LEGISLATIVE FISCAL ESTIMATE
[Third Reprint]
SENATE, No. 538
STATE OF NEW JERSEY
218th LEGISLATURE
DATED: DECEMBER 20, 2018
SUMMARY
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Synopsis: |
Allows long term tax exemption for certain low-income housing. |
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Type of Impact: |
Indeterminate potential loss of local property tax revenue. |
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Agencies Affected: |
Local government units. |
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Office of Legislative Services Estimate |
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Fiscal Impact |
Year 1 |
Year 2 |
Year 3 |
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Local Revenue |
Indeterminate Potential Revenue Loss |
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· The Office of Legislative Services (OLS) estimates that the bill could result in a potential decrease in property tax revenues for certain affected local government units. The OLS notes that the bill is permissive and does not require any municipality to extend a property tax exemption granted to a State or federally subsidized housing project.
· Under current law, a property tax exemption may be granted to an affordable housing project for a maximum term of 35 years, or until a loan provided by the New Jersey Housing and Mortgage Finance Agency is fully paid. The bill permits a municipality to extend the tax exemption of a State or federally subsidized housing project if the project remains subject to affordability controls.
· If a municipality was to extend the tax exemption of a State or federally subsidized housing project, as permitted by the bill, the amount of foregone local revenue would be equal to the difference between: (1) the amount of the property tax collections that would have been paid to all taxing districts if the property were assessed for ad valorem taxation, and (2) the amount of the payment in-lieu of taxes paid to the municipality pursuant to the financial agreement governing the tax exemption.
· Given the permissive nature of the bill, the OLS is unable to determine the number of tax exemptions that would be extended as a result of the bill. The OLS therefore cannot quantify the fiscal impact of the bill on local finances.
BILL DESCRIPTION
The bill allows the governing body of a municipality to extend a long term tax exemption granted to certain low-income housing projects. Specifically, the bill provides that a municipality may extend the long term property tax exemption of any State or federally subsidized housing project, beyond the date on which the first mortgage financing is fully paid, so long as the project remains subject to affordability controls pursuant to: (1) a State or federal project-based rental assistance program, (2) the Uniform Housing Affordability Controls promulgated by the New Jersey Housing and Mortgage Finance Agency, or (3) the rent and income limits of the federal Low Income Housing Tax Credit program. Under the bill, the period of the extended tax exemption would be limited to the number of years in which the project remains subject to the affordability controls.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS estimates that the bill could result in a potential decrease in local property tax revenues for certain counties, municipalities, school districts, and special districts. The bill permits a municipality to extend the long term property tax exemption of certain State or federally subsidized housing projects that remain subject to affordability controls. If a municipality was to extend the tax exemption of a State or federally subsidized housing project, as permitted by the bill, then the affected local government units would forego the collection of those property tax revenues that would have been generated if the housing project was subject to regular ad valorem taxation.
The amount of foregone local revenue would be equal to the difference between: (1) the amount of property tax collections that would have been paid to all taxing districts if the property were assessed for ad valorem taxation; and (2) the amount of the payment in-lieu of taxes (PILOT) paid to the municipality pursuant to the financial agreement governing the tax exemption, as required under the “Long Term Tax Exemption Law.”
Given the permissive nature of the bill, the OLS is unable to determine the number of tax exemptions that would be extended as a result of the enactment of the bill. However, the following paragraphs provide additional information concerning the provision of long term tax exemptions to affordable housing projects under the “Long Term Tax Exemption Law” and the “New Jersey Housing and Mortgage Finance Agency Law of 1983.”
“Long Term Tax Exemption Law”
Generally, the “Long Term Tax Exemption Law” requires an urban renewal entity and a municipality to enter into a financial agreement to provide that the land and improvements in the project are exempt from property taxation. Instead of paying property taxes, the urban renewal entity is required to make a payment for municipal services; these payments are often referred to as payments in-lieu of taxes, or annual service charges. Five percent of this payment is required to be paid to the county in which the municipality is located; the remaining 95 percent of the payment is retained by the municipality.
The annual service charge is determined as follows: (1) a percentage of gross revenues of the project, which is to be not more than 15 percent for low- and moderate-income housing, and not less than 10 percent for other projects; or (2) a percentage of total project cost, not more than two percent for low- and moderate-income housing and not less than two percent for all other projects, if the annual gross revenue cannot be reasonably ascertained, or as decided by the municipality. In either case, this amount is charged for the initial stage of the exemption period, which lasts between the first six and 15 years of the exemption period. The amount of the annual service charge increases during each subsequent stage of the exemption period. The annual service charge may not be less than the total taxes paid during the last full year in which the property was subject to taxation.
Section 3 of P.L.1994, c.87 (C.40A:20-12.1) exempts qualified subsidized housing projects from the provisions of State law regarding minimum annual service charges and staged increases in the annual service charge. Additionally, section 4 of P.L.1994, c.87 (C.40A:20-13.1) provides that a qualified subsidized housing project may be exempted from taxation for such period of time as the federal agency subsidizing the project may require as a condition of the subsidy, instead of the maximum term of 35 years permitted under current law. The exemption from taxation may be extended for an additional period of time as may be required in order to secure a continuation of federal subsidies after the expiration of the initial subsidy period.
“New Jersey Housing and Mortgage Finance Agency Law of 1983”
Section 37 of P.L.1983, c.530 (C.55:14K-37) permits the governing body of a municipality in which a New Jersey Housing and Mortgage Finance Agency (NJHMFA) project is financed to exempt the project from taxation if the housing sponsor enters into an agreement with the municipality to make a PILOT for municipal services. The agreement may require a housing sponsor to pay the municipality an amount not more than 20 percent of the annual gross revenue from each housing project situated in the municipality for each year of operation following substantial completion of the project. If the housing sponsor and the municipality enter into an exemption agreement from the date of recording the mortgage on the project to the date of substantial completion of the project, the annual PILOT may not exceed the amount of taxes assessed on the project site for the year preceding the recording of the mortgage. The tax exemption cannot extend beyond the date on which the NJHMFA loan is paid in full. Current law does not allow for an extension of the PILOT agreement beyond the mortgage term for these types of non-profit housing sponsors.
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Section: |
Local Government |
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Analyst: |
Assistant Research Analyst |
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Approved: |
Frank W. Haines III Legislative Budget and Finance Officer |
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).