Senate committee weighs homestead exemption options in H.454 after models show $45 million gap

Members of a Senate committee reviewed modeling of the homestead (house-site) exemption included in House bill H.454, focusing on who would benefit, how much the change would cost and options to limit that cost. Julia Richter, Joint Fiscal Office, told the committee that the House version of the exemption “is estimated to cost approximately 45,000,000 more than income sensitivity under current law.”

Why it matters: the homestead/house-site exemption changes how a portion of the principal dwelling’s value is excluded from the property tax base. Committee members said the proposal as drafted would shift some costs onto taxpayers who do not receive exemptions and could increase statewide property-tax rates unless offsets or caps are adopted.

The modeling and the proposals: Richter presented the Joint Fiscal Office’s slide deck and underlying data, explaining the administration’s earlier tiered proposal and the House’s H.454 alternative. Under the administration’s original framework, lower-income households would receive larger percentage exemptions (for example, an income threshold at about $47,000 was mentioned), with stepped reductions at higher household-income thresholds such as $90,000 and $115,000. The House proposal retains income-based steps but changes the percentage levels and does not include an explicit dollar cap or a senior-specific extra 10% exemption; Richter said that change “is estimated to cost approximately 45,000,000 more than income sensitivity under current law.”

Committee members and staff discussed two levers to reduce that additional cost: lowering the top-percentage exemption (the House used a 95% top level in its draft) and adding a house-site cap. Richter said she had modeled a $400,000 cap on the value eligible for exemption and estimated it would reduce the additional cost by about $10 million (bringing the incremental cost from roughly $45 million to roughly $35 million). She reported that a $500,000 cap would save less (about $5 million in the modeling she showed). Richter also confirmed she could run scenarios that lower the top-percentage exemption (for example, using a 60% or 70% starting point instead of 95%) and show the combined effect with a cap.

Technical constraints and uncertainty: Richter and Jake Feldman, Department of Taxes, cautioned that the modeling depends on assumptions about tax rates and on district boundaries that have not yet been finalized. As Richter put it, “the cost of the exemption is dependent on the tax rates” and the numbers will change once districts and the foundation formula parameters are set. Feldman explained that the administration’s initial proposal attempted to avoid a large “cliff” at the $90,000 income threshold; the House bill instead builds a stair-step approach to smooth that transition, which reduces the number of households who would see increases but raises the program’s cost.

Equity and design trade-offs: committee members repeatedly urged avoiding hard cliffs (sudden large changes at a single income threshold) and discussed whether the program should include a senior-specific additional exemption (a 10% boost for seniors was raised as a possibility) and a dollar cap on the amount of house-site value eligible for exemption. Several senators argued for a capped, stepped design that would be roughly cost-neutral to the current property tax credit (PTC) rather than expanding overall program cost.

Committee direction and next steps: without taking a formal vote, members asked Richter and Tax Department staff to model additional scenarios for the committee’s next meeting. Specifically they requested scenarios that aim to be cost-neutral relative to the current property-tax-credit program, include a $400,000 cap option, and evaluate lower top-percentage starts (for example, 60–80% rather than 95%), and to show the fiscal and distributional impacts including a potential 10% senior enhancement. Richter agreed to produce updated modeling early next week and noted the committee will need to rerun calculations once districts are set and a foundation formula is finalized.

No formal policy decision or vote was recorded during this session; the committee framed the next week’s work as modeling and deliberation to provide options for any change to H.454.