Sharp Drop in Spending for Homestead Credit Highlights Need for Targeted Property Tax Relief
Low-income Families Contribute to the Surplus as Support for Their Tax Relief Dwindles
One of the factors contributing to a larger-than-anticipated state budget surplus is a decline of about $11 million in spending for the Homestead tax credit in fiscal year 2012-13. Considering how the surplus was bolstered by that spending reduction, and also by a sharp cut in state General Fund support for the Earned Income Tax Credit, it’s very disappointing that the large tax cuts enacted this year have done little if anything to help low-income households.
One of the major reasons for the 8.4% decline in state spending for the Homestead tax credit last year is that the 2011-13 biennial budget repealed the practice of annually adjusting the Homestead credit formula for inflation. As a result, increases in household income are gradually making people ineligible for the credit or reducing the size of the credits they receive. (Read more about that in this short Budget Project paper.)
A chart in this WCCF blog post by Tamarine Cornelius illustrates that the cost of Homestead credits declined by $10.9 million from fiscal year 2012 to FY 2013, and was $10.4 million less last year than the amount that had been set aside. As Tamarine pointed out, the potentially good news is that:
The sharp decline in spending means that the legislature could lift the freeze on the Homestead Tax Credit formula and give greater property tax relief to low-income owners and renters, possibly without actually spending any more money than originally anticipated.
The annual report on the Homestead credit, which was released this week by the Department of Revenue, illustrates how the Homestead credit is declining:
- The number of households that received a Homestead credit has plunged by more than 18,000 over the last two years, including a drop of about 15,300 (6.2%) in fiscal year 2013.
- The average credit, now $523, dropped $13 or 2.4% last year.
- By my calculations, the inflation-adjusted value of the average credit has fallen by 21% over the last 10 years.
- Many of the recipients of the credit are elderly, and about half of the income of credit recipients is from Social Security and pensions.
Low-income households, especially renters, will get little of the benefit from the property tax relief bill being rushed through the legislature this week. A small but important way to help remedy that deficiency would be to treat the Homestead credit like most of the rest of the tax code by annually adjusting it for inflation.