LEGISLATIVE FISCAL ESTIMATE
[Second Reprint]
ASSEMBLY, No. 1
STATE OF NEW JERSEY
220th LEGISLATURE
DATED: AUGUST 9, 2023
SUMMARY
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Synopsis: |
Establishes Stay NJ property tax credit program; establishes Stay NJ Task Force; expands income limit and modifies ownership requirement for eligibility to receive homestead property tax reimbursement; enhances ANCHOR benefits for seniors; and makes appropriations. |
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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 2024 |
FY 2025 |
FY 2026 through FY 2028 |
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Annual State Cost |
$143.7 million |
$17.5 million |
$2.1 billion to $2.5 billion |
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Less: Annual State Cost Savings |
$0 |
$0 |
$944.8 million to $834.1 million |
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Annual Net State Cost |
$143.7 million |
$17.5 million |
$1.2 billion to $1.7 billion |
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· The Office of Legislative Services (OLS) estimates that the provision of enhanced Affordable New Jersey Communities for Homeowners and Renters, or ANCHOR, benefits and the expansion of eligibility for the homestead property tax reimbursement will increase State costs by $143.7 million in FY 2024 and $17.5 million in FY 2025.
· The projected cost of the first year of the Stay NJ property tax credit program ranges from $2.1 billion to $2.4 billion, increasing to as high as $2.5 billion by FY 2028. These costs would be partially offset by savings of approximately $944.8 million in FY 2026 to $834.1 million in FY 2028 due to reduced participation in the ANCHOR Property Tax Relief Program and the homestead property tax reimbursement program. The cost savings will be higher in FY 2026 because senior citizen homeowners will receive a Stay NJ property tax credit instead of the enhanced ANCHOR benefits provided by the bill.
· The State will incur additional costs in FY 2024 due to increased ANCHOR benefits provided by the bill, costs associated with an ANCHOR marketing and outreach campaign, and funding to support the Stay NJ Task Force. Costs associated with the additional ANCHOR benefits will be fully phased out beginning in FY 2027.
· Although the bill requires additional State appropriations to support the program, beginning with an initial allocation of $100 million in FY 2024, these appropriations will not be sufficient to pay for the full cost of the Stay NJ property tax credit 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 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 likely to result in an increase in State costs in FY 2025 only. The OLS anticipates that nearly all senior freeze recipients will migrate to the Stay NJ property tax credit program beginning in FY 2026.
BILL DESCRIPTION
The bill provides property tax benefits to senior citizens through a new program, named the Stay NJ property tax credit program, and expands eligibility requirements for the homestead property tax reimbursement program, colloquially known as the “senior freeze,” for senior citizens and disabled persons. The bill provides enhanced property tax benefits to homeowners and renters age 65 years or older through the Affordable New Jersey Communities for Homeowners and Renters, or ANCHOR, Property Tax Relief Program. The bill establishes the Stay NJ Task Force in the Department of the Treasury to develop recommendations for establishing and funding uniform property tax relief for all senior citizens and tenants making less than $500,000 per year.
Stay NJ: The Stay NJ property tax credit program provides to an eligible claimant a property tax credit in the amount of 50 percent of the property tax paid on the claimant’s principal residence in the prior tax year, initially up to a maximum of $6,500 per year. After the first year of the program, the maximum Stay NJ benefit will increase annually based on the increase in the average residential property tax bill, as computed by the Division of Local Government Services in the Department of Community Affairs. Program eligibility is limited to eligible claimants with gross income for the prior tax year of less than $500,000. A property taxpayer who is eligible to receive a rebate through the ANCHOR Property Tax Relief Program and the homestead property tax reimbursement program is entitled to the greater of the Stay NJ property tax credit or the combined amount of the ANCHOR property tax rebate and the homestead property tax reimbursement. Operationally, a Stay NJ property tax 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 property tax credits.
The bill requires the Division of Taxation to promulgate, by July 1, 2025, a single combined application form to be used by State residents to apply for the ANCHOR rebate program, the homestead property reimbursement, and the Stay NJ property tax 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, nonlapsing account in the Department of the Treasury, for the purpose of providing property tax relief to homestead owners and tenants through the Stay NJ property tax credit program, and funding program administrative costs, including reimbursements to municipalities. The bill requires additional appropriations in future fiscal years as follows: $100 million in Fiscal Year 2024; $200 million in Fiscal Year 2025; and $300 million in Fiscal Year 2026. The first Stay NJ credits would be provided in calendar year 2026 if there are no delays in the promulgation of the combined single application form.
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 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.
ANCHOR Property Tax Relief Program: The bill increases by $250 the amount of the rebate provided to homeowners and tenants age 65 years or older through the ANCHOR Property Tax Relief Program. The ANCHOR Property Tax Relief Program provides rebates, in varying amounts, to homeowners with gross income not in excess of $250,000 and to renters with gross income not in excess of $150,000. The bill appropriates $15 million from the General Fund to the Department of the Treasury for a marketing and outreach program to inform eligible homeowners and renters age 65 and older of the availability of the increased ANCHOR benefits.
Stay NJ Task Force: The six-member Stay NJ Task Force established by the bill is charged with developing recommendations regarding the provision of property tax relief to senior citizen homeowners and tenants with annual gross income of less than $500,000 per year. The task force is required to review current property tax relief programs and present recommendations to the Governor and the Legislature, no later than May 30, 2024, a report concerning how to consolidate those initiatives into a single program that provides property tax relief to senior citizens with annual gross income of less than $500,000 per year. The report would include recommendations concerning system improvements by the State and local governments that are necessary to implement the Stay NJ property tax credit program and the funding required to establish and maintain those improvements. The task force is required under the bill to provide recommendations that have a target implementation date of January 1, 2026. The bill appropriates $2 million from the General Fund to the Department of the Treasury to support the Stay NJ Task Force.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS concludes that the bill will result in additional State costs. In FY 2024, the State will incur additional costs of approximately $143.7 million as follows: $126.7 million to provide enhanced ANCHOR benefits to homeowners and renters over age 65, $15.0 million for an ANCHOR outreach and marketing campaign, and $2.0 million for expenses associated with the Stay NJ Task Force. In FY 2025, the State will incur additional State costs of approximately $17.5 million as follows: $3.5 million to provide the second year of enhanced ANCHOR benefits to homeowners and renters over age 65 and $14.0 million due to the expansion of eligibility for the homestead property tax reimbursement program.
The implementation of the Stay NJ property tax credit program will result in additional State costs of $2.1 billion to $2.4 billion in FY 2026. These costs will be partially offset by anticipated savings of senior citizen homeowners who currently participate in the ANCHOR and homestead property tax reimbursement programs shifting to the Stay NJ property tax credit program. Applying these cost savings reduces the program cost range to $1.2 billion to $1.5 billion. Program costs will increase to $1.3 billion to $1.6 billion in FY 2027 and to $1.4 billion to $1.7 billion in FY 2028.
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 about two percent annually, in line with recent Statewide average increases in property taxes. The bill requires additional State appropriations, beginning at $100 million in FY 2024 and increasing to $300 million in FY 2026 to support the Stay NJ property tax credit program. These appropriations will not be sufficient to cover the program’s full cost.
Under the bill, the failure to enact reforms proposed by the Stay NJ Task Force will delay the development of the combined property tax relief application form, which, in turn, will delay the implementation of the Stay NJ property tax credit program to an unknown date in the future. For purposes of this estimate, the OLS projects that the Stay NJ property tax credit program is operative beginning January 1, 2026.
Stay NJ
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 in this State. (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.
Information published by the Department of the Treasury in the Statistics of Income: 2017 Gross Income Tax Returns indicates that about 1.5 percent of tax returns with at least one filer over age 65 reported gross income of more than $500,000. For purposes of this estimate, the OLS projects that the income eligibility limit will cause two percent of homeowners over the age of 65 to be excluded from the program. Since the gross income eligibility limit will exclude a small number of homeowners and the prospect of a larger property tax benefit will motivate more senior citizens to participate in the Stay NJ property tax credit 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 property tax 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 property tax credits that would be provided to taxpayers in each municipality. The sum total of these amounts constitute the FY 2026 program costs of $2.1 billion to $2.4 billion. Assuming that expenditures increase by about two percent annually, program costs are estimated to be as high as $2.5 billion by FY 2028.
Stay NJ Program Appropriations
Although the bill requires appropriations of $100 million in FY 2024, $200 million in FY 2025, and $300 million in FY 2026 to support the Stay NJ property tax credit program, this funding will not be sufficient to cover the program’s full cost. The OLS estimates that Stay NJ’s initial cost, after accounting for program savings, will be $1.2 billion to $1.5 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 $600 million to $900 million in FY 2026 to support the full cost of the first-year Stay NJ property tax credit program.
Impact on the ANCHOR Program
The ANCHOR Property Tax Relief Program currently provides rebates to homeowners, in the amount of either $1,000 or $1,500, depending on their gross income. The bill increases ANCHOR benefits for homeowners and tenants age 65 and over by $250 in fiscal years 2024, 2025, and 2026. In comparison to the FY 2023 benefit levels, the new benefit amount would be as follows: the benefit for homeowners age 65 and over with gross income not in excess of $150,000 rises from $1,500 to $1,750; the benefit for homeowners with a gross income in excess of $150,000 but not in excess of $250,000 rises from $1,000 to $1,250; and the benefit for tenants rises from $450 to $700.
The Department of the Treasury has indicated that 469,044 senior citizen and disabled homeowners and 69,219 senior citizen and disabled tenants received a FY 2023 ANCHOR benefit. The OLS estimates that FY 2023 ANCHOR rebate payments to senior citizens and disabled persons 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 1.9 percent in FY 2024. Under the current program, FY 2024 ANCHOR benefits for senior citizens and disabled persons are projected to cost $729.8 million. With the increased benefit, the FY 2024 costs increase by $137.3 million, to $867.1 million; and by an additional $3.5 million for FY 2025, for a two-year total of $143.8 million. The OLS projects that 90 percent of these costs, or $126.7 million, are attributable to senior citizens.
Although the bill requires the additional ANCHOR benefits to be provided in FY 2026, the OLS anticipates that most homeowners age 65 and over will participate in the Stay NJ property tax credit program. Accordingly, the State costs would be limited to providing the enhanced benefit for tenants (estimated at $52.8 million for FY 2026) and the cost of providing the enhanced benefit to disabled homeowners (estimated at $14.1 million). The bill does not require the additional ANCHOR benefits to be provided in FY 2027.
The OLS anticipates that the State will achieve cost savings of $780.0 million in FY 2026, $733.3 million in FY 2027, and $679.7 million in FY 2028 as senior citizen homeowners migrate to the Stay NJ property tax credit program. The anticipated cost savings will be higher in FY 2026 and FY 2027 due to the shift in program participation and the phase-out of additional ANCHOR benefits provided under the bill.
Impact on the Homestead Property Tax Reimbursement
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 2026 homestead property tax reimbursement expenditures will total $183.1 million. For purposes of this estimate, the OLS assumes a 90 percent reduction, or $164.7 million, in homestead property tax reimbursement costs due to senior citizen homeowners exiting the senior freeze program because they will receive a Stay NJ property tax credit instead.
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 households results in additional State costs of approximately $14.0 million.
However, the amount of the Stay NJ property tax credit is likely to be greater than the combined amounts provided through other property tax relief programs. The OLS provides 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 likely to result in an increase in State costs in FY 2025 only. The OLS anticipates that nearly all senior freeze recipients will migrate to the Stay NJ property tax credit program beginning in FY 2026.
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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.).