The big property tax promise

They miss many things about New Jersey: the pizza, the Jersey Shore, and their friends.

But what the former Middlesex County couple doesn’t miss, they said, is their high property tax bill.

Several years ago, Linda and Louis Principe ditched a $16,000 property tax bill on their five-bedroom Colonial in Plainsboro, downsizing in 2011 to Monroe and a smaller tax bill of $8,000. But by 2019, that bill grew to $12,000, they said.

That’s when they decided to go.

“It was insane,” said Linda Principe, 66. “My husband had to drag me out of New Jersey. I didn’t really want to leave.”

They headed to South Carolina — and were soon followed by their adult daughter — where they upgraded to a 3,600-square-foot home with a $4,100 property tax bill that’s only gone up $175 in the five years they’ve been there.

“Our expenses are so much smaller,” Principe said, noting the bill for their former Plainsboro home is now more than $20,000.

The Principes are among thousands of older residents who either willingly or reluctantly have abandoned the Garden State because of high taxes in recent years, taking with them their disposable income. In an effort to keep more seniors here, New Jersey last year came up with a tempting counter-offer: Stay NJ, a law intended to cut property taxes by up to 50% on primary residences for those who are 65 and older and earn less than $500,000 a year, starting in 2026. The maximum benefit would be $6,500.

But as the state stares down a tough budget year, the question is whether Stay NJ, the most ambitious tax cut proposed for New Jersey seniors in decades, will even happen.

Although the law was passed with much fanfare in a year when all 120 seats in the state Legislature were up for grabs, there was no clear path outlined for how the tax cut would be funded. And with Stay NJ’s first payout date less than two years away, legislators and public policy experts are now scrutinizing the costs and feasibility of such a huge tax cut.

If Stay NJ’s promise is added to New Jersey’s existing ANCHOR and Senior Freeze property tax breaks, the total price tag could be more than $4.5 billion, or nearly a tenth of the state’s budget, experts said, adding that it’s unclear if the three tax break programs would be merged together or if they would all still exist separately.

While Democratic state lawmakers and Gov. Phil Murphy, also a Democrat, touted the plan when it became law last year, a combination of forces — some unexpected, some very predictable — will probably force a major makeover for Stay NJ before homeowners will ever see the benefits, public policy experts said.

Ahead of the governor’s state budget speech on Tuesday and following last year’s record-setting $54.3 billion spending plan, there has already been lots of talk about tax increases and belt-tightening in Trenton, legislative sources said.

State Sen. Declan O’Scanlon, R-Monmouth, the ranking Republican on the Senate budget committee, said he has always seen Stay NJ as a smoke-and-mirrors proposition.

“Stay NJ is never gonna happen,” O’Scanlon said. “Certainly not in the form the Democrats promised. It was fiction from the minute it was introduced.”

State Assembly Speaker Craig Coughlin, D-Middlesex, who crafted the law, is more optimistic.

“We have shown time and again that when we make something a priority, we achieve our goals,” Coughlin said.

THE PLAN AND THE PROBLEMS

Despite a widespread belief that older New Jerseyans are fleeing the state in droves, the state actually grew by more than 30,000 new residents last year, according to U.S. Census Bureau data.

There are many reasons seniors opt to stay, despite the high tax burden.

“Most of our close friends stay in New Jersey because their kids and grandkids are there or nearby states,” Linda Principe said. “They do complain about the taxes, but they can’t move because of the kids.”

Residents who are trying to figure out how to afford to stay have been clamoring for property tax relief, and no wonder. The average property tax bill in New Jersey hit a record high of $9,803 in 2023, up 3.3% from the year before, according to data from the state Department of Community Affairs.

Under the current law, Stay NJ would give up to a 50% property tax credit to senior citizens who are 65 and older — who make up 17.4% of the state’s population, according to Census data — and have income of less than $500,000. The maximum benefit would be $6,500.

The tax cut isn’t set to start until 2026, but there some big requirements that need to be met before the state can start any payouts. School spending commitments, public pension funding, and maintaining a surplus of at least 12% of the state’s annual spending are among the big money outlays that have to be fulfilled first under the Stay NJ law.

The law calls for the state to include hundreds of millions of ramp-up funding for the program in the current and upcoming budget, with full funding in the 2026 fiscal year.

But state revenue — the money New Jersey’s government takes in — has been falling, leaving projections of the state’s financial future less flush with cash. To make Stay NJ work, the state will “need to start saving now,” one legislative source said.

And that could mean a tax hike starting with this year’s budget.

A new corporate business tax surcharge for businesses that make $5 million is likely, but hikes in the sales tax and the gas tax are not off the table, legislative sources said. One source said it’s also possible Murphy will propose “some significant” spending cuts.

“This could be a pre-emptive measure,” one source said of a tax increase. “I think if we take the steps this year with a funding source, it’s gonna give (Stay NJ) more of a fighting chance.”

Still, Assemblyman Roy Freiman, D-Somerset, one of the sponsors of the Stay NJ law, said it’s “premature” to say whether a tax increase will be needed to fund the tax cut.

“I don’t think we’ve seen the numbers yet to jump to the conclusion we do or don’t need revenue raisers,” Freiman said. “I think it’s prudent to be asking the question.”

Residents will get a preview of Murphy’s plans and priorities in Tuesday’s budget address, but one legislative source said it’s fair to call the the governor’s camp skeptical of fully funding Stay NJ and that there’s concern about the governor’s level of support.

Murphy’s office did not respond to requests for comment Friday. One source close to the governor called Stay NJ potentially “transformative” but “expensive.”

Gov. Phil Murphy delivers his 2024 budget address last year. He will give the 2025 budget address on Tuesday. Jeff Granit | NJ Advance Media

Top lawmakers are expected to fight for the program, especially Coughlin, the Assembly speaker and a potential candidate for governor who has long touted the law, legislative sources said. It’s up to the Democratic-controlled Legislature to negotiate a final budget with Murphy before the fiscal year begins July 1.

Coughlin emphasized the tax break is a priority.

“Stay NJ is important because seniors should be able to watch their grandchildren play little league games and spoil them with ice cream instead of having to move three states away because they can’t afford the property taxes,” he said in a statement to NJ Advance Media. “Seniors deserve a future where they can live in the communities they built surrounded by a lifetime of memories.”

Coughlin did not specifically address the program’s funding.

“I look forward to the report from the experienced public servants on the StayNJ Task Force to help implement the program that will help keep seniors in their homes, surrounded by their families and friends,” he added.

CHANGES COMING?

A six-member Stay NJ Task Force, charged with coming up with a way to make the plan work, must issue recommendations by May 30, a month before the final state budget is due.

At its Feb. 8 meeting, task force members telegraphed some of the possible solutions.

Among them is lowering the provision maintaining a 12% surplus in the state’s coffers.

Woodbridge Mayor John McCormac, a task force member and former state treasurer, called the 12% number “kind of high.”

“The prognosis for the future is not all that great for revenues,” McCormac said.

Indeed, while state sales tax collections were up 3% in January compared to the year before, overall tax collections are lagging, according to the most recent data available from the state Treasury Department. Plus, the state can no longer expect an influx of pandemic-era federal spending.

Another consideration would be combining Stay NJ with one or both of the state’s other two main property tax breaks — ANCHOR and the Senior Freeze.

The ANCHOR program, which has no age restrictions, paid eligible homeowners up to $1,500 and qualifying renters $450 for 2020, the most recent benefit year, plus an added bonus of $250 for both senior renters and homeowners.

The Senior Freeze, which reimburses eligible senior citizens and disabled persons for property tax increases, had new income limit increases and simplified residency requirements, allowing more people to qualify for the 2023 benefit year.

Altogether, the state’s tax break programs are a confusing jumble piled on top of each other, said Marc Pfeiffer, assistant director of the Bloustein Local Government Research Center at Rutgers University.

“From a government administration standpoint, from a public understanding standpoint, it’s getting confusing,” he said.

It’s unclear how many residents have overlapping eligibility for all the programs, said Peter Chen, a senior policy analyst with left-leaning think tank New Jersey Policy Perspective.

“Combining and simplifying the complex web of property tax credits would be helpful for many eligible applicants who are often confused by the many programs,” Chen said.

Critics have also called Stay NJ inequitable and regressive. Renters, who tend to be less affluent than homeowners, are not directly included in the benefit, unlike the ANCHOR program, which for the most recent benefit year paid $450 to renters, plus an extra $250 for seniors.

“Renters pay property tax in the form of higher rents, even if they’re not the one writing the check to the city or county,” Chen said, citing his analysis of who benefits from the law.

It found that 28% of benefits would go to the top 20% of households, while those in the bottom 20% would receive only 7%.

An analysis by the left-leaning N.J. Policy Perspective found Stay NJ to be inequitable, saying lower-income homeowners and renters, who pay property tax in the form of higher rent, don’t get most of the program’s benefits.  Courtesy N.J. Policy Perspective

Chen argues that even with the $250 ANCHOR payment boost for senior renters, they would still receive “thousands less than their wealthier home-owning peers.”

“Because renters are disproportionately nonwhite and have lower incomes on average, the new Stay NJ program would still widen the racial wealth gap,” he said.

Delaying the start of the program beyond 2026, or cutting the initial 50% payout with the goal of ramping it up in future years, are also plausible fixes, experts said.

“My expectation is the Legislature has made such a commitment to Stay NJ that something labeled Stay NJ is going to come out of the process,” Pfeiffer said.

‘YOU GET WHAT YOU PAY FOR’?

Keith and Margaret DeMatteo, who raised two sons in New Jersey, say their property taxes have more than doubled in the past 25 years.

When they purchased their home in Long Hill Township in Morris County in 1999, the tax bill was $5,411. In 2023, it was $11,283, said Keith DeMatteo, 63.

“Property taxes are clearly important, but my wife and I do not always look just at the dollars and cents,” he said, ticking off a long list of friends and neighbors who have moved out, saying taxes played a big role.

Keith DeMatteo says so far, New Jersey’s high property taxes haven’t scared him out of the state. He said a successful Stay NJ benefit would be incentive to remain in New Jersey. Ed Murray | For NJ Advance Media

To the DeMatteos, the higher costs are worth it for the educational and job opportunities and for the overall quality of life.

But, he said, the couple isn’t committed to staying. If Stay NJ does what it has promised to do, it will be an added incentive to remain in the state, he said.

“New Jersey has a lot to offer and while I agree it is an expensive state, the grass may not always be greener on the other side,” DeMatteo said. “In the end, you get what you pay for. Right now we see value in New Jersey.”