Murphy plans to continue time-honored NJ tradition: Shortchanging recipients of Homestead tax relief

Homestead benefits have been frozen in time as state uses property-tax bills from 2006. Property taxes have ballooned 40% since then, but Homestead benefits haven’t budged

Lawmakers from both sides of the aisle are making a case for halting the state’s long-running practice of using fine print in the annual budget to shortchange thousands of New Jersey homeowners who receive Homestead property-tax relief benefits.

A recent NJ Spotlight News story highlighted how Gov. Phil Murphy’s proposed budget for the fiscal year that begins on July 1 would continue to use outdated property-tax bills to calculate Homestead benefits, and thus shortchange eligible homeowners, collectively, by millions of dollars.

Murphy, a Democrat running for reelection in November, has proposed doing so even as his overall budget would increase state spending by roughly 10% year-over-year to a record total of nearly $45 billion.

But it’s now up to the Legislature to draft a spending bill to send back to Murphy before a July 1 deadline, and lawmakers from both parties pressed the state treasurer for more information on the Homestead issue during budget committee hearings last week

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When is a baseline a burden?

They wanted to know why the state is still using bills from 2006 as a baseline for calculating benefits that are supposed to keep pace with the growing property-tax burden faced by a targeted population of New Jersey seniors and homeowners with disabilities making up to $150,000 annually, and other homeowners making up to $75,000 annually.

The lawmakers also suggested it’s time to make Homestead benefit recipients whole, especially with property taxes having risen significantly since 2006, and with the governor now proposing record spending.

“That seems like a way that we can actually return money back to taxpayers,” said Sen. Troy Singleton (D-Burlington), as he pitched a policy change to Treasurer Elizabeth Maher Muoio when she appeared before the Senate Budget and Appropriations Committee.

“Our residents need relief,” said Assemblywoman Serena DiMaso (R-Monmouth), who made a similar appeal to Muoio during the treasurer’s separate appearance before the Assembly Budget Committee.

Credit: NJ Department of Community Affairs
New Jersey property tax keeps climbing.

This year’s shorting of Homestead benefits would come after the average New Jersey property-tax bill rose last year by nearly $160 year-over-year, to a record high of $9,112, according to the most recent data from the New Jersey Department of Community Affairs. It would also occur as many New Jersey homeowners have suffered job losses or other financial hardships during the ongoing coronavirus pandemic.

Moreover, the average property-tax bill has increased by more than 40% since 2006, according to the state’s most recent tax data. And over the past five years, the average New Jersey property-tax bill has increased by $563, easily swamping today’s average Homestead benefits, which are $526 for senior and disabled recipients, and $412 for all other recipients, according to the budget documents.

When Homestead benefits went wrong

The longstanding practice that results in the annual shortchanging of Homestead recipients was initially enacted as a cost-saving measure during the 2007-2009 Great Recession.

At the time, then-Democratic Gov. Jon Corzine and lawmakers wrote language into the budget to hold Homestead benefits flat by using property-tax bills from 2006 as the program’s baseline year. That budget language overrode state statute that calls for using more current bills to calculate benefits, and the move saved an estimated $85 million during the 2009 fiscal year, a time when overall revenues were plummeting.

But freezing the baseline year for the Homestead program has remained in effect ever since, and even after the state economy eventually rebounded from the Great Recession during Republican Chris Christie’s eight-year tenure as governor.

More detailed budget documents released by the Murphy administration several weeks ago indicate the governor’s spending plan for the 2022 fiscal year calls for continuing the practice of shortchanging the state’s nearly 500,000 Homestead benefit recipients by using the same fine print that has been inserted into the annual budget for over a decade.

In response to the questioning during the recent legislative budget hearings, Muoio suggested lawmakers would have to add nearly $80 million to the amount Murphy has budgeted for Homestead benefits to ensure more recent property-tax bills are used as a baseline for calculating the benefits.

The most recent bills that could be used would be those assessed in 2017, due to other ways the current version of the Homestead program functions, she said.

Making the change to 2017 bills would push the total appropriation for Homestead benefits from the $260 million that Murphy has budgeted up to $339.5 million, if “that’s what the Legislature chose to do,” Muoio said.

But the year-over-year increase would be a more modest $65 million when measured against the amount of money the state is spending to fund Homestead benefits in the current fiscal year, which is $275 million, according to budget documents.

Homestead line item keeps inching down

New Jersey was spending as much as $340 million annually on Homestead benefits as recently as the 2016 fiscal year, which was during Christie’s second term. But the Homestead line item in the annual budget has been steadily declining over the past decade as the baseline year has stayed frozen and as income limits for the program have also remained static despite a nearly 30% rise in median incomes over the same period.

Muoio pushed back on suggestions that funding for the program is being “cut.” Instead, she said the line item has been reduced because fewer people are qualifying for the benefits than have in prior years.

“The appropriation may be reduced, but that’s just the result of trend,” Muoio said. “Everybody that’s applying and eligible for it is receiving the benefit.”

Each year, before a spending bill is drafted by lawmakers, they have a tradition of inserting new items into the budget just before it is sent to the governor. This “add-on” process is used to reflect legislative spending priorities or to make language changes that can also impact the bottom line for taxpayers.

This year, lawmakers may have some political incentive to increase funding for Homestead benefits as part of the add-on process, which typically plays out in June. All 120 legislative seats will be up for grabs in November, and incumbents will likely be facing tough questions about property-tax relief once they hit the campaign trail.

During the Senate hearing last week, Singleton pointed to the governor’s broader plan to increase spending coming out of the downturn triggered by the pandemic.  He told Muoio increasing funding for Homestead benefits also “seems like a worthwhile investment.”

“There’s no greater challenge that all of us face than property taxes in our state,” Singleton said.

“I think this is something, especially in light of the (pandemic), which has exacerbated concerns for many, that I’m hopeful that my colleagues will join me in looking at it yet again,” he said.

During the Assembly hearing, DiMaso also pointed to Murphy’s plan to hike overall spending as she made her own pitch for updating the Homestead program.

“We really, really should be looking at lowering property taxes, to the fullest extent possible,” she said.

READ: NJ property taxes climbed again in 2020. Average bill more than $9,000

WATCH: Deep dive into Gov. Murphy’s budget proposal

READ: Record spending, but how to pay for it?

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