New Jersey Property Tax Relief Pits Babies Against Baby Boomers

There’s been no shortage of state property tax relief programs targeting senior homeowners. Under StayNJ, announced last month, homeowners age 65 and older will see an average 50% reduction in levied property tax.

There’s no question some seniors struggle with rising property taxes, but they’re not unique. Policies aimed at ameliorating that pinch shouldn’t be at the expense of other groups similarly stuck between a rock and a high rate.

This proposal has multiple issues. It creates a tax policy sliding puzzle—moving pieces around to mitigate school budget shortfalls or insulate school performance metrics against planned cuts.

It also pits seniors against families with children through zoning restrictions and housing demands. And seniors are among those most able to absorb increasing property tax by tapping into equity in their home.

School Budget Cuts

Senior property tax relief bills often go hand in hand with school budget shortfalls or cuts. For example, the StayNJ program comes in the wake of an overall state school budget increase of 8%, but with cuts in individual districts up to 67%.

Programs such as StayNJ, designed to discourage seniors from leaving the state, aren’t enacted out of a desire to see older Americans enjoy their golden years in their state of birth. Senior housing is viewed as preferable from a school resource spending standpoint—that house likely doesn’t contribute a student to the public school system.

Metrics such as school expenditures per pupil, often cited as a measurement of a state’s commitment to educating our youth, can be positively affected by adjusting the dollars spent or the number of students that the dollar stretches across.

A state that cuts property taxes for seniors discourages them from selling their homes and, in the case of zoning restrictions, precludes non-seniors from purchasing them even if they did. That puts fewer students in the classroom and creates a positive return on investment for the state in pure dollar terms.

A state comprised entirely of seniors has no expenditures on education—and where there’s no public option for health care that would offset savings in education with the higher cost inherent in an aging population, it’s a state with a substantially reduced budget.

Homes in Irvington, N.J., on March 30, 2021.

Photographer: Gabriela Bhaskar/Bloomberg via Getty Images

Seniors Versus Toddlers

Often, senior property tax relief is done by zoning restrictions. A portion of a municipality will be designated for older homeowners, and either the property assessments or the rates will be lower there. That’s an extreme example of pitting older homeowners against the interests of families with children, wherein the latter is literally excluded from a portion of town in furtherance of property tax policy for the former.

But the policy needn’t be that extreme to have a similar effect. First, just as money is fungible in a household budget, it’s fungible in state budgets. Tax expenditures made just for seniors are, by definition, not made for families with children. That’s a policy tradeoff made every day, and every tax policy expenditure needn’t metaphorically raise all boats.

Where there’s a shortage of affordable housing, seniors get incentives to stay in their existing homes beyond the point where it would be impossible for a non-senior to afford to. They’re also given what’s tantamount to a credit on the purchase of a new home. Similarly situated buyers, where one is a senior and the other isn’t, won’t have the same purchasing capacity. The former can absorb a higher purchase price because they’ll owe less in property tax.

Additionally, in a country beset by an ongoing housing crisis and skyrocketing housing prices, cutting one related cost for a subset of the purchasing public necessarily puts a higher strain on those groups not enjoying similar savings.

Reverse Mortgages

Reverse mortgages are financial instruments that allow older homeowners to convert a portion of their home equity into cash. Payment is made from the bank to the homeowner, with the bank owning the house outright when the owner sells the property or dies. This grants the homeowner access to their home equity without having to budget for an additional monthly payment.

Reverse mortgages aren’t for all, or even most, homeowners, and they’ve seen their fair share of bad actors. But they’re a viable option for older homeowners who are hit with a property tax reassessment.

It’s more than can be said for their younger counterparts, as reverse mortgages generally are open only to homeowners 62 and older. Younger homeowners facing similar property tax hikes who seek to tap into their home equity will be limited to financial instruments that carry monthly payments, such as home equity lines of credit. That can be a tough lift for an individual or family already struggling to make ends meet.

Housing programs should be viewed holistically. The poverty rate for seniors is lower than for individuals 18 to 64. In dollar terms, housing costs go down for seniors as they age, while health-care costs rise.

Property tax is one cost that seniors generally can budget for, as against rising prescription drug, food, and fuel prices. Policies assisting seniors financially are laudable, but they must be enacted with an eye toward their distortive effects elsewhere in the marketplace.

Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social.