LEGISLATIVE FISCAL ESTIMATE

SENATE, No. 522

STATE OF NEW JERSEY

220th LEGISLATURE

 

DATED: MAY 17, 2022

 

 

SUMMARY

 

Synopsis:

Authorizes proportional property tax exemption for honorably discharged veterans having a service-connected disability and proclaims that the State shall reimburse municipalities for cost of exemptions.

Type of Impact:

Increase in State costs.

Increase in local revenues.

Agencies Affected:

Department of the Treasury, Division of Taxation. Local government units.

 

Office of Legislative Services Estimate

Fiscal Impact

CY 2023/FY 2024 

CY 2024/FY 2025 

CY2025/FY 2026 

 

State Cost Increase

$227.6 million to $375.9 million

$241.5 million to $394.1 million

$256.4 million to $413.4 million

 

Local Revenue Increase

$154.9 million to $157.8 million

$166.7 million to $169.7 million

$179.4 million to $182.5 million

 

 

 

 

·         The Office of Legislative Services (OLS) estimates that reimbursements to municipalities for the disabled veterans property tax exemption proposed by the bill, plus the two percent administrative fee, will range from $227.6 million to $375.9 million in calendar year 2023.  These costs are projected to increase by an additional $13.9 million to $18.2 million in calendar year 2024, and a further additional $14.9 million to $19.4 million in calendar year 2025.

·         Using data compiled by the United States Department of Veterans Affairs (VA), the OLS estimates that there will be approximately 39,400 veterans living in New Jersey with a disability rating of 30 percent to 90 percent in calendar year 2022.  The OLS estimates that approximately 30 percent to 90 percent of that population (approximately 11,800 to 35,500 veterans) will file a claim for a proportional property tax exemption.  An additional 15,700 disabled veterans and their surviving spouse are expected to file a claim for the 100 percent property tax exemption allowed under current law.

·         The bill requires county boards of taxation to submit data on the number and value of disabled veterans’ property tax exemptions to the Division of Taxation by June 15 annually.  Because of the late filing date, the OLS believes it is likely that the State reimbursements will be paid in the next fiscal year.

 

 

BILL DESCRIPTION

 

      The bill grants a property tax exemption to honorably discharged veterans having a service-connected disability in proportion to their disability percentage rating.  The exemption is granted only to those veterans with a disability percentage rating of 30 percent to 90 percent.  The exemption is capped at $10,000, except for veterans who are entitled to a full property tax exemption.  Veterans with a 100 percent disability rating would still be allowed the total property tax exemption, as is the case under current law.

      For surviving spouses, the bill restricts eligibility for the property tax exemption to the surviving spouses of a veteran who was entitled to a 100 percent property tax exemption.  The surviving spouse of a veteran who received a proportional property tax exemption would not qualify.  The bill also grants a 100 percent property tax exemption to those honorably discharged veterans having less than a 100 percent service-connected disability but who are deemed unemployable by the VA. 

      The bill eliminates all references to medical conditions so that any service-connected disability, as determined by the VA, will make a veteran eligible for the property tax exemption. 

      Finally, the bill requires the State to annually reimburse taxing districts for the full amount of property tax exemptions granted to disabled veterans and their surviving spouses, plus two percent for administrative costs.  This bill includes reporting provisions so property reimbursement can be made.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS concludes that enactment of the bill would result in additional State costs of $227.6 million to $375.9 million in calendar year 2023, an additional $13.9 million to $18.2 million in calendar year 2024, and a further additional $14.9 million to $19.4 million in calendar year 2025.  These estimates include the full reimbursement to local units (i.e., counties, municipalities, and school districts) for the cost of all proportional and total property tax exemptions granted to disabled veterans plus the two percent administrative fee.  The bill requires county boards of taxation to certify to the Director of the Division of Taxation the number and dollar amount of property tax exemptions by June 15 annually. Accordingly, the OLS assumes that the State reimbursements will be paid to municipalities in Fiscal Years 2024, 2025, and 2026, respectively.

      Although local units will receive total amounts that are equivalent to the estimated State costs, only a portion of those expenditures, the amounts paid to local units as reimbursement for the 100 percent property tax exemption and the full amount of the administrative fee, will represent new revenues.  This portion of the State reimbursement expected to total $154.9 million to $157.8 million in CY 2023 and then increase by $11.8 million to $11.9 million in CY 2024 and an additional $12.7 million to $12.8 million in CY 2025. 

      The remaining portion of the State cost, the amounts reimbursed for proportional property tax exemptions, are intended to replace revenues that local units would otherwise collect through the property tax levy.  They are expected to total between $72.7 million and $218.0 million in CY 2023 and increase by $2.1 million to $6.3 million in CY 2024, and a further $2.2 million to $6.5 million in CY 2025.

      The OLS anticipates the State costs to grow in future years because number of veterans who receive disability compensation and the average residential property tax bill are expected to increase over time.  The increases will be limited, in part, because the bill caps the value of the proportional property tax exemption at $10,000 per taxpayer.  Provisions of the bill that exclude surviving spouses from eligibility for a proportional property tax exemption while allowing veterans who are deemed unemployable to receive a total property tax exemption will not affect the fiscal impact because the former do not currently qualify while the bill codifies current practice regarding the latter so long as they meet all other statutory requirements.

      To estimate the fiscal impact of this bill, the OLS has used data on the number of veterans who receive disability compensation in Federal Fiscal Year (FFY) 2015 through 2020 to project the number of New Jerseyans who may be eligible for a proportional property tax exemption.  According to OLS calculations using the VA data, there will be approximately 3.3 million veterans nationwide who will have a disability rating of 30 percent to 90 percent in FFY 2023.  Projections based on the VA data also indicate that New Jersey veterans will constitute about 1.2 percent of that total, or about 39,400 veterans.  Based on a participation rate of 30 to 90 percent, the OLS estimates that 11,800 to 35,500 veterans will receive a proportional property tax exemption in calendar year 2023.  Data provided to the OLS by the New Jersey Division of Taxation indicates that 13,976 disabled veterans and surviving spouses received the 100 percent property tax exemption in calendar year 2021.  The total number of disabled veterans’ property tax exemptions increased, on average, by 5.92 percent annually from calendar year 2016 through calendar year 2021.  If that rate of increase continues, the OLS estimates that about 15,700 veterans will receive a 100 percent property tax exemption in calendar year 2023.  In sum, the OLS estimates that 27,500 to 51,100 disabled veterans will receive either a partial or total property tax exemption in calendar year 2023. 

      The OLS used the data from the VA and the Division of Taxation, along with property tax data from the Division of Local Government Services (DLGS) in the Department of Community Affairs to estimate the total local revenue increase and State cost increase that may result from enactment of the bill.  According to the DLGS, the average residential property tax bill increased by 1.66 percent per year, on average, from calendar year 2016 through calendar year 2021.  By applying this rate of increase to the average residential property tax bill for 2021 ($9,284), the OLS estimates that the average residential property tax bill in 2023 will be $9,595.  To estimate the total amount of State reimbursements to local units, the OLS multiplied the projected average residential property tax bill for 2023 ($9,595) by each disability rating (i.e., 30 percent 40 percent, etc.)  The result of that calculation was multiplied by the number of veterans who fall within each disability rating category.

      The chart on the following page shows, by disability rating, the amount of property taxes that would not be collected if 30 percent to 90 percent of eligible veterans file a claim for a proportional property tax exemption.  The estimated number of veterans who will receive a 100 percent property tax exemption is based on the number of veterans who currently receive that benefit. 

 

 

Total Value of Disabled Veterans’ Property Tax Exemptions in 2023

(Based on an Estimated Average Residential Property Tax Bill of $9,595)

 

Disability Rating

Estimated Number of Participating Veterans (30% of Population)

Estimated Number of Participating Veterans (90% of Population)

Total Cost of Exemptions at 30% Participation Rate

Total Cost of Exemptions at 90% Participation Rate

30%

1,326

3,977

$3,815,841.47

$11,447,524.41

40%

1,360

4,081

$5,220,418.07

$15,661,254.21

50%

1,133

3,400

$5,437,303.95

$16,311,911.85

60%

1,714

5,142

$9,866,893.25

$29,600,679.75

70%

2,039

6,117

$13,693,831.92

$41,081,495.77

80%

2,129

6,388

$16,344,147.78

$49,032,443.33

90%

2,119

6,358

$18,302,717.39

$54,908,152.16

100%

15,679

15,679

$150,440,005.00

$150,440,005.00

Total*

27,500

51,141

$227,583,582.00

$375,853,135.81

*includes two percent administrative fee

 

 

Section:

Revenue, Finance, and Appropriations

Analyst:

Scott A. Brodsky

Principal Fiscal Analyst

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.).