Ways & Means reviews Act 73 homestead exemption, JFO flags $35 million FY25 cost estimate
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Summary
Joint Fiscal Office staff told the Ways & Means committee that Act 73 would replace the current property tax credit with a tiered homestead exemption (indexed to inflation, capped at $425,000), and that JFO modeling using FY2025 data estimated roughly $35 million more net cost in FY2025 compared with current law.
Julia Richter of the Joint Fiscal Office briefed the Ways & Means committee on Act 73’s new homestead exemption, saying the statute repeals the existing property tax credit and replaces it with an income‑sensitive exemption tied to house‑site value.
“Act 73 repeals the property tax credit in its current form and establishes the homestead exemption as the new form of income sensitivity,” Richter said. She described a system that exempts a portion of a claimant’s house‑site value only against the first $425,000 (adjusted annually for inflation), with the exemption percentage stepping down as household income rises.
Richter gave concrete examples and modeling results the office used: households with very low income would receive the largest percentage exemption (her slides showed a household with $10,000 income could exempt roughly 95% of the first $425,000), while higher‑income households would see smaller or no exemptions. Richter told the committee that JFO’s modeling—based on FY2025 data and limited to filers eligible under the old property‑tax‑credit rules—estimated the homestead exemption would cost about $35 million more than the current property tax credit in fiscal year 2025.
The committee pressed JFO on modeling limits and data availability. Richter said the tax department owns the underlying filer records and that JFO used only data on current filers because household income is not collected for people who do not claim the credit. She cautioned these modeling assumptions have not been updated since last session and recommended follow‑up work: a tax‑department mapping, updated modeling using expanded data if available, and a required tax department report that staff expect to deliver next fall.
Members raised concerns about incentives created by thresholds and asked whether the package would shift burdens across districts or create undesired behavioral responses. One committee member noted, “anytime you create a threshold, you incentivize behavior,” and urged that thresholds be aligned across policies. Richter and others said the change still represents a significant improvement over the current system but flagged implementation trade‑offs and the need for further analysis.
The committee did not take formal action during the briefing. Richter directed members to links in her slide deck (fiscal notes and more detailed charts) and said JFO will share the RFP and scope for upcoming work. The office also confirmed a larger JFO report on the foundation formula and related cost studies is due December 2026.
