This month’s cut in NJ homestead tax credit could repeat next year

An accounting gimmick that was deemed out-of-bounds after property tax relief was intentionally underfunded last summer is the reason this month’s homestead tax credits were cut in half.

Now lawmakers are pushing back against Gov. Phil Murphy’s plans to maintain the cut into a second year.

Murphy said that sounds like a good goal but he isn’t committing to it.

“We want to be able to find the money to – you know, we put it in where it was,” Murphy said. “I’d like it be better. But we also, we can’t turn this thing around overnight.”

Roughly 600,000 homeowners receive homestead tax credits, which are paid as a credit against May property tax bills. They’re the successor to the rebate checks that used to be mailed each fall.

When the Legislature adopted the state budget last July, ending the Fourth of July weekend government shutdown, it included this sleight of hand: Balance it on paper by cutting $150 million from homestead rebates, with the understanding the other half would be paid a few months late in the following year’s budget.

After spending $310.8 million on rebates in 2017, the 2018 budget included $147.3 million.

However, state Treasury Department officials say auditors told them accounting rules don’t allow that – you can’t commit to spending in one budget but pay for it later.

And that’s how tax credits that last year averaged $516 for seniors and the disabled and $403 for other qualified households with incomes of $75,000 or less this year are averaging $267 and $202, respectively.

Sen. Paul Sarlo, D-Bergen, said the idea was that the state, through the towns, would provide the rest of the rebate in July: “So that’s something that we’re going to have to deal with because municipalities are going to be short those funds.”

Office of Management and Budget acting director David Ridolfino says auditors flagged the arrangement as a violation of accounting rules. Municipalities shouldn’t come up short, so long as they properly provided half of last year’s credits.

“The taxpayers’ expectation may be not being met, but for all intents and purposes the towns are receiving exactly what they should be putting on the bills,” Ridolfino said at a budget hearing.

An additional $8.7 million is being added to the current budget for homestead rebates through a supplemental appropriation, but another $150 million would be needed to avoid cuts.

Murphy’s proposed 2019 budget provides $143.5 million. The reduced appropriation isn’t a cut, per se, but reflects that each year fewer households qualify because their incomes rise beyond eligibility limits.

Speaker Craig Coughlin, D-Middlesex, pledged in a Twitter post that the Assembly will pass a budget that restores next spring’s rebates back to last year’s levels.

Murphy called that “a good statement” but didn’t commit to the change.

“There are other big priorities for us – big investments in education at all levels, in transportation and infrastructure. This is one of the ones, if we could figure it out, count me in an open-minded and constructive,” Murphy said.

Murphy didn’t answer directly when asked if he realized the half-payment included in his budget was a continuation of a gimmick-turned-cut.

“Well, let’s put it this way. I know what I inherited, which was a fiscal mess,” Murphy said. “And this is a priority, along with some other mouths that we have to feed.”

Sen. Sam Thompson, R-Middlesex, said the funding level is symptomatic of a budget proposal that ignores residents’ top priority.

“Of course the number one concern of our citizens out there today is property tax. The proposed budget here does very little, if anything, to relieve their concerns,” Thompson said.

Republican lawmakers have tried to draw a line between the $150 million needed to fully fund homestead rebates and the estimated $149 million cost of the new four-year contract agreement with the Communications Workers of America union, covering July 2015 to June 2019.

Just one-third of that funding comes from the proposed 2019 budget, though, with retro pay for withheld longevity increases and clothing allowances being covered by money that had been set aside in the current budget.