allocated $425 million for the tax deductions for homeowners of all incomes, according to Treasury records.

Asked for comment on Murphy’s property-tax relief program spending, Treasury spokeswoman Jennifer Sciortino pointed to new or expanded tax credits for low-wage workers and for child care that have been funded during Murphy’s tenure, as well as his recent proposal seeking to establish state-funded “baby bonds” to help build savings for low-income children.

“The minor increase in costs for the Property Tax Deduction Act, which benefits working and middle-class families, is due to increased utilization trends, not a concerted policy decision, and does not negate or undermine the numerous other investments the governor has made in the pursuit of tax fairness,” Sciortino said. “That has been evident through his commitment to maintaining existing tax-relief programs and his investments in new programs to address long-standing inequities.”

Lawmakers have their say

It’s now up to lawmakers to determine how they want to divvy up the state’s direct property-tax relief dollars going forward. And they have just a few weeks to conduct a broader review of Murphy’s budget proposal and to draft and send him an appropriations bill for fiscal 2021.

This year, the governor and lawmakers have until Oct. 1 to enact a new budget because they passed a law earlier this year that extended fiscal 2020 by three months to Sept. 30.

Instead of holding in-person public hearings to gather comments on Murphy’s proposed budget, as is the normal custom, lawmakers are using the nonpartisan Office of Legislative Services to collect only written feedback through Sept. 11.

For those seeking to comment on Murphy’s fiscal year 2021 budget proposals using email, written testimony can be sent to the OLS legislative budget and finance office using the address [email protected].

Feedback can also be mailed to members of the Assembly Budget Committee and the Senate Budget and Appropriations Committee; letters should be addressed to the Legislative Budget and Finance Office, Office of Legislative Services, P.O. Box 068, Trenton NJ, 08625-0068.

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