Property-tax bills went up yet again in New Jersey last year, and only adding to the pain are new federal tax rules that cap a longstanding federal write-off for local taxes. Enter Gov. Phil Murphy, whose first state budget proposal would provide some relief. It calls for an expansion of a New Jersey deduction for property taxes, but it also keeps in place other policies that can end up shortchanging many homeowners.
In all, Murphy’s $37.4 billion budget plan for the 2019 fiscal year sets aside nearly $1 billion in funds for the state’s menu of direct property-tax relief initiatives, which include the state income-tax deduction that’s allowed for local property taxes, and the longstanding Senior Freeze and Homestead programs.
That marks a slight increase compared to the current fiscal year budget, largely due to an additional $82 million that Murphy is planning to spend to increase by 50 percent the size of the state income-tax write-off for local property taxes. The proposed change would allow for up to $15,000 in property taxes to be deducted from a homeowner’s income-tax total, instead of the current limit of $10,000.
Murphy’s push to expand the deduction comes as the average New Jersey property-tax bill rose last year by $141, to a record-high of $8,690. It also follows federal-tax revisions signed into law last year by President Donald Trump that, among other changes, placed a $10,000 cap on a longstanding federal income-tax deduction for state and local taxes known as SALT. That write-off used to be unlimited.
Also in Murphy’s budget is a proposal to increase direct aid to K-12 school districts by nearly $284 million, something he said will ease the burden on homeowners since education spending generally accounts for at least 50 percent of most local property-tax bills in New Jersey.
But even as Murphy is proposing to increase funding for education and the state property-tax deduction, his budget calls for only flat or even slightly reduced spending on most other state property- tax relief efforts — including those that prioritize the relief for low- and middle-income homeowners. That’s because some perpetual budget adjustments and spending trends initiated by former Gov. Chris Christie are expected to continue under Murphy.
Here’s a more detailed breakdown of how Murphy’s budget would impact the state’s direct property tax relief programs during the 2019 fiscal year, which begins on July 1:
Property-tax deduction: Funded at nearly $550 million in Murphy’s budget, New Jersey’s income-tax deduction for local property taxes is now the costliest of the state’s direct property-tax relief programs, with more than 2 million property owners benefitting from it each year. Counting the planned expansion of the deduction limit to $15,000, overall spending on the write-off is set to go up by nearly $100 million compared to the current fiscal-year spending plan inherited from Christie.
If Murphy is successful in hiking the deduction limit to $15,000, it would be the first increase since the write-off was established by law in 1996, when average property-tax bills were far lower than today’s assessments. Murphy has estimated the expansion would help about 540,000 homeowners, including those who now face higher federal tax bills thanks to the loss of the full SALT deduction. Unlike most other New Jersey property-tax relief programs, there is no income ceiling for the state deduction.
Senior freeze: The state’s second most expensive property-tax relief initiative is the Property Tax Reimbursement Program, which Murphy is setting aside $204.4 million in his budget proposal to pay for during the 2019 fiscal year. The program is commonly referred to as “Senior Freeze” because it has traditionally used state-funded reimbursement checks to effectively freeze property-tax bills each year for thousands of longtime New Jersey residents.
To qualify for the program, which started in 1997, homeowners must be at least 65 years old or disabled, and be at least a 10-year resident of the state. They also have to be the owners of their residence for the past three years and be up to date on their property taxes. And, while income limits are supposed to be elevated each year to keep pace with inflation, Christie and lawmakers repeatedly used fine print written into the budget to freeze the program’s annual income ceiling at $70,000. It appears that practice would continue under Murphy’s administration unless lawmakers decide to find more funding to allow for a higher income limit. An estimated 166,000 New Jersey homeowners benefit from the Senior Freeze program.
Homestead Benefit: Though not as well-funded as it was roughly a decade ago, the Homestead Benefit Program remains one of the state’s most popular property-tax relief initiatives, providing an estimated 650,000 homeowners with tax credits or rebates. Under Murphy’s budget proposal, the Homestead program would get $143.5 million, a slight reduction in the amount that’s in the current fiscal-year budget. Murphy’s allocation would also leave the future of the program up in the air since it appears to carry forward a budget stunt that Christie and lawmakers used last year to close a surprise revenue shortfall by not fully funding the benefits for the next calendar year.
Murphy’s budget also keeps in place the program’s current income limits, which allow seniors and disabled homeowners to make up to $150,000 annually, and all other homeowners to earn up to $75,000 annually. It would also keep the state on track to continue using budget language to depress the size of the benefits provided to homeowners by using property tax bills paid in 2006 as a baseline instead of today’s bills, which are an estimated $2,250 costlier.
Other relief programs: The state budget also provides modest funding for two smaller property-tax relief programs that provide modest deductions for qualified veterans, and seniors and disabled homeowners. Murphy’s budget proposal includes $45.7 million for the Veterans’ Property Tax Deduction, down slightly from $48.5 million in the current budget, and $9 million for the Senior Citizens and Disabled Homeowners deduction, down about $1 million from the current budget. No changes to those programs’ eligibility rules are expected during the new fiscal year.