A Look at the Fuzzy Math of NJ’s Homestead Tax-Relief Program

John Reitmeyer | September 27, 2019 | Explainer
Eligible homeowners will have to wait until 2020 to receive benefits designed to defray property taxes they paid in 2017
Credit: Twenty20
The Homestead program was once straightforward. Not anymore.

Applications for the state’s “Homestead” property-tax relief are going out this month, but the senior citizens and other homeowners who qualify can be forgiven if they are confused about just what they are applying for and why.

Time was the New Jersey Homestead program was relatively simple, offering low- and middle-income homeowners a break on the state’s ever-rising property taxes in the form of a one-shot payment, first a check and later a direct credit on tax bills.

But a number of recent changes to the inner workings of the program have created some befuddling quirks. For example, as the applications go out this month for the next round of benefits, homeowners are still waiting to receive the final installment from the last round.

And as a result of past state budget shortfalls, there’s a large lag between when homeowners finally receive the relief and when they paid the corresponding tax bill the credits were intended to offset.

Meanwhile, the Homestead formula is severely outdated, pegging benefits paid now to tax rates that are more than a decade old, shortchanging homeowners and reducing the overall amount the cash-strapped state has to spend on the program.

Here then, is an attempt to clarify things a bit.

Apply now … for benefits from 2017?

The applications now going out from the Department of Treasury are technically for relief on property taxes homeowners paid in 2017. Under the current schedule, the filing deadline is Dec. 2, 2019, and the credits will be paid out in 2020.

Huh? How’s that, again? The reason a benefit for 2017 won’t be paid out until 2020 stems, in large part, from budget troubles the state has experienced in recent years. Projected revenues haven’t always lined up perfectly with spending, and funding for Homestead and other programs has gone instead to other line items.

The good news is, however delayed it might be, the money is there now, in the form of a $283 million allocation that Gov. Phil Murphy and state lawmakers inserted into the $38.7 billion state budget for fiscal 2020, which started in July.

Under the program’s current rules, senior and disabled homeowners with a household income of up to $150,000 are eligible, as are others making up to $75,000 a year. Benefits will average $538 for senior and disabled recipients, and $401 for the others, according to budget records. There are no benefits provided to tenants.

So, where’s your money for 2016?

An estimated 579,900 New Jersey homeowners are receiving benefits that are intended to offset property taxes paid in 2016, but there’s a wrinkle with that, too. A first installment was funded earlier this year as a direct credit on May property tax bills. But a second and final installment is in the mail, as it were —  due to be paid out later this year on November property-tax bills, according to Treasury.

Homestead benefits once were provided to recipients in a single installment, but a funding mix-up in 2017 amid a messy government shutdown forced the program to switch to the current, biannual payment schedule. That ensured recipients would continue to receive the full amount they qualify for in the same calendar year, even if the money to pay for it came out of two separate state budgets. It’s also why applications for the new round of Homestead benefits are going out before all of the previous year’s benefits have been received by homeowners.

Benefit based on 2006 property-tax bills

Little known among Homestead benefit recipients, and even many state lawmakers, is how the fine print first written into the state budget more than a decade ago, continues to hold flat the amount of property-tax relief that homeowners end up receiving.

The program’s original design called for the relief payments to be assessed as a percentage of a homeowners’ property-tax bill each year. That would have allowed the tax relief — which once came in the form of a rebate check – to grow at the same rate as the tax bills.

But a practice started by former Democratic Gov. Jon Corzine in the wake of the Great Recession has generally established 2006 as the baseline year for calculating benefits. What that means for eligible homeowners is Homestead credits are still being calculated as a percentage of 2006 property-tax bills, which averaged $6,446, far below last year’s average of $8,767.

Meanwhile, the program’s income-eligibility limits were last adjusted during Corzine’s tenure. By contrast, income limits for another popular state property-tax relief program — the Senior and Disabled Citizens’ Property Tax Freeze — are now adjusted annually to keep pace with inflation.

If such language were to be adopted for the Homestead program, the income limits would have to be raised to approximately $177,600 for senior and disabled homeowners, and to $88,800 for others, based on an analysis of federal Bureau of Labor Statistics inflation data.