Shifting the Load: Costs, Effects, and the Potential Impact of Property-Tax Relief for New Hampshire s Seniors. Author: Richard A. Minard, Jr.

to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire s future. One Eagle Square Suite 510 Concord, NH 03301-4903 (603) 226-2500 Fax: (603) 226-3676 www.nhpolicy.org Board of Directors Martin L. Gross, Chair John B. Andrews Cotton M. Cleveland John D. Crosier Todd I. Selig Donna Sytek Georgie A. Thomas James E. Tibbetts Kimon S. Zachos Shifting the Load: Costs, Effects, and the Potential Impact of Property-Tax Relief for New Hampshire s Seniors Author: Richard A. Minard, Jr. Co-Executive Director Co-Executive Directors Douglas E. Hall (603) 798-5579 doughall@nhpolicy.org Richard A. Minard, Jr. (603) 226-2500 rminard@nhpolicy.org February 2005

About this paper Shifting the Load is the first research paper produced by the NH Center for Public Policy Studies focusing on the cross-cutting issue of generational equity. At the national level, generational equity is at the heart of the debate over Social Security reform. Here in New Hampshire, the issue plays out in many arenas, including property taxes and local zoning regulations. This report focuses on property-tax relief for senior citizens, but the analysis spans several areas that have been at the core of the Center s research agenda: local governance, education finance, and housing. The Center has produced this report with funds donated by individuals, foundations, and businesses around New Hampshire. The Center s supporters do not necessarily endorse, nor has the Center asked them to endorse, any of the findings in this report. This paper, like all of the Center s published work, is in the public domain and may be reproduced without permission. Indeed, the Center welcomes individuals and groups efforts to expand the paper s circulation. Copies are also available at no charge on the Center s web site: www.nhpolicy.org Contact the Center at info@nhpolicy.org; or call 603-226-2500. Write to: NHCPPS, 1 Eagle Square, Suite 510, Concord NH 03301

Shifting the Load: Costs, Effects, and Potential Impact of Property-Tax Relief for New Hampshire s Seniors By Richard A. Minard, Jr. Co-Executive Director Contents 1. Summary... 1 2. Tax Exemptions for Senior Homeowners... 2 3. Towns Increase Exemptions and Expand Eligibility... 4 4. Who Receives and Who Pays... 9 5. Other Tax-Reduction Programs for Seniors and Others... 13 A. Tax Deferral Liens... 14 B. Reverse Mortgages... 14 C. Statewide Property Tax Refunds... 15 6. Conclusions... 17 7. Town-by-Town Exemptions, Costs, and Effects... 18 Tables Table 1: Towns are spending more to reduce seniors property taxes... 3 Table 2: 18 of the 20 highest exemptions in 2003 had been set since 2000... 6 Table 3: Income limits reach $60,000 per year... 9 Table 4: Asset limits reach $300,000... 9 Table 5: Summary of changes in size of exemptions and eligibility criteria... 9 Table 6: Equalized exemptions may exceed the value of a median-priced home... 10 Table 7: How exemptions affect Stratford and Rye, 2003... 11 Table 8: The 15 towns where exemptions had the biggest impact, 2003... 12 Table 9: 5.7 % of NH households received statewide property tax relief in 2003... 16 Table 10: Town-by-town data on senior tax exemptions... 18 Figures Figure 1: The number of households filing first-time requests for exemptions is growing rapidly3 Figure 2: Municipalities have adopted a wide range of exemptions for seniors... 5 Figure 3: 123 towns have increased their exemptions since 2000... 7 Figure 4: Towns with higher eligibility limits on income tend to have higher limits on assets... 8 Figure 5: In most communities, exemptions shift less than 1 percent of tax revenues... 12 Figure 6: Local senior exemptions reduce taxes more than the state s income-based refunds... 16

Shifting the Load 1. Summary New Hampshire s heavy and growing reliance on property taxes creates a financial challenge for homeowners with modest incomes, particularly if their incomes are fixed or falling. Lowerincome retirees are one group that may experience a cash flow problem when property taxes are due. The legislature, municipalities, and even the federal government, have created a suite of programs to reduce seniors property-tax bills or to help seniors use the equity in their homes to pay their taxes. One of these programs New Hampshire s property-tax exemptions for seniors has the drawback of shifting costs onto other property-tax payers, including homeowners with even lower incomes who happen to be less than 65 years of age. That program is growing rapidly, as is the proportion of New Hampshire residents over the age of 65, heightening the need to attend to the impact of tax shifting at the local level. This paper examines in detail the costs and effects of the property-tax exemption program for seniors. The state of New Hampshire requires towns to grant s to their older home-owning residents of modest means and authorizes towns to increase the level of relief beyond the statutory minimum by vote of the local legislative body. In 2003, senior tax exemptions shifted $16 million in taxes from people over age 65 onto the other property-tax payers. That total is likely to grow by more than 9.5 percent in the 2004 tax year, to at least $17.6 million largely because 46 municipalities increased the size of their exemptions and most towns increased their tax rates. In 2003, 11,633 senior households claimed the exemptions. If more households claimed exemptions in 2004, as is likely, the actual cost of the exemptions will exceed the $17.6 million projection. 1 City councils and voters at town meetings over the last four years have voted to exceed the state s minimum requirements and have adopted substantially more generous property-s than the law requires. In many towns, only those with relatively low incomes and few liquid assets qualify for the tax exemption. In other towns, however, the tax advantages are not limited to low-income retirees. Thirty-two towns grant tax exemptions to senior couples with annual incomes over $40,000; 24 towns grant tax exemptions to seniors owning assets of $125,000 or more, exclusive of their homes. 2 This paper reports on how towns have implemented and adapted the senior property-tax exemption program and provides a table showing each town s eligibility criteria, the number of exemptions granted in each town, the cost of those exemptions, and the value of the 1 The NH Department of Revenue Administration will report on the number of exemptions claimed in 2004 and the total cost of those exemptions in May 2005. The Center s projection is explained in section 3 of this paper. 2 All data in this report are from two sources: the New Hampshire Department of Revenue Administration s web site, which includes property tax data by town, and the US Census web site, which includes income, home value, and demographic data by town for the 2000 Census. DRA has posted the exemption and income limits for towns through 2004. The most recent data on the number of exemptions towns have granted and the cost of those exemptions are from 2003.

Shifting the Load: Property-Tax Relief for NH s Seniors 2 exemptions to the recipients in each town. The paper shows how towns have made the program more generous in recent years and provides basic information that should be useful to townmeeting voters considering local budgets and warrant articles to increase tax exemptions for seniors. Finally, the paper shows how the exemption program dovetails with state-authorized deferral liens, which allow seniors to pay no taxes while they own their homes, and the federally subsidized program of reverse mortgages, which generate income for seniors with equity in their homes. The paper notes that seniors and others below an income threshold have been eligible for a refund of the state share of their local property tax bills. In 2003, more than 27,000 home owners claimed that refund at a cost to state government of more than $7.5 million. If New Hampshire eliminates the statewide property tax, as proposed by Governor John Lynch, those refunds will no longer be available to either seniors or others of low to moderate income. The generational equity issues raised in this paper will become more important and contentious in the future because over the next decade (2005 to 2015), the number of New Hampshire residents aged 65 to 74 is projected to nearly double: a 91 percent increase in New Hampshire, compared to a 43 percent increase nationwide. 3 The paper concludes with a caution: propertytax policies and housing developments that increasingly favor seniors over younger residents and working families may actually accelerate the graying of New Hampshire. 2. Tax Exemptions for Senior Homeowners State law requires every town to grant a property-tax exemption to qualifying seniors who have been New Hampshire residents for at least five years. The statute RSA 72:39 sets a floor for those exemptions and allows towns to adopt more generous exemptions. The law also sets minimum eligibility criteria, based on the homeowner s income and assets. Towns may adopt more expansive criteria to allow more affluent homeowners to qualify for the exemption. The state does not compensate towns for their exemptions. Rather, the property taxes not collected from qualifying seniors are shifted onto all other taxpayers in that community. The exemption is the amount of assessed valuation that a homeowner is allowed to subtract from the property s assessment. The state s minimum exemption value is $5,000. For a house assessed at $100,000, a $5,000 exemption would reduce the tax bill by 5 percent. If the house is assessed at $200,000, a $5,000 exemption would reduce the tax bill by 2.5 percent. The law allows towns to set separate exemption values for people in three age groups: 65 to 74; 75 to 79; and 80+. Most towns increase the value of the exemptions for their older residents. An 80-yearold resident of Exeter, for example, with a home assessed at $400,000 would see his tax bill reduced by half because the first $200,000 of the home s value would be exempt. The minimum eligibility criteria established in law require towns to grant exemptions to single senior homeowners if their net income is $13,400 or less, and to married senior homeowners if 3 Peter Francese, presentation to Leadership New Hampshire, October 2004, based on projections from the NH Office of Energy and Planning, and US Census data. Francese is the director of demographic forecasts for the New England Economic Partnership.

Shifting the Load: Property-Tax Relief for NH s Seniors 3 their combined income is $20,400 or less. Seniors may hold assets excluding the value of their home and at least two acres of land worth at least $35,000 and still qualify for the tax exemption. New Hampshire s cities and towns granted senior tax exemptions to 11,663 households in 2003, an increase of only 3 percent since 2000. The number of new applicants for exemptions, however, grew by 53 percent between 2000 and 2003, as illustrated in Figure 1. That growth occurred across all three age groups eligible for exemptions. Applications by those aged 65 to 74 jumped by 70 percent; by those aged 75 to 79 by 62 percent; and by those 80 or older, by 16 percent. Figure 1: The number of households filing first-time requests for exemptions is growing rapidly New Applications for Exemptions, by Age Group, 2000-2003 1,200 1,000 800 212 Number of Applicants 600 182 121 176 179 249 80+ 75-79 65-74 400 154 153 200 450 528 310 286 0 2000 2001 2002 2003 Table 1: Towns are spending more to reduce seniors property taxes number of exemptions statewide % change from previous year tax expenditure statewide % change from previous year per recipient % change from previous year 2000 11,306 $11,790,112 $ 1,043 2001 11,256-0.4% $13,228,659 12.2% $ 1,175 12.7% 2002 11,215-0.4% $14,119,392 6.7% $ 1,259 7.1% 2003 11,663 4.0% $16,085,368 13.9% $ 1,379 9.5% 2004 projection Assume no change Assume no change $17,612,793 9.5% $1,510 9.5%

Shifting the Load: Property-Tax Relief for NH s Seniors 4 Table 1 summarizes the data, showing how many households received senior tax exemptions from 2000 to 2003, how much those exemptions cost towns in aggregate as tax expenditures, and how much each senior household received, on, as a. Not only has the number of people applying for exemptions increased since 2000, but so has the size of the exemption. More applicants and larger individual tax reductions mean a growing cost in aggregate. The final row in Table 1 is a projection for 2004 based on the data that are currently available for that year: tax rates and exemption limits for each town. 4 The Department of Revenue Administration has not yet published figures showing how many exemptions each town granted in 2004, so the projection assumes no change in participation from 2003. The higher exemption limits adopted by towns last year, coupled with higher tax rates, will drive up the total cost of the program by 9.5 percent even if towns grant no new exemptions or move anyone up to the next highest and more expensive age grouping. 3. Towns Increase Exemptions and Expand Eligibility Half of New Hampshire towns have increased their senior exemptions and expanded their eligibility criteria in recent years. The impetus for the increases has probably been the rapid increase in real estate values and property revaluations. The result has broadened the gap between the largest and smallest exemptions. The most generous towns offer exemptions 70 times larger than the least. Eleven communities, including Colebrook, Bath, and Surry, still offer the minimum $5,000 exemption for seniors of any age. There were 17 such towns in 2000. 5 Most towns have adopted a three-tiered approach with larger exemptions available to older residents. The most frequently used set of exemptions in 2004 allowed qualifying seniors to exempt either $10,000, $15,000, or $20,000 in assessed value, depending on whether they were aged 65 to 74, 75 to 79, or 80 and above, respectively. To provide an accurate comparison of towns exemptions, this analysis first equalizes them. 6 To see why, consider homeowners in two towns. Each owns a house assessed at $150,000 and each is allowed to exempt $50,000 from his property value, reducing his taxes by 33 percent. Assume that Town A had just re-assessed its properties, assuring that the homeowner s home is actually worth $150,000 on the market. The exemption reduces his taxable property value by $50,000 (one-third). Town B hasn t had a revaluation in years, so assume that although the assessed value of the home is $150,000, the market value is actually $300,000. The exemption, although nominally worth $50,000 must have a market value of $100,000 because it still reduces the homeowner s taxes by one third. 4 The tax rates used for the 2004 projects were those posted on January 28, 2005. 5 The Department of Revenue Administration s website includes two reports summarizing town data from 2000, an assessment report, and an elderly exemption report. The reports contain about a dozen minor discrepancies in towns exemption limits for 2000; this analysis uses the figures that appear the most likely in light of the 2001 exemptions. 6 Equalization ratios are available for 2003, but not yet for 2004. In comparisons where equalization is important, this report uses 2003 data; in other areas, it uses 2004 data. All graphs and tables are clearly labeled.

Shifting the Load: Property-Tax Relief for NH s Seniors 5 Figure 2 illustrates the variations in equalized exemption values across the state in 2003: each town is represented by a vertical line; the bottom of the line starts at the town s minimum exemption (usually available to those aged 65 to 74); the top of the line ends at the maximum exemption allowed (usually for those aged 80 and above). The horizontal dashes show where each town has set its exemption for the middle group: seniors aged 75-79. In Figure 2, the towns are arranged from the lowest to highest equalized exemption available to seniors in the middle group, a range extending from $6,024 to $324,014 in 2003. Sixty-five municipalities increased their exemptions between 2000 and 2003, and 77 municipalities did so for the 2004 tax year. Towns in the first wave tended to among the most generous. Of the 50 municipalities with the highest equalized exemptions in 2003, 36 had increased them in the previous three years. Towns in the more recent wave of adjustments, those that went into effect in 2004, included many of the communities that had offered relatively low exemptions. The top 20 most generous equalized exemptions in 2003 for those aged 65-74 are shown in Table 2. The figures in the three columns on the left are the equalized exemptions; the figures on the right are the nominal exemptions that qualifying homeowners may subtract from the assessed value of their house before applying the local tax rate. Figure 2: Municipalities have adopted a wide range of exemptions for seniors Senior Property Tax Exemptions, 2003 Equalized Portion of Assessed Valuation Exempted by Each Town for Different Age Groups $450,000 $400,000 Assessed valuation exempt for qualifying seniors $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 Each town is represented by a vertical line: * the bottom of the line is the exemption value for seniors age 65-74 * the broken horizontal line is the exemption value for those age 75-79 * the top of the line is the value for seniors age 80+ The minimum exemption allowed by law is $5,000 $50,000 $0 Towns arranged from lowest to highest equalized exemption for those aged 75-79

Shifting the Load: Property-Tax Relief for NH s Seniors 6 The most generous exemptions in the state are offered by the towns of Windham and Pelham. 7 The former exempts 100 percent of eligible residents property taxes if they are 80 or more years old; the latter does the same for eligible residents 75 or older. Weare has the highest specified exemption: $250,000 for residents 80 or older, and because of the town s low equalization ratio, the equalized value of that $250,000 in 2003 was $421,585. (Pelham and Weare do not appear in Table 2 because their exemptions for residents aged 65-74 are not among the 20 highest in the state.) Table 2: 18 of the 20 highest exemptions in 2003 had been set since 2000 Top 20 most generous exemptions (for those aged 65-74) (2003, in dollars) 2003 equalized 2003 nominal 65-74 75-79 80+ 65-74 75-79 80+ HOLLIS 137,969 165,563 193,157 125,000 150,000 175,000 PORTSMOUTH 134,553 188,375 242,196 125,000 175,000 225,000 HAMPSTEAD 127,334 169,779 212,224 75,000 100,000 125,000 LYME 123,288 171,233 219,178 90,000 125,000 160,000 NEW CASTLE 120,627 180,941 180,941 100,000 150,000 150,000 NASHUA 116,110 145,138 181,422 80,000 100,000 125,000 BOW 109,756 134,146 158,537 90,000 110,000 130,000 MANCHESTER 107,527 145,929 192,012 70,000 95,000 125,000 WINDHAM 106,952 133,690 307,620 80,000 100,000 230,100 EXETER 104,275 130,344 156,413 100,000 125,000 150,000 S. HAMPTON 102,740 125,571 136,986 90,000 110,000 120,000 DERRY 102,256 151,880 203,008 68,000 101,000 135,000 PLAISTOW 101,266 139,241 177,215 80,000 110,000 140,000 LONDONDERRY 100,000 125,000 166,667 78,000 97,500 130,000 RYE 99,734 119,681 139,628 75,000 90,000 105,000 SEABROOK 94,760 111,483 139,353 85,000 100,000 125,000 HAMPTON FALLS 94,637 115,668 136,698 90,000 110,000 130,000 HUDSON 91,799 110,159 140,759 75,000 90,000 115,000 DANVILLE 87,891 126,953 156,250 45,000 65,000 80,000 RINDGE 87,260 122,164 174,520 50,000 70,000 100,000 Towns have dramatically increased the nominal value of their exemptions over the last four years, as illustrated in Figure 3. The vertical lines in the graph show the range of exemptions available in 2000; the small diamonds above the lines show each town s 2004 exemption for seniors aged 75-79. (This graph captures only the changes in the nominal value of the exemptions, not the equalized value.) Most, but not all, towns with exemptions restrict the tax advantages to those seniors who are deemed deserving because their income and/or assets are below a specified level. State law requires towns to give exemptions to senior homeowners who meet the following test: 7 Two of the tallest bars in Figure 2 are for Pelham and Windham which exempt 100 percent of the property s value for those age 75 or 80+, respectively. For graphing and calculation purposes, this paper assumes that the maximum value of a qualifying home is priced at the median home price in those towns in 2000 ($172,700 in Pelham and $230,100 in Windham), though it is possible that homeowners with properties worth much more will pay no tax.

Shifting the Load: Property-Tax Relief for NH s Seniors 7 income: less than $13,400 for a single homeowner; less than $20,400 for a married couple assets: less than $35,000, excluding the value of the home and at least two acres. (Towns do not have separate income or asset limits for the three age groupings designated for exemptions.) Figure 3: 123 towns have increased their exemptions since 2000 $300,000 Senior Property Tax Exemptions, 2000-2004 Portion of Assessed Valuation Exempted by Each Town for Different Age Groups Assessed valuation exempt for qualifying seniors $250,000 $200,000 $150,000 $100,000 $50,000 Each town is represented by a vertical line: * the bottom of the line is the exemption value for seniors age 65-74 * the broken horizontal line is the exemption value for those age 75-79 * the top of the line is the value for seniors age 80+ The diamonds show each town's 2004 exemption for those age 75-79 $0 Towns arranged from lowest to highest exemption for those 75-79 Forty-seven communities have retained those income limits and 79 have retained the asset limits. Most communities, however, have adopted much higher limits, allowing more people with more income and assets to qualify for the tax exemption. Figure 4 illustrates the range of income and asset limits and shows that towns with more generous income limits tend to have more generous asset limits as well. The bottom two lines on the graph track the income limits for single homeowners and married couples. The top line tracks the maximum value of assets the household is allowed to own while still qualifying for the exemption. The median values of the towns income limits are $19,000 for single homeowners and $27,000 for married couples. The highest specified limits in the state are $50,000 and $60,000, respectively. In 2003, the state s median household income was $55,166. Many towns use a limit of $40,000 per couple, which is 73 percent of the state s median income. In other words, many towns have chosen to provide the tax exemptions to seniors whose incomes are fairly typical of the state as a whole. The highest income limits exceed the state s median income, making exemptions available to couples in the wealthier half of the population.

Shifting the Load: Property-Tax Relief for NH s Seniors 8 Figure 4: Towns with higher eligibility limits on income tend to have higher limits on assets Asset and Income Limits to Qualify for Elderly Property Tax Exemptions, 2004 $300,000 $250,000 Hooksett is off the chart because it has no limit on the amount of assets a homeowner may hold and still qualify for an exemption. $200,000 Asset limits: To qualify, assets excluding the property must be less than the amount indicated by the top line. $150,000 Income limits: To qualify, income must be below the specified level. Limits are higher for married couples (middle line) than for singles (bottom line). $100,000 $50,000 $0 233 towns arranged from lowest to highest income limit for a single homeowner over 65 The most frequently used asset limit is $35,000, but three towns (Candia, Chester, and Litchfield) grant seniors s even if they have $300,000 in assets at their disposal. Hooksett places no limit on the homeowners assets. By law, the asset limits do not include the value of the taxpayer s home. Table 3 lists the 20 communities with the highest income limits. Table 4 lists the 20 communities with the highest asset limits. Four municipalities appear on all three of these most generous lists: Exeter, Hampton Falls, Rye, and South Hampton. The towns on the most generous lists change from year to year as exemption values change either because of changing equalization ratios or municipal action and as towns change their income and asset limits. These changes reflect the upward pressure on the property-taxreduction program and the apparent tendency of towns to leapfrog past each other with larger exemptions and higher eligibility criteria.

Shifting the Load: Property-Tax Relief for NH s Seniors 9 Table 3: Income limits reach $60,000 per year Top 20 most generous income limits (2004, in dollars) single married SOUTH HAMPTON 50,000 60,000 NEWINGTON 40,000 60,000 STRATHAM 36,000 60,000 CHESTER 35,000 60,000 RYE 40,000 59,900 HENNIKER 40,000 55,000 NORTH HAMPTON 40,000 55,000 BEDFORD 35,000 55,000 AMHERST 36,750 52,500 WINDHAM 40,000 50,000 HOOKSETT 35,000 50,000 FARMINGTON 30,000 50,000 BARRINGTON 30,000 50,000 HAMPTON 30,000 50,000 HAMPTON FALLS 30,000 50,000 CANDIA 25,000 50,000 NEW CASTLE 25,000 50,000 EXETER 38,500 49,500 NEWFIELDS 36,000 48,000 KENSINGTON 36,000 48,000 Table 4: Asset limits reach $300,000 Top 20 most generous asset limits (2004, in dollars) HOOKSETT no limit CHESTER 300,000 CANDIA 300,000 LITCHFIELD 300,000 NEWINGTON 200,000 MERRIMACK 200,000 BOW 200,000 RYE 199,000 NORTH HAMPTON 175,000 HAMPTON FALLS 175,000 EXETER 175,000 KENSINGTON 175,000 SOUTH HAMPTON 150,000 BEDFORD 150,000 AMHERST 150,000 WINDHAM 150,000 NEWFIELDS 150,000 NOTTINGHAM 150,000 LINCOLN 150,000 MADBURY 150,000 Table 5 summarizes the changes that went into effect in 2004. Table 5: Summary of changes in size of exemptions and eligibility criteria nominal exemption value income limits asset 65-74 75-79 80+ single married limits 2004 median 20,000 30,000 40,000 19,000 27,000 50,000 2004 32,043 45,552 64,067 21,233 30,378 66,986 No. of towns increasing, 03 to 04 76 77 76 63 62 50 No. of towns decreasing 03 to 04 - - - 1 2 2 Average increase 19,903 26,573 39,245 6,004 7,224 24,875 Median increase 15,000 22,850 30,000 5,000 5,550 20,000 4. Who Receives and Who Pays The data collected by the NH Department of Revenue Administration make it possible to determine at the municipal level the cost and effects of senior tax exemptions. Voters and policy makers at the local level may want even more detailed information about the distribution of tax exemption within their borders. There is, however, no way to determine the valuation of each of the 11,663 homes which received a in 2003, nor even whether they were among the most or least valuable homes in each town. It is useful, though, to consider how a

Shifting the Load: Property-Tax Relief for NH s Seniors 10 town s exemptions would affect someone owning a typical home in that town one whose value equaled the town s median home price. In Waterville Valley, the median home value in 2000 was $362,500 and a qualifying 65-year-old resident could exempt just $5,624 (the 2003 equalized value of the exemption) or 1.6 percent of it from his taxes. Waterville Valley is at the top of the least generous exemptions list in Table 6; Manchester is at the top of the most generous exemptions list because its $107,527 equalized exemption was worth 94 percent of the value of the median home in that town. 8 Table 6: Equalized exemptions may exceed the value of a median-priced home 20 Least Generous Exemptions (2003) equalized exemption as % of median home value (2000) (2000) median home value % of value (65-74) % of value (80+) 20 Most Generous Exemptions (2003) equalized exemption as % of median home value median home value % of value (65-74) % of value (80+) WATERVILLE VAL. 362,500 1.6% 1.6% MANCHESTER 114,300 94.1% 168.0% HEBRON 175,000 3.5% 3.5% NASHUA 137,500 84.4% 131.9% CENTER HARBOR 150,000 3.5% 10.4% PORTSMOUTH 168,600 79.8% 143.7% LOUDON 114,800 4.6% 18.5% RINDGE 114,400 76.3% 152.6% SURRY 122,800 5.0% 5.0% DERRY 134,900 75.8% 150.5% SHELBURNE 110,900 5.0% 5.0% LYME 168,300 73.3% 130.2% JACKSON 195,800 5.0% 20.1% HAMPSTEAD 190,600 66.8% 111.3% MONROE 98,700 5.1% 5.1% BOW 169,400 64.8% 93.6% EAST KINGSTON 185,800 5.4% 10.8% PLAISTOW 158,100 64.1% 112.1% ALLENSTOWN 97,900 5.5% 22.1% LONDONDERRY 158,700 63.0% 105.0% ELLSWORTH 133,300 5.5% 22.2% EXETER 170,000 61.3% 92.0% CHATHAM 110,900 5.7% 5.7% HUDSON 150,300 61.1% 93.7% WINDSOR 85,000 5.9% 5.9% ENFIELD 112,600 59.5% 119.0% WENTWORTH 97,100 5.9% 23.7% RAYMOND 116,200 57.2% 78.6% UNITY 88,100 6.1% 24.4% NOTTINGHAM 141,600 55.2% 102.5% EASTON 136,200 6.1% 24.5% MERRIMACK 143,300 55.0% 91.7% MASON 136,700 7.0% 14.0% DANVILLE 160,900 54.6% 97.1% HOLDERNESS 148,400 7.1% 14.2% FARMINGTON 88,400 54.6% 109.2% BENTON 73,900 7.2% 21.7% NEW IPSWICH 121,900 52.8% 105.7% FRANCONIA 140,900 7.6% 15.3% BELMONT 96,300 52.4% 87.4% These variations in exemptions and home values across towns yield different results for qualifying seniors. In Stratford, the median home price in 2000 was $59,000, and the nominal exemption for someone aged 65 to 74 was $10,000, yielding a in 2003 of 17 percent or 8 The percentages used here and in Table 6 divide the 2003 equalized exemption value by the 2000 median home value. Because home values have generally increased since 2000, the percentages stated here will, in most cases, overstate the value of the exemption for a median-priced home. The relative rankings of towns may have changed if home values changed more in some communities than others, and the rankings will change again in 2004 as some towns revalue their property and/or adjust their exemptions. The 2000 Census data are the best indicators available of the median home prices in each town.

Shifting the Load: Property-Tax Relief for NH s Seniors 11 $246. 9 In Rye, the median home value was $311,100. The nominal exemption of $75,000 for someone aged 65 to 74 would cut the tax bill by 24 percent or $853 in 2003. Table 7 expands this example. Table 7: How exemptions affect Stratford and Rye, 2003 nominal median home value exemption (65-74) taxable value tax rate (2003) tax bill savings Rye $ 311,100 $ 75,000 $ 236,100 $ 11.38 $ 2,687 $ 853 Stratford $ 59,000 $ 10,000 $ 49,000 $ 24.65 $ 1,208 $ 246 These illustrations using the median-priced home attempt to show how much a particular taxpayer in each town would save. The estimates are useful but made less accurate by the appreciation of home prices. A different way to gauge the financial impact of senior exemptions avoids the uncertainty caused by changing home prices and uses the actual tax expenditures and exemptions granted in each town to calculate the cash value of all exemptions in each town in a given year. The tax reduction statewide for qualifying seniors was $1,379 in 2003, as shown in Table 1. The highest reductions, on, were in the town of Portsmouth, where recipients received tax reductions of $2,825. The sum of those reductions in Portsmouth equaled $466,179 in 2003, or 0.9 percent of the city s total tax commitment of $52 million. In most towns, the amount of tax revenues shifted onto other taxpayers was less than 1 percent of the town s total. The community shifting the largest percentage of its taxes away from recipients of the senior exemptions was Manchester, where exemptions equaled 2.3 percent of the city s property-tax collection in 2003. In other words, taxpayers incurred a 2.3 percent tax surcharge in order to provide these exemptions. Table 8 lists the 15 communities in New Hampshire where the exemption was worth at least $1,500 per recipient and the sum of the s was at least 1 percent of the town s tax receipts. These are the communities whose tax-exemption programs appear to have the biggest impact on both the homeowners receiving the benefit and those paying for it. Figure 5 plots comparable data for every town in New Hampshire. The graph shows that most towns shift less than 1 percent of their property taxes away from seniors and provide tax breaks of $500 or less. (Summary data for each town in New Hampshire are presented in Table 10 at the end of this report. 10 ) 9 These calculations and those in Table 7 are for illustrative purposes only. They assume that the median home value remained constant from 2000 to 2003. The calculations use the nominal exemption value, rather than the equalized value, because the tax rates used in the equations are also nominal. 10 The NH Department of Revenue Administration reports not only on each town s eligibility criteria, but also on how many people of different ages receive the senior tax exemptions, the total value of exempted property, and the total amount of taxes lost in each town to the elderly exemption. Those taxes are in fact not lost, they are merely shifted onto all other property-tax payers in the town.

Shifting the Load: Property-Tax Relief for NH s Seniors 12 Table 8: The 15 towns where exemptions had the biggest impact, 2003 tax % of reduction taxes total taxes per recipient shifted shifted MANCHESTER $ 2,436 2.3% $3,079,507 LYME $ 2,533 1.8% $ 78,528 CHESTER $ 1,853 1.8% $ 140,857 HAMPSTEAD $ 2,070 1.6% $ 262,899 SOUTH HAMPTON $ 1,787 1.6% $ 28,594 NASHUA $ 2,126 1.6% $2,072,695 EXETER $ 1,626 1.3% $ 338,286 DANVILLE $ 1,761 1.2% $ 68,698 BOW $ 2,336 1.1% $ 196,190 RINDGE $ 1,839 1.1% $ 88,253 PELHAM $ 2,461 1.1% $ 191,970 SEABROOK $ 1,615 1.0% $ 271,298 LEBANON $ 1,806 1.0% $ 296,146 HUDSON $ 1,765 1.0% $ 370,680 PLAISTOW $ 2,325 1.0% $ 144,163 Figure 5: In most communities, exemptions shift less than 1 percent of tax revenues Towns arrayed by value per recipient and impact on taxes raised (2003) 2.5% % of total town property taxes shifted from qualifying seniors 2.0% 1.5% 1.0% 0.5% Farmington Gorham Chester S. Hampton Manchester Lyme Hampstead Nashua Bow Pelham Plaistow Portsmouth Derry Windham Peterborough Durham 0.0% $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 Average tax reduction for qualifying senior households (2003)

Shifting the Load: Property-Tax Relief for NH s Seniors 13 The dots in Figure 5 fan out over a broad area, indicating that there is only a loose correlation between the size of grants and the overall cost to communities. This spread is typical of other conditions relating to senior tax exemptions: as equalized tax rates rise, there is a loose tendency for towns to shift more away from seniors. There is no correlation between tax rates and the dollar value of the exemptions to recipients, however. Nor is there any correlation between a town s median home value an indicator of wealth and either the size of the tax reduction or the percentage of households receiving reductions. In other words, how much property-tax help a senior homeowner receives will depend on where he happens to live, not on his income, the value of his home, the relative wealth of his town, or the tax rate in his town. Each town s exemptions and eligibility criteria frame what is essentially an entitlement program for seniors within the town s borders. Anyone who meets the criteria and applies for an exemption is supposed to get it, and the Department of Revenue Administration does the rest, adjusting everyone s tax rate to pay for the program. 11 DRA has not yet reported on how many seniors in each age group applied for or received exemptions in 2004 (that data will be published in May). Given the three-year surge in applications graphed in Figure 1 and the aging of New Hampshire s population, it is likely that the number of exemptions will continue to grow in 2004, so using 2003 s utilization rates as a basis for projecting costs in 2004 is a reasonable and conservative assumption. The total cost of the exemption program is likely to increase by at least 9.5 percent, to $17.6 million, even if utilization remains unchanged. The size of the reduction will increase from $1,379 in 2003 to $1,510 in 2004. These increases are driven by higher exemptions the towns put in place for 2004 and by generally higher tax rates. As the baby boom ages, the percentage of New Hampshire residents over age 65 and potentially eligible for a property-tax exemption will increase, putting ever greater pressure on all other property-tax payers, many of whom will have lower incomes and far fewer assets than those who qualify for s by virtue of their age. 5. Other Tax-Reduction Programs for Seniors and Others The senior property-tax exemption program is one of several attempts by New Hampshire policy makers at the state and local level to make property taxes more fair or equitable. A federal program is also available to help seniors pay their taxes and other expenses. This section takes a brief look at three of these programs: A. the state s tax deferral program for the elderly and disabled B. the federally insured reverse mortgage program C. New Hampshire s statewide property tax rebate program. 11 Because the program is an entitlement not subject to budget pressures or administrative discretion, it is possible to project the costs of the program forward through 2004, using the data the department has already published on its website: the exemptions each town will use in 2004, each town s tax rate (not yet equalized), and the total amount each town had to raise for 2004.

Shifting the Load: Property-Tax Relief for NH s Seniors 14 A. Tax Deferral Liens State law (RSA 72:38-a) has long provided a measure to prevent lower-income elderly and disabled homeowners from being forced to sell their homes in order to pay their property taxes. The statute authorizes homeowners with disabilities or who are 65 or older to apply to their towns for a deferral of their taxes: The assessing officials may annually grant a person qualified under this paragraph a tax deferral for all or part of the taxes due, plus annual interest at 5 percent, if in their opinion the tax liability causes the taxpayer an undue hardship or possible loss of the property. The total of tax deferrals on a particular property shall not be more than 85 percent of its equity value. 12 The town would hold a lien on the property for the amount due. When the resident or his or her estate sells the property, the town would collect what it was due from the settlement. The taxdeferral program is different from the tax exemption program in two important ways: town authorities have discretion over granting deferrals and the homeowner has to pay back the town for the loan. The tax deferral program can work in tandem with the senior property-tax exemptions: a qualifying resident would first reduce his tax bill through the exemption program, then defer the remaining balance. DRA does not collect data on deferral liens, so it is impossible to state how many residents use them. Several experts in municipal finance report that the liens have always been unpopular and rarely used. Seniors prefer not to encumber their properties or reduce the value of the estate they may pass on to their heirs. B. Reverse Mortgages Reverse mortgages offer seniors more flexibility than deferral liens in how they use the equity in their homes and reverse mortgages do not involve the town in any way. Homeowners aged 62 and above may apply for a reverse mortgage through many lending institutions; the mortgages are insured by the federal government. A guide to the programs published by Fannie Mae describes them this way: Reverse mortgages are called so because instead of making mortgage payments, the borrower actually receives money from the lender. The source of funds for the money received is the equity you have stored in your home. Unlike the loan balance of a conventional mortgage, which becomes smaller with each monthly payment, the loan balance of a reverse mortgage grows larger over time. The loan principal increases with each payment that you receive, and interest and other charges accrue each month on the total funds advanced to you to date. 12 RSA 72:38-a, (c).

Shifting the Load: Property-Tax Relief for NH s Seniors 15 All reverse mortgages allow you to retain ownership of your home, and many do not require repayment for as long as you live in your home, pay your property taxes and hazard insurance charges, and maintain the property. When you leave your home permanently upon your death or when you move away your loan balance becomes due and payable. Your legal obligation to repay the loan can be no more than the market value of your home at the time you leave the property. This means that your lender cannot require repayment from your heirs or from any asset other than your home. 13 Reverse mortgages are still uncommon in New Hampshire and probably not well understood by many homeowners who might find them useful. C. Statewide Property Tax Refunds In 2001, the legislature created a rebate program to make the statewide Education Property Tax less regressive. The Low and Moderate Income Homeowners Property Tax Relief program, authorized in RSA 198:57, creates an income-based sliding scale for property-tax refunds. State government pays the refunds from state revenues; the towns have no involvement in the program and the refunds do not shift taxes within communities. The refunds apply only to the state portion of a homeowner s property-tax bill. Single homeowners of any age earning less than $12,500, or married couples of any age earning less than $25,000, qualify for a refund of 100 percent of their statewide property tax. A single person earning between $17,500 and $20,000 qualifies for a 20 percent refund, as does a couple earning between $35,000 and $40,000. (Those with intermediate income would qualify for refunds of 60 or 40 percent.) Note that these income limits are comparable to those set by the state and most communities for their senior property-tax exemptions. The low-to-moderate-income refunds are available to qualifying residents in any town not simply the so-called donor towns. Property-tax payers in every town pay the statewide property tax, although in most towns the revenues stay in the town in which they are collected. Most New Hampshire residents have perceived the statewide property tax as simply a relabeled slice of their local tax, yet the state refund program reinforces the notion that the statewide tax is a state tax. From the homeowner s point of view, the refund simply offsets part of his property taxes and the check happens to come from the state. Because the refund program is new, the Department of Revenue Administration has data for only two filing periods, 2002 and 2003, as presented in Table 9. Although the program s income limits are consistent with those used by most towns for their senior exemptions, more than twice as many households applied for the refunds as the exemptions, suggesting that there are at least as many taxpayers under age 65 as over who meet the income limits and are willing to make the effort to seek tax relief. The refund-seekers reward for the effort, however, is much lower: an of only $275 in 2003, compared to the $1,379 for seniors receiving exemptions. Figure 6 13 For details on reverse mortgages, see Money from Home: A Guide to Understanding Reverse Mortgages, published by Fannie Mae (Washington DC), available on-line at: www.fanniemae.com/global/pdf/homebuyers/moneyfromhome.pdf.

Shifting the Load: Property-Tax Relief for NH s Seniors 16 graphs the relative value of the state and local tax-reduction programs for the recipient in each town. Table 9: 5.7 % of NH households received statewide property tax relief in 2003 Utilization and cost of the Low & Moderate Income Homeowners Property Tax Relief program 14 no. of total refund claims filed refunds paid 2002 filing period 23,658 $7,741,835 $327 2003 donor towns 2,545 $709,855 $279 2003 receiver towns 24,565 $6,739,722 $274 2003 filing period total 27,207 $7,480,732 $275 Figure 6: Local senior exemptions reduce taxes more than the state s income-based refunds $3,000 Comparing NH's Statewide Education Tax Refund to Towns' Property-Tax Reductions for Seniors (2003) Average tax refund from the state for qualifying low-tomoderate income homeowners (2003) $2,500 $2,000 $1,500 $1,000 $500 $0 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Average tax reduction from towns for senior households qualifying for local exemptions (2003) The total refunds paid and the value of the refunds in 2003 were lower than in 2002 because the legislature reduced the statewide property tax for the 2003 tax year. Ironically, as the state reduces the statewide property tax rate to reduce the number of donor towns and the 14 For confidentiality reasons, the Department of Revenue Administration omitted data on 11 towns from its town-by-town breakdown of the low-to-moderate income property-tax relief program. Because of those omissions, the figures presented here for donor and receiver towns are close approximations but not exact. Four of the towns omitted were donor towns. The 11 towns had a total of 107 households receiving refunds valued at $31,303, or approximately 0.4% of the total refunds.

Shifting the Load: Property-Tax Relief for NH s Seniors 17 impact on those communities, it also reduces the impact of the relief program statewide. If the state eliminates the statewide property tax altogether, the relief program will disappear and the thousands of low-to-moderate income taxpayers who benefited from it will again have to pay the full value of their property tax bill. In the 2003 period, approximately 9 percent of the households claiming refunds lived in donor towns, and they received an of $279 in refunds, compared to the $274 received by the household in receiver towns. In other words, low-to-moderate income homeowners in donor towns and receiver towns paid nearly identical amounts in statewide education property taxes and were nearly equally as likely to apply for a refund. 15 6. Conclusions The topics covered in this paper property taxes, senior citizens, income are politically charged in New Hampshire. They are also at the center of a number of trends that appear all but inexorable. The Center has demonstrated elsewhere 16 that if New Hampshire s municipalities continue to increase their spending on schools at recent rates and the state government increases its aid grants at only the rate of inflation, the amount raised by local property taxes for schools will have to double in about five years. If New Hampshire s municipalities continue to respond to that pressure by exempting more and more seniors from more and more of the tax burden, they will necessarily be increasing the pressure on all other tax payers, regardless of their income or ability to pay. These are big ifs. Communities may slow or reverse their investment in education or they may direct seniors of moderate means to use reverse mortgages or other tools to pay their bills. What is not an if, however, is the aging of New Hampshire s population. Ironically, tax policies that favor the elderly may accelerate the state s graying by encouraging retirees to move to New Hampshire or by discouraging the creation of new housing for younger workers and families. The New Hampshire Housing Finance Authority has documented the shortage of new workforce housing being built in the state. Instead, much of the new construction is being built in age-restricted ( senior ) developments favored by communities that anticipate receiving property tax revenues without the need to provide services. 17 Generational equity issues are likely to become more contentious in New Hampshire, particularly as they relate to property taxes and who can afford to pay them. 15 There were no correlations between a town s equalized tax rate and either the percentage of households in that town receiving the statewide tax refund or the size of the refund. 16 Richard A. Minard, Jr., Putting Pressure on Property Taxes (Plumbing the Number No. 9), NH Center for Public Policy Studies, Concord NH, August 2004. 17 See, for example, New Hampshire Housing Headlines, Spring 2004, NH Housing Finance Authority, Bedford.

Shifting the Load: Property-Tax Relief for NH s Seniors 18 7. Town-by-Town Exemptions, Costs, and Effects Table 10: Town-by-town data on senior tax exemptions size of exemption 2004 (actual) 2003 (actual) 2004 (projected) income no. granted % of taxes shifted change in tax expend. Municipality 65-74 75-79 80+ single married asset limit tax expenditure ACWORTH 7500 15000 20000 13400 20400 35000 12 $ 3,882 $ 324 0.3% $ 366 13% ALBANY 25000 30000 35000 15400 25400 35000 4 $ 1,938 $ 485 0.2% $ 650 34% ALEXANDRIA 5000 10000 20000 13400 20400 35000 4 $ 827 $ 207 0.0% $ 168-19% ALLENSTOWN 10000 15000 25000 30000 42000 85000 63 $ 14,348 $ 228 0.3% $ 307 35% ALSTEAD 10000 20000 30000 17500 24000 40000 2 $ 356 $ 178 0.0% $ 351 97% ALTON 40000 60000 80000 25000 44000 50000 24 $ 5,977 $ 249 0.0% $ 1,005 304% AMHERST 62000 93000 124000 36750 52500 150000 93 $ 173,149 $ 1,862 0.6% $ 1,934 4% ANDOVER 10000 20000 25000 18000 28000 50000 14 $ 5,985 $ 428 0.2% $ 222-48% ANTRIM 25000 50000 65000 25000 36000 75000 11 $ 6,040 $ 549 0.1% $ 929 69% ASHLAND 20000 30000 40000 20000 25000 60000 38 $ 39,886 $ 1,050 0.9% $ 600-43% ATKINSON 100000 150000 200000 29700 38500 100000 35 $ 40,904 $ 1,169 0.4% $ 2,186 87% AUBURN 90000 110000 150000 25000 40000 40000 47 $ 40,573 $ 863 0.6% $ 1,975 129% BARNSTEAD 25000 30000 35000 20000 30000 75000 50 $ 25,780 $ 516 0.4% $ 618 20% BARRINGTON 50000 75000 95000 30000 50000 75000 60 $ 71,996 $ 1,200 0.6% $ 973-19% BARTLETT 10000 20000 30000 20000 30000 125000 15 $ 3,590 $ 239 0.0% $ 221-8% BATH 5000 5000 5000 13400 20400 35000 0 $ - $ - 0.0% $ - 0% BEDFORD 35000 40000 52000 35000 55000 150000 90 $ 57,461 $ 638 0.2% $ 662 4% BELMONT 50000 65000 80000 21500 29500 75000 91 $ 101,660 $ 1,117 0.9% $ 1,254 12% BENNINGTON 25000 50000 75000 23500 35500 75000 16 $ 19,294 $ 1,206 1.0% $ 898-26% BENTON 5000 10000 15000 13400 20400 35000 4 $ 569 $ 142 0.2% $ 108-24% BERLIN 10000 15000 30000 15900 23400 35000 141 $ 124,216 $ 881 1.1% $ 934 6% BETHLEHEM 20000 30000 40000 22000 35000 75000 15 $ 8,472 $ 565 0.2% $ 692 22% BOSCAWEN 15800 23700 31600 25000 35000 50000 49 $ 16,771 $ 342 0.4% $ 569 66% BOW 90000 110000 130000 33800 43900 200000 84 $ 196,190 $ 2,336 1.1% $ 2,594 11% BRADFORD 10000 15000 20000 13400 20400 35000 15 $ 5,547 $ 370 0.2% $ 371 0% BRENTWOOD 50000 60000 70000 20000 30000 50000 14 $ 16,686 $ 1,192 0.2% $ 1,234 4% BRIDGEWATER 10000 15000 20000 18500 25500 75000 19 $ 3,507 $ 185 0.1% $ 138-25% BRISTOL 10000 15000 20000 13400 20400 35000 15 $ 4,948 $ 330 0.1% $ 355 8%