Budget language would OK funding of senior tax credit program despite waning surplus

Rotunda in New Jersey Statehouse in Trenton (Dana DiFilippo | New Jersey Monitor)

Budget language in the annual spending bill approved by legislative budget committees Wednesday would allow the state to ignore a requirement of a nascent property tax relief program intended to prevent the state from awarding tax credits it can’t afford.

The Stay NJ program, pitched as tax relief for New Jersey’s senior citizen homeowners, includes a requirement that its appropriations must be paused in any year where the state cannot maintain a surplus equal to at least 12% of state spending, among other things.

This year’s proposed budget has a surplus below that threshold, but the language would allow the state to make a $220 million deposit to Stay NJ anyway. Because the provision exists in budget language, it would apply only to the fiscal year that begins July 1, though lawmakers could maintain the language in future budgets.

A spokesperson for Assembly Democrats said lawmakers made the provision about the 12% surplus threshold language inactive because no Stay NJ tax credits are being issued in the coming fiscal year. In effect, the money will sit in a dedicated account until 2026.

“The Assembly is fully committed to getting to the 12% surplus by the time awards under the Stay NJ program commence,” said Rhonda Schaffler, the spokesperson.

Schaffler noted an Assembly panel advanced a separate bill Wednesday — one to implement recommendations of a Stay NJ task force — that maintains the surplus requirement.

In the budget bill advanced Wednesday, legislators have proposed spending down New Jersey’s surplus to just under $6.2 billion, or about 10.9% of the $56.6 billion in proposed appropriations.

Stay NJ promises to cut property tax bills in half for homeowners above the age of 65 with incomes of up to $500,000. Stay NJ awards would be capped at $6,500 in the program’s first year, though homeowners who receive rebates under the senior freeze and Anchor property tax relief programs would have their awards under Stay NJ reduced proportionally.

Because Anchor and senior freeze have lower income caps — $250,000 and $150,000, respectively — residents who are too wealthy to be eligible for those programs would receive larger awards under Stay NJ.

It’s far from clear New Jersey has funds to meet Stay NJ’s expenses once the program begins sending out checks.

Stay NJ’s enabling legislation requires New Jersey to deposit $300 million into the program in the fiscal year that begins July 1, 2025, a deposit that is also subject to the surplus language and other requirements. That deposit — combined with the $200 million appropriation proposed for the coming fiscal year and a $100 million deposit made in the current budgetary year — would fund a half-year of Stay NJ benefits for the 2026 tax year, which includes the last six months of the 2026 fiscal year.

In future years, the program is expected to cost roughly $1.2 billion annually.

This all comes as New Jersey’s structural deficit is widening.

The proposed budget, expected to be finalized Friday, would spend about $2.1 billion more than it takes in through revenue in the coming fiscal year.

That structural deficit will expand to at least $3.6 billion in the next fiscal year after one-shot revenue from a $393 million diversion from the state’s debt defeasance fund and the dedication of a proposed corporate business surtax that is expected to bring $1 billion into the state’s general fund in the next fiscal year.

Language in the bill creating the new surtax would dedicate its revenue to NJ Transit starting in fiscal year 2026.

Lawmakers could narrow that deficit by raising taxes or reducing spending, but it’s not clear legislators would be willing to take either of those paths in 2025, when all 80 Assembly seats and the governorship come up for a vote.

Nor is it clear Gov. Phil Murphy, who is barred from seeking a third consecutive term as governor, would move to close the deficit his administration would leave to his successor.

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