New Jersey’s long-frozen property tax break

Photo credit: Matt Donders at UnsplashFile photo

In 2006, Italy won the World Cup, Beyoncé had two Billboard charts, and New Jersey property tax bills averaged $ 6,446.

While a lot has changed in the past decade and a half – including the size of those property tax bills – 2006 remains frozen in time for one of the state’s most popular property tax relief programs.

This is because governors and lawmakers of both parties have been using outdated 2006 invoices for more than a decade to calculate tax breaks for seniors, people with disabilities, and thousands of other homeowners who meet the income requirements for what is known as the Homestead Benefit program.

To do the annual shortchanging, they quietly add small print to the annual household bill each year to override state law that says Homestead’s services should increase in value each year to reflect the increase in property tax bills, for which they are intended to be offset.

This year, Governor Phil Murphy proposed the richest annual budget in the state’s history, coming in at nearly $ 45 billion. But if lawmakers don’t step in, the shortage of homestead recipients is likely to continue.

While total government spending under Murphy’s proposed budget would increase more than 10% year over year, the amount earmarked for paying homestead benefits will not increase at all. Instead, the budget documents suggest that they will indeed decrease slightly, partly because the program sticks to this 2006 benchmark.

But property tax bills are far from frozen

Meanwhile, the average property tax rate in New Jersey is far from deadlocked.

The average property tax bill has increased more than 40% over the past 15 years and hit a record high of $ 9,112 in 2020, according to the latest figures from the New Jersey Department of Community Affairs.

For the recipients of the Homestead benefit, the pain is exacerbated.

The average homestead benefit was around $ 530 for seniors and around $ 410 for other qualified homeowners. Over the past five years, the average property tax burden has risen by $ 563, slightly inundating the full value of the average homestead benefit, which has remained virtually unchanged for years. Additionally, the income limits for the Homestead program have stayed the same for about a decade, while the median income in New Jersey has increased nearly 27% over the same period. This means that those who received the benefit may have seen a wage increase and then were excluded from the program while staying below the national median earnings.

Despite these trends, the Trenton Homestead program has received little attention in recent years. However, there is evidence that changes may be considered later this year.

During a recent appearance at the NJ PBS Reporters Roundtable, Congregation Budget Committee Chair Eliana Pintor Marin, Essex, suggested that lawmakers would review the Homestead program when they put Murphy’s broader budget proposals in the coming weeks would consider.

“I think we’ll look at that,” said Pintor Marin.

The practice began in the Corzine era

The practice that causes Homestead recipients – seniors and homeowners with disabilities who earn up to $ 150,000 annually and other homeowners who earn up to $ 75,000 annually – to fall short began during 2008 the tenure of then Democratic Governor Jon Corzine.

New Jersey was then in the depths of the 2007-2009 Great Recession and the budget was crumbling. To ease the crisis, Corzine decided to calculate benefits not as a percentage of 2007 property tax bills, as state law would have required, but as a percentage of the smaller bills collected the year before.

The move was carried out in household language with legislative approval and saved the state an estimated $ 85 million in fiscal 2009.

The base year freeze for calculating Homestead benefits has remained in place since then, even after the state economy recovered from the downturn during Republican Chris Christie’s eight-year tenure as governor.

During his budget address last week, Murphy used the phrase “property tax” or “property tax” ten times. He also said his proposed budget of $ 44.8 billion for fiscal 2022 will “further stabilize property taxes for hardworking families.”

But Murphy, a Democrat to be re-elected in November, hasn’t pointed out either the Homestead program or the role he’s played in recent years in ensuring benefits don’t keep pace with soaring property tax bills, by maintaining the 2006 baseline.

Budget documents released by Murphy’s administration last week indicate that the state will spend $ 260 million to fund Homestead services in fiscal year 2022. That’s less than the $ 275 million estimated for the previous year.

Small bump in the direct relief of property tax

To be fair, Murphy’s new budget proposal calls for a small increase in total direct real estate tax relief spending to a total of $ 1.25 billion.

However, most of the growth in direct real estate tax relief spending has come from signing up to a program that allows homeowners to receive up to $ 15,000 in state property tax write-offs regardless of their income. Based on the design of this program, the largest write-offs go to those who have the funds to pay property tax bills, which can be well above the national average of their state income taxes.

Treasury officials confirmed during background briefings with reporters last week that the proposed reduction in spending on the means tested Homestead program was not due to someone being excluded from the program. Instead, it is effectively a function of the fact that there are fewer homeowners in New Jersey falling under the program’s static income standards, and also because of the plan to re-use household language to base the benefit calculation on 2006.

With all 120 legislative seats on the November ballot, there could be more pressure than usual to change course.

Pintor Marin noted during the Reporter’s Roundtable interview that the Homestead program was a favorite of Congregation Speaker Craig Coughlin (D-Middlesex), who struggled several years ago to reverse an accidental cut in funding.

“We have to see if we obey the law or continue to fund it as it is,” she said.