Ways & Means debates proposed homestead exemption, JFO says change would cost about $45 million more

The House Ways & Means Committee on Oct. 12 debated replacing the current Education Fund property tax credit with a homestead exemption, focusing on who would qualify, how much the exemption would cost and how to limit its reach.

Julia Richter of the Joint Fiscal Office told the committee that draft 1.1 of the proposal — which applies the income-based exemption to the full house-site value with no cap — would “cost $45,000,000 more than the current property tax credit.” She described a version that caps the exempted portion of house-site value (for example, the first $400,000) that would reduce the additional cost to about $35,000,000 above current law.

Committee members repeatedly framed the choice as a policy decision about trade-offs between simplicity and cost. Representative Felder said he preferred an exemption to the existing credit because an exemption is simpler to administer and to understand. Representative Tinker and others emphasized concerns that a broadly applied exemption could subsidize very high-value homes whose owners report low income on paper.

Members pressed staff on three levers that drive cost: the household income bands that determine eligibility; the percentage of house-site value exempted for each band (for example, 70 percent for a $50,000 household in the draft); and a cap on how much house-site value may be exempted (for example, $400,000 or $500,000). Richter explained that lowering the cap reduces the cost because the exemption would not apply to property value above the cap.

Several lawmakers raised geographic equity concerns. Representative Oney said a single statewide cap would help homeowners in low-value areas but give less relative relief to homeowners in markets with high house-site values. Members asked whether modeling by county or district could show where benefits would flow; Richter said she could model specific scenarios but would need clear parameters and that some modeling (for example, separating K–12 outflows from the Education Fund) is limited by data availability and budget-accounting differences across districts.

Lawmakers also discussed funding sources. Richter said the proposal as drafted would replace existing education income sensitivity programs — currently about $150,000,000 in property tax credits — and increase the total foregone revenue to roughly $195,000,000 under the draft 1.1 no-cap scenario. She warned the committee that any additional foregone revenue must be made up elsewhere or the Education Fund would be short; members discussed raising taxes on non-eligible property owners, diverting other revenues into the Education Fund, or removing non-K–12 items from the Education Fund.

Members asked operational questions about administration and timing. Richter said the proposal would likely retain a look-back to prior-year income similar to current practice and that details on enrollment, attestations and clerical processes would need input from the Department of Taxes, which originally proposed a homestead exemption. Representative Volkow argued that recent choices to lower tax rates and add new costs to the Education Fund mean the committee should consider longer-term fiscal effects before expanding exemptions.

The committee did not vote on any bill or motion during the discussion. Members agreed that additional modeling and clearer policy choices are needed before the committee could act; some suggested a subcommittee or follow-up hearings to define parameters such as income bands, exemption percentages and house-site caps.

Ending: The matter remains under committee consideration. Staff from the Joint Fiscal Office will provide additional modeling if the committee supplies specific parameters; lawmakers indicated they may order more granular county- or district-level analyses and discuss potential funding offsets before returning to the topic.