Ways & Means reviews homestead exemption modeling in Education Finance draft

Julia Richter of the Joint Fiscal Office told the Ways & Means Committee that the office ran more granular modeling of the homestead exemption included in the Education Finance proposal (draft 1.1) and reviewed implications for households across income and house-site value bands.

The analysis, Richter said, uses fiscal-year 2025 data, projects 2024 income using consensus growth equations, and assumes the property tax credit is applied in the same year it is earned (no multi-year lag). Richter said the exemption in draft 1.1 is estimated to cost about $45,000,000 more than current law and that cost is sensitive to the property tax rates used in the model.

Richter said, “Essentially, it's an exemption of a certain portion of a household's property value from the homestead property tax that's based off of the household's income.” She described a stepped exemption that declines as household income rises, and she showed detailed tables broken into $5,000 income bins and $50,000 equalized house-site value bins to reveal where the largest counts fall.

The presentation identified a patch the staff called the “little white owl” — cells in the model where some households would see an increase in average liability under the proposal compared with current law. Richter emphasized that whether higher-income households are affected depends on how the $45,000,000 is financed: if that amount is raised outside of homestead property taxes, households with incomes above $115,000 would not be impacted; if the cost is raised by increasing homestead property tax rates, households above $115,000 would pay more because they are not eligible for the exemption.

John Rayoff of Legislative Council summarized how household income is defined in current law: “it basically tracks federal adjusted gross income, and then it makes a few modifications,” and he said Legislative Council would supply statutory text to committee members as requested.

Richter reported two key sizing results committee members pressed for: a tax-rate cut and house-site caps. Using the office model, she said the homestead tax rate would need to fall by approximately $0.26 (26 cents) to produce a decrease in the property tax bill for every homestead property; she noted that a 26-cent reduction equates to about $170,000,000 in FY 2026 scale and is separate from the $45,000,000 cost of the exemption. She also modeled limits on the house-site value that can receive the exemption: capping the exemption at $400,000 would reduce the draft's additional cost by about $10,000,000 (to an estimated $35,000,000 increase over current law); a $500,000 cap would reduce the cost by about $5,000,000 (to about $40,000,000).

Committee members asked follow-up questions about the policy choices and transition mechanics. Richter reminded the committee that current statutory thresholds shape current eligibility (examples referenced in the presentation: a circuit-breaker threshold around $47,000, a property tax credit calculation that changes at $90,000 of household income, and a phase-point near $115,000). She and committee members also discussed practical issues such as the existing lag in applying property tax credits (credits earned in one fiscal year typically appear on the next year’s bills) and whether the committee’s policy objective is to change structure, to preserve current liabilities, or to shift relief among household groups.

The committee did not vote. Members asked staff to provide additional, targeted examples from the “white-box” cells, and to return with modeling tied to specific policy directions (income limits, whether to set a house-site cap, and options for paying the incremental cost). The presentation materials were posted on the committee page, Richter said.