Background
Property Tax Postponement (PTP) Program Provides Loans to Certain Low-Income Homeowners to Pay Property Taxes. The PTP program, operated by the State Controller’s Office (SCO), provides loans to low-income seniors, blind, or disabled homeowners to pay their property taxes and stay in their homes. Homeowners then repay the loans plus interest at a later date—often when the home is sold or transferred. The PTP program has seen some significant changes over the last 15 years, including:
- Program Suspension in 2009. In response to statewide budget challenges, the program was suspended from 2009 to 2014, during which time it no longer accepted applications or made property tax payments to counties.
- New Structure for Reinstated Program in 2014. A modified version of the program was reinstated in 2014. First, all loan repayments go through the newly established the Senior Citizens and Disabled Citizens Property Tax Postponement Fund (PTP Fund) and the money is used to make annual property payments to counties and support program administrative costs. The intent of this change was to make the program self-funded. That is, program costs are paid for with loan repayments without general taxpayer support. (Previously, all program revenues and expenditures would go through the General Fund.) Second, the state also established a $15 million cap on the PTP fund balance. When the fund balance exceeds this threshold—as it did from 2017-2018 through 2019-2020 by a total of $7.9 million—those funds are transferred to the General Fund. Third, in order to qualify, homeowners must have at least 40 percent equity in the home.
- Reduced Interest Rates and Raised Income Eligibility Threshold in 2019. The Legislature modified the program in 2019, including reducing interest rates on the loans (7 percent to 5 percent), raising income eligibility thresholds ($35,000 per year to $45,000 per year and growing with inflation), and expanding the program to include manufactured homes.
Proposal
Budget Proposes $7.5 Million General Fund Transfer to the PTP Fund. The Governor’s budget would provide the Department of Finance authority to transfer $7.5 million from the General Fund to the PTP Fund to ensure there are adequate resources available to cover costs in 2024-25. (This transfer is located in budget item 9100-111-0001.) Program expenditures ($9 million) are expected to exceed revenues ($5.4 million) in 2024-25 and the fund balance is insufficient to ensure adequate resources to provide loans in the budget year.
Assessment
Structural Deficit in PTP Fund Puts Ongoing Cost Pressure on General Fund. As shown in the figure below, expenditures have exceeded revenues over the last few years, with the gap growing in recent years. This imbalance is expected to continue for at least the next few years. Some factors driving the gap include: (1) low revenue from loan repayments, which could partly be due to the program not making loans from 2009 to 2014, (2) higher levels of loans for each applicant, at least partly due to increasing property values and the resulting tax bills for some homes, and (3) growing state administrative costs due to increases in staff salaries and benefits driven by collective bargaining and state policies. Given the projected gap between revenues and spending, continued operation of the program will likely require General Fund support for at least the next few years and/or significant program modifications to reduce costs or increase revenues.
Very Low Program Participation Since Program Reinstatement in 2014. As shown in the figure below, program participation is much lower than it was prior to program suspension in 2009. There were 1,337 homeowners that received a property tax loan from the program in 2022-23—about one-quarter of what it was prior to the program being suspended and about one-tenth of what it was a few decades ago. Based on our initial discussions with SCO, the reasons for the low participation are still unclear, but could, in part, be the result of the suspension of the program and the resulting difficulty in outreach. Notably, any increases in program participation over the next few years would exacerbate the imbalance between revenues and spending during this period.
Administrative Costs Are a Large Share of Program Expenditures. Administrative costs in 2022-23 were about $2.6 million—or nearly $2,000 per program participant. State administrative costs as a share of program expenditures are very high—projected to be over 30 percent of overall program spending and over 50 percent of revenue in 2024-25. This share is substantially higher than administrative costs for many state financial assistance programs, which often do not exceed 10 percent. The high share of administrative costs—which largely support program staff—partly reflect the low program participation discussed above.
Recommendations
Direct SCO to Report at Budget Hearings on PTP Program Trends and Outlook. We recommend the Legislature direct SCO to report at budget hearings to provide an update on the program. This update should include such things as: factors driving low levels of program participation, factors contributing to the fiscal challenges facing the program over at least the next few years, the degree to which SCO expects additional General Fund support will be needed to support the program in the future, and potential program modifications that could put the program on more solid fiscal footing.
Consider Eliminating PTP Program. We recommend the Legislature consider eliminating the PTP program. (We previously recommended the Legislature consider such an option in our 2018 report on the PTP program.) There are few reasons why the Legislature might choose to eliminate the program, including:
- Program Is Resulting in Unintended General Fund Costs. Continuing to operate the program would cost $7.5 million General Fund in 2024-25, plus several million dollars in annual General Fund costs over the next few years. Such an approach would be inconsistent with the intent for the current version of the program, which was structured with a goal of avoiding general taxpayer support. Furthermore, given the state’s General Fund problem, continuing to operate the PTP program means the Legislature will need to find more solutions in other parts of the state budget.
- Low Participation and High Administrative Costs. PTP program has very low participation and high administrative costs—suggesting relatively little overall program benefit.
- Policy Rationale for Program Has Become Less Clear Over Time. The program may have had a stronger justification when it was originally established in 1977 at a time when there were no statewide constitutional limits on property tax rates or taxable values. Proposition 13 (1978), however, keeps annual growth in homeowners’ property taxes low and is likely a key reason that it is rare for homeowners to lose their property for failure to pay property taxes. In addition, per program rules, all participants already have a significant amount of equity in their homes. This makes the public policy rationale for PTP less clear.
Eliminating the program would mean about 1,300 homeowners per year would have to find other ways to make their annual property tax payments. However, we note that other financing mechanisms could be available to many of these homeowners, including home equity loans and reverse mortgages. Also, if the Legislature wanted to maintain a less costly version of the program, it could consider modifications to the programs, such as limiting the amount of loans provided to participants.