LEGISLATIVE FISCAL ESTIMATE
[First Reprint]
ASSEMBLY, No. 1
STATE OF NEW JERSEY
220th LEGISLATURE
DATED: JUNE 21, 2023
SUMMARY
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Synopsis: |
Establishes Stay NJ senior property tax credit affordability program; expands income limit and modifies ownership requirement for eligibility to receive homestead property tax reimbursement; appropriates not more than $300 million. |
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Type of Impact: |
Increased State costs. |
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Agencies Affected: |
Department of the Treasury. Municipalities. |
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Office of Legislative Services Estimate |
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Fiscal Impact |
FY 2025 through FY 2028 |
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Annual State Cost |
$2.3 billion to $2.8 billion |
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Less: Annual State Cost Savings |
$805 million to $829 million |
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Annual Net State Cost |
$1.5 billion to $1.9 billion |
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· The Office of Legislative Services (OLS) estimates that the bill will result in additional net costs to the State of approximately $1.5 billion to $1.8 billion in FY 2025. These costs will increase by about two percent annually to a range of $1.6 billion to $1.9 billion by FY 2028.
· The projected cost of the first year of the Stay NJ program ranges from $2.3 billion to $2.6 billion, increasing to as high as $2.8 billion by FY 2028. These costs would be partially offset by savings of approximately $805 million to $829 million due to reduced participation in the ANCHOR Property Tax Relief Program and the homestead property tax reimbursement program.
· Although the bill requires additional State appropriations to support the program, beginning with an initial allocation of $300 million in FY 2023, these appropriations will not be sufficient to pay for the full cost of the Stay NJ program.
· The OLS notes the bill increases the homestead property tax reimbursement program’s income eligibility limit and reduces the program’s home ownership waiting period. However, since many homeowners who would be eligible for a homestead property tax reimbursement would also be eligible for a Stay NJ property tax credit, the OLS concludes that the proposed expansion is not likely to result in any significant increase in State costs.
BILL DESCRIPTION
The bill provides property tax benefits to senior citizens through a new program, named Stay NJ, and expands eligibility requirements for the homestead property tax reimbursement, colloquially known as the “senior freeze” for senior citizens and disabled persons.
Stay NJ: The Stay NJ program provides to an eligible claimant a property tax credit in the amount of 50 percent of the property tax due and owing for their principal residence, up to a maximum of $10,000 per year. Under the bill, an eligible claimant is a person who is 65 or more years of age and the owner of a homestead in New Jersey that is the person’s primary residence. There is no income eligibility limit for participation in the Stay NJ program. A property taxpayer who is eligible to receive a rebate through the Affordable New Jersey Communities for Homeowners and Renters, or ANCHOR, Property Tax Relief Program and the senior freeze is entitled to the greater of the Stay NJ credit or the combined amount of the ANCHOR property tax rebate and the homestead property tax reimbursement. Operationally, a Stay NJ credit would be issued by a municipality as an adjustment to a homeowner’s property tax bill. The municipality would receive a payment from the State equal to the total amount of credits.
The bill requires the Division of Taxation to promulgate a single combined application form to be used by State residents to apply for the ANCHOR rebate program, homestead property tax reimbursement, and Stay NJ credit. The bill requires the division to determine which property tax relief programs would provide the greatest benefits to an applicant.
The bill establishes a dedicated, non-lapsing account in the Department of the Treasury, known as the Stay NJ account, and appropriates $300 million for the payment of Stay NJ property tax credits and program administrative costs, including reimbursements to municipalities. The bill requires additional appropriations in future fiscal years as follows: $300 million in Fiscal Year 2024, $600 million in Fiscal Year 2025, $800 million in Fiscal Year 2026, $1 billion in Fiscal Year 2027, and $1.2 billion in Fiscal Year 2028. The first Stay NJ property tax credits would be provided in calendar year 2025.
Homestead Property Tax Reimbursement: The bill increases the income eligibility limit for the homestead property tax reimbursement program to $150,000, beginning in tax year 2022, and reduces the 10-year waiting period for eligibility to only three years of homeownership of the property for which a reimbursement is being sought. Due to the timing of homestead reimbursement payments, these changes would take effect for reimbursements provided in Fiscal Year 2025.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS concludes that implementation of the Stay NJ program will result in additional State costs, of $2.3 billion to $2.8 billion, beginning in FY 2025. These costs will be partially offset by anticipated savings of approximately $805 million to $829 million as senior citizen homeowners who currently participate in the ANCHOR and homestead property tax reimbursement programs shift to the Stay NJ Program. Applying these estimates reduces the program cost range to $1.5 billion to $1.9 billion.
Although actual program expenditures will fluctuate in succeeding fiscal years due to changes in property taxes and participation levels among eligible claimants, the OLS estimates that program costs will grow by two percent annually, in line with recent increases in property taxes. The bill requires additional State appropriations, beginning at $300 million in FY 2023 and increasing to $1.2 billion in FY 2028 to support Stay NJ. These appropriations will not be sufficient to cover the program’s full cost.
The OLS further estimates that increasing the income eligibility limit for the homestead property tax reimbursement program may result in additional State costs of approximately $14.0 million, beginning in FY 2025. However, it is also likely that many homeowners who would be newly eligible for a homestead property reimbursement under the new income eligibility limit will also qualify for a Stay NJ property tax credit. Therefore, increasing the income limit is not likely to result in any additional State costs.
The Estimated Cost of the Stay NJ Property Tax Credit
According to the Department of the Treasury, 469,044 senior citizens and disabled homeowners received a FY 2023 ANCHOR benefit. Information available through the U.S. Census Bureau’s 2021 American Community Survey’s 5-Year Estimates, suggests there are 674,199 owner-occupied housing units with a householder age 65 or older. (A householder is the person, or one of the people, in whose name the home is owned, being bought, or rented.) If householders counted in the American Community Survey are roughly equivalent to homeowners, then approximately 70 percent of homeowners age 65 or older participated in the ANCHOR program in FY 2023. Since the absence of an income eligibility limit and the prospect a larger property tax benefit will motivate more senior citizens to participate in the Stay NJ program, the OLS estimates that 70 percent to 80 percent of eligible claimants will apply for a property tax credit.
Based upon municipal property tax information available through the Division of Local Government Services, the OLS estimates that the Statewide average residential property tax bill increased by an average of 1.78 percent annually from calendar year 2017 through calendar year 2022. To estimate the amount of property taxes that would serve as the basis for the Stay NJ credit, the OLS applied this growth rate to the 2022 average residential property tax bill for each municipality to estimate the calendar year 2025 average residential property tax bills. Using the American Community Survey data and the property tax information, the OLS calculated the amount of Stay NJ credits that would be provided to taxpayers in each municipality. The sum total of these amounts constitute the FY 2025 program costs of $2.3 billion to $2.6 billion. Assuming that expenditures increase by two percent annually, program costs are estimated to be as high as $2.8 billion by FY 2028.
Estimated Cost Savings
The ANCHOR Property Tax Relief Program provides rebates to homeowners, in the amount of either $1,000 or $1,500, depending on their gross income. The OLS estimates that FY 2023 ANCHOR rebate payments to senior citizen and disabled homeowners totaled $684.7 million. The FY 2024 Governor’s Budget estimates that the number of senior citizen and disabled homeowners participating in the ANCHOR program, and the total amount of benefits paid to those participants, will increase by about two percent in FY 2024. Applying the two percent growth rate results in estimated FY 2025 ANCHOR benefit payments to senior citizens and disabled persons of approximately $712.4 million. The OLS projects that 90 percent of these benefit payments, or $641.1 million, are attributable to senior citizen homeowners that would transition to the Stay NJ Program.
The FY 2024 Governor’s Budget includes $186.8 million for the homestead property tax reimbursement, an increase of 6.1 percent above FY 2023 program expenditures of $176.1 million. Data available through the State accounting system indicates that expenditures have been about five to 10 percent lower than program appropriations. Using budget evaluation data, the OLS estimates that FY 2025 homestead property tax reimbursement expenditures will total $182.1 million. For purposes of this estimate, the OLS assumes a 90 percent reduction, $163.9 million, in homestead property tax reimbursement costs due to senior citizen homeowners exiting the senior freeze program because they will receive a Stay NJ benefit instead.
Subtracting the total estimated savings, $805 million, from the estimated cost of $2.3 billion to $2.6 billion reduces the net FY 2025 total program cost to $1.5 billion to $1.8 billion.
Program Appropriations
Although the bill provides an FY 2023 supplemental appropriation of $300 million and requires additional State appropriations to support the Stay NJ program in each fiscal year thereafter, this funding will not be sufficient to cover the program’s full cost. In addition to the $300 million appropriated in FY 2023, the bill appropriates $300 million in FY 2024, and $600 million in FY 2025, for a total $1.2 billion. The OLS estimates that Stay NJ’s initial cost, after accounting for program savings, will be $1.5 billion to $1.8 billion. Therefore, even if the full amounts required under the bill are appropriated and held in the dedicated account, the State would need to appropriate an additional $300 million to $600 million FY 2025 to support the full cost of the Stay NJ program.
Expansion of the Homestead Property Tax Reimbursement
The homestead property tax reimbursement provides a benefit to qualified homeowners for the difference between the property taxes paid on a principal residence in the current tax year and the amount paid in the base year. The bill makes two changes to the eligibility requirements for the homestead property tax reimbursement program. First, the bill increases the program’s income eligibility limit from an estimated $108,411 to $150,000. Second, the bill reduces the 10-year waiting period of eligibility to only three years of homeownership of the property for which a reimbursement is sought. Both of these changes would take effect beginning in FY 2025.
In response to an FY 2024 OLS Discussion Point, the Department of the Treasury indicated that these changes would allow an additional 58,000 households to gain eligibility for the homestead property tax reimbursement program. Of that amount, 43,000 households would qualify due to the proposed income limit increase, while 12,000 households would qualify due to the change in the home ownership waiting period. The OLS projects that the FY 2025 average new participant benefit for the homestead rebate would be about $241. Applying the estimated new participant benefit to the estimated number of newly eligible household results in additional State costs of approximately $14.0 million.
However, the amount of the Stay NJ benefit is likely to be greater than the combined amounts provided through other property tax relief programs. Please note the following example for illustrative purposes. Under the bill, an eligible claimant is entitled to a benefit that is the greater of the Stay NJ property tax credit or the combined amount provided through the ANCHOR and homestead property tax reimbursement programs. The OLS estimates that the average residential property tax bill for calendar year 2025 will be about $10,000. At that amount, the Stay NJ benefit would be $5,000. The amounts provided through the ANCHOR and homestead property tax reimbursement programs, assuming no changes to current law or benefit levels, would total $1,741 (an initial homestead property tax reimbursement benefit of $241 and an ANCHOR rebate of $1,500). Since most homeowners who would qualify for a homestead property tax reimbursement are also likely to qualify for, and receive, a Stay NJ property tax credit, the proposed changes to the homestead property tax reimbursement eligibility requirements are not likely to result in any significant increase in State costs.
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Section: |
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Analyst: |
Staff Fiscal and Budget Analyst |
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Approved: |
Thomas Koenig Legislative Budget and Finance Officer |
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).