Senior Property Tax Freeze Will Far Exceed Estimated Cost

Price Tag More Than $300 Million in Year 10

TRENTON — New Jersey’s Senior Tax Freeze is likely to have a price tag exceeding $300 million in its tenth year, more than double the estimates reported when the measure was enacted in January, according to an analysis by New Jersey Policy Perspective.

The Senior Tax Freeze: Piecemeal Property Tax Reform Comes at a Price, was written by David C. Mattek of Pennington, a public policy analyst and former executive director of the County and Municipal Government Study Commission of the New Jersey Legislature. The analysis found that both the likely rate of property tax increase and of participation rates in the new program over the next decade have been underestimated by the state. The result: a plan described as costing about $160 million in its tenth year will cost closer to $340 million.

While the new law earmarks the Casino Revenue Fund as the source of funding for the Senior Tax Freeze, the NJPP analysis projects that this will mean other programs get pushed out of the Casino Fund as early as next year. This, in turn, will put more pressure on the state’s general revenue. Even then, says the analysis, “This program can be expected to grow faster than the revenues needed to support it, requiring the state to make reductions in other services or raise new revenues.”

“The findings are more than a collection of data and projections about this particular program,” said Jon Shure, president of NJPP. “They also can be taken as a warning about trying to tackle property taxes with piecemeal reforms.” The NJPP findings “add to the body of evidence suggesting that comprehensive reform which brings property tax relief to all New Jerseyans is the equitable, efficient way to go,” he said.

New Jersey Policy Perspective is a nonprofit, nonpartisan organization that conducts research on important state issues.

The Senior Tax Freeze became law on January 14. Its intent is to address the fact that elderly and disabled New Jerseyans on fixed incomes often face having to move out of their homes because they can’t afford property tax increases. Under the program, homeowners (and some people who live in mobile homes) who are over 65 or disabled, and who meet income eligibility criteria, will receive a rebate from the state for the portion of their yearly property tax bill that exceeds what they paid in 1998—or in a later year if that is when they become eligible.

Based on participation rates in other state programs with similar eligibility standards and expected increases in the number of seniors in New Jersey, the NJPP analysis projects that participation will grow at a rate of about 1 percent per year beyond the initial expected population of 149,000 in the first year. Projections by the Legislature when the Senior Tax Freeze was introduced called for a 4.2 percent yearly decline in participation.

Legislative projections for the program’s cost were based in part on an estimated yearly increase in property taxes of 3.8 percent over the next 10 years. The NJPP analysis says “this would be a lower rate of increase than that which has taken place over a sustained period for any time in more than two decades.” NJPP’s analysis is based on figures reflecting New Jersey’s experience over a more comparable length of time. It projects an average yearly property tax increase of 4.3 percent until 2002, followed by a return to a level of 6.5 percent a year. The 4.3 percent figure is based on the relatively low rate of increase from 1993 to 1996, while the 6.5 percent figure is based on the longer-term rate in effect over the entire period from 1986 to 1996

The Senior Tax Freeze legislation stipulated that the state could tap two sources to pay for tax rebates: the Casino Revenue Fund–which comes from the 8 percent tax on casino revenues–and general state revenues. Under current projections, the Casino Revenue Fund can’t be counted on to grow enough to accommodate a massive new program like the Senior Tax Freeze. It is clear, then, that if the Casino Fund is used, the Senior Tax Freeze very soon will push other programs out. Among programs currently supported by the Casino Fund are Pharmaceutical Assistance for the Aged and Disabled; Lifeline, which helps low-income seniors pay their utilities bills; programs for the developmentally disabled; and transportation for the elderly.

To the extent that any programs and services now funded by the casino tax are paid for from the general state treasury instead, they will compete with other programs for the same money. Casino revenue tax funds, on the other hand, can by law be used only to help seniors and the disabled. Under current trends, the Senior Tax Freeze will start to push other programs out of the Casino Revenue Fund as early as the next fiscal year, which begins July 1, 1999.

In the coming years, state policymakers will have to answer complex questions regarding who pays and who benefits from the Senior Tax Freeze. Lower income seniors and disabled homeowners will get significant monetary benefits. And a larger state interest might be served if such people are allowed to keep their houses and be a vibrant part of their communities. But there also will be “losers” in a financial sense. Some people could be paying higher taxes or fees to the state to help support the Senior Tax Freeze, while they receive none of the property tax relief that will be available to the eligible seniors and disabled. Others could lose services as a result of cuts made in other programs to support the Senior Tax Freeze.

“The Senior Tax Freeze has elements of a zero-sum game,” the NJPP analysis concludes. “There will be winners and losers. The dollar cost will be higher than has been anticipated. But without new revenues or cuts elsewhere, this program can be expected to grow faster than the revenues to support it.”