Shifting the Load: The Potential Impact of Property-Tax Relief for New Hampshire's Seniors
Date: February 1st, 2005
New Hampshire’s heavy and growing reliance on property taxes creates a financial challenge for homeowners with modest incomes, particularly if their incomes are fixed or falling. Lower-income retirees are one group that may experience a cash flow problem when property taxes are due. The legislature, municipalities, and even the federal government, have created a suite of programs to reduce seniors’ property-tax bills or to help seniors use the equity in their homes to pay their taxes.
One of these programs—New Hampshire’s property-tax exemptions for seniors—has the drawback of shifting costs onto other property-tax payers, including homeowners with even lower incomes who happen to be less than 65 years of age. That program is growing rapidly, as is the proportion of New Hampshire residents over the age of 65, heightening the need to attend to the impact of tax shifting at the local level. This paper examines in detail the costs and effects of the property-tax exemption program for seniors.
The state of New Hampshire requires towns to grant tax breaks to their older home-owning residents of modest means and authorizes towns to increase the level of relief beyond the statutory minimum by vote of the local legislative body. In 2003, senior tax exemptions shifted $16 million in taxes from people over age 65 onto the other property-tax payers. That total is likely to grow by more than 9.5 percent in the 2004 tax year, to at least $17.6 million—largely because 46 municipalities increased the size of their exemptions and most towns increased their tax rates. In 2003, 11,633 senior households claimed the exemptions. If more households claimed exemptions in 2004, as is likely, the actual cost of the exemptions will exceed the $17.6 million projection.
City councils and voters at town meetings over the last four years have voted to exceed the state’s minimum requirements and have adopted substantially more generous property-tax breaks than the law requires. In many towns, only those with relatively low incomes and few liquid assets qualify for the tax exemption. In other towns, however, the tax advantages are not limited to low-income retirees. Thirty-two towns grant tax exemptions to senior couples with annual incomes over $40,000; 24 towns grant tax exemptions to seniors owning assets of $125,000 or more, exclusive of their homes.
This paper reports on how towns have implemented and adapted the senior property-tax exemption program and provides a table showing each town’s eligibility criteria, the number of exemptions granted in each town, the cost of those exemptions, and the average value of the exemptions to the recipients in each town. The paper shows how towns have made the program more generous in recent years and provides basic information that should be useful to town-meeting voters considering local budgets and warrant articles to increase tax exemptions for seniors.
Finally, the paper shows how the exemption program dovetails with state-authorized “deferral liens,” which allow seniors to pay no taxes while they own their homes, and the federally subsidized program of “reverse mortgages,” which generate income for seniors with equity in their homes.
The paper notes that seniors and others below an income threshold have been eligible for a refund of the “state share” of their local property tax bills. In 2003, more than 27,000 home owners claimed that refund at a cost to state government of more than $7.5 million. If New Hampshire eliminates the statewide property tax, as proposed by Governor John Lynch, those refunds will no longer be available to either seniors or others of low to moderate income.
The generational equity issues raised in this paper will become more important and contentious in the future because over the next decade (2005 to 2015), the number of New Hampshire residents aged 65 to 74 is projected to nearly double: a 91 percent increase in New Hampshire, compared to a 43 percent increase nationwide. The paper concludes with a caution: property-tax policies and housing developments that increasingly favor seniors over younger residents and working families may actually accelerate the graying of New Hampshire.