Older New Jersey Homeowners to Get a $6,500 Property Tax Cut

New Jersey has some of the highest property taxes in the country, a fact often cited by older residents who choose to sell their homes to either downsize or move out of state.

But on Wednesday, Democratic legislative leaders plan to join with the governor to announce a final deal on a sweeping plan to drastically reduce those taxes for nearly all homeowners 65 and older.

Most older homeowners would see their property tax bills cut in half, with a maximum benefit of $6,500. The agreement still must be approved as part of a proposed $53 billion budget, which is due July 1, but passage in the Democrat-led Legislature is considered likely.

Under the program, known as StayNJ, any homeowner 65 or older with an annual income of $500,000 or less would be eligible for the tax cut starting in January 2026.

“This is really a chance to do something transformative,” Craig J. Coughlin, the Democratic leader of the State Assembly who first proposed the framework for StayNJ last month, said late Tuesday in an interview.

“We have the opportunity to do a little bit more to make New Jersey the best place for seniors to retire in — with the family that they love, in the town that they helped to build,” he added.

The reduction if enacted would represent one of the largest tax cuts in state history.

Its roughly $1.3 billion annual price tag and the absence of a permanent funding source — as well as its potential to undermine New Jersey’s newly improved credit rating — were stumbling blocks that had threatened to scuttle the deal after all-night negotiations ended without consensus early Tuesday.

Leaders are meeting early Wednesday to fine-tune bill language, according to people involved in the negotiations, and the governor’s schedule includes an afternoon announcement at the State House with Mr. Coughlin and the Senate president, Nicholas Scutari.

The governor’s office declined to comment, citing the formal announcement on Wednesday.

When Mr. Coughlin proposed StayNJ, unleashing a month of often contentious negotiations, the plan had no qualifying income limit and would have permitted older homeowners to slash their property tax bills by as much as $10,000.

Gov. Philip D. Murphy, a Democrat, and his aides were at first strenuously opposed to the concept, arguing that taxpayer funds should not be used to benefit the state’s wealthiest residents — including multimillionaires like himself and his wife — at the expense of poorer renters.

It became a source of tension during budget negotiations after several of Mr. Murphy’s closest aides publicly questioned the wisdom of the plan. Mr. Murphy even suggested he would be willing to endure a government shutdown over the proposal — a stalemate last seen in New Jersey in 2017, when former Gov. Chris Christie was photographed lounging on a state beach closed to the public over Fourth of July weekend.

William Glasgall, senior director of public finance at the Volcker Alliance, a nonprofit founded by the former Federal Reserve Board chairman, Paul A. Volcker, said tax cuts, once implemented, are difficult to undo — even if funding dries up.

“It really just puts the bite on the whole tax base of the state,” Mr. Glasgall said. “That’s not really a solution. It just moves the money around.”

The scaled-down consensus plan includes an extra $250 annual rebate for most renters. The rental benefit, as well as the income threshold and $6,500 savings cap, made the proposal more palatable to Mr. Murphy, according to aides involved in the negotiations. The plan also includes nonbinding language that seeks to safeguard the state’s budget surplus and its commitment to fully fund its pension obligations, even in the event of an economic downturn, officials said.

New Jersey homeowners pay the highest property taxes of any state in the country, according to an analysis by the Tax Foundation, a nonprofit based in Washington. Last year, the average property tax bill was $9,490, state records show, although homeowners in many of the state’s most affluent communities paid far more.

Some owners are currently eligible to apply for rebates of $1,500 through a program known as ANCHOR, which the governor and his Democratic allies in the Assembly and Senate have championed. Only families with income of less than $250,000 qualify.

StayNJ is instead designed to reach virtually all but New Jersey’s wealthiest older residents, though close to 85 percent of recipients are expected to have incomes of less than $200,000, legislative aides said.

State leaders plan to set aside $600,000 over the next three years to begin to pay for the first year of the tax cut and may allocate unspent federal Covid-19 stimulus funds to do so, according to officials involved in the negotiations. Future legislatures would have to commit to maintain the tax cut after Mr. Murphy’s second term ends in 2026.

The governor’s support for StayNJ comes as a 2.5 percent business surcharge for companies with net incomes of more than $1 million is also set to expire. Left-leaning groups have urged Mr. Murphy to keep it in place, including some organizations now strongly opposed to StayNJ.

New Jersey Policy Perspective, a nonpartisan think tank, released an analysis of the original StayNJ proposal that found it would only reinforce the already stark racial wealth gap in the state.

Peter Chen, a senior policy adviser with the think tank, called StayNJ a “giant transfer of wealth to older homeowners” and said it “definitely” made the racial wealth gap worse.

He also questioned giving a break to older high earners.

“If you’re earning $400,000 when you’re over 65, you should be able to pay your property taxes,” he said, “without government assistance.”

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