Don't break the circuit breaker

Circuit Breaker History in Massachusetts

Since 1999, Massachusetts has provided a property tax Circuit Breaker for seniors over 65 who meet income eligibility criteria and whose property tax payments (or 25% of rent) surpass 10% of their total taxable income. Eligible seniors, whose property taxes or qualifying rent exceed 10% of their income, receive a tax credit for the amount over 10%, up to a specified maximum. For many years, the maximum was pegged around $1000. Recently, the cap has increased. Currently, it is $2730.

In 2001, the town of Wayland became the first town to create a supplementary program. They adopted a program to match (up to 100%) of the state senior circuit breaker for those whose property taxes, (net of the state circuit breaker), still exceeded 10% of their income. In 2012, Sudbury followed suit, making up the difference for homeowners when the state circuit breaker did not bring their property tax bill down to 10% of their income. Source: https://massbudget.org/reports/pdf/PropTaxCircuitBreaker.pdf pages 14-16.

Over time, several towns in Massachusetts have proposed and adopted supplementary home rule petitions for s0-called Senior Means Tested Tax programs. These programs typically offer some sort of rebate to those who qualified for and received a Circuit Breaker rebate. While these programs have similarities, there are some key differences in the towns' demographics and in the details of their programs.

Towns with Supplementary Circuit Breaker Programs

The table below highlights the home values of several of the towns that have adopted Senior Means Tested tax programs. (I'll try to keep this table updated but I know some are missing). Many towns have very high home values and property taxes. Only 2 towns, have restricted their program eligible home values to below $1,000,000, Williamstown and Westford. Currently, the state's Senior Circuit Breaker minimum eligible home value is $1,172,000.

Table 1. SAMPLE OF TOWNS WITH LOCAL SENIOR MEANS TESTED TAX PROGRAM

Town	Average Home Value	Average Tax	Eligible Assessed House Value
Williamstown	$493,000	$7,000	$483,000
Westford	$796,000	$11,000	$636,000
North Reading	$812,000	$11,000	$1,000,000+
Hopkinton	$852,000	$12,000	$1,000,000+
Harvard	$875,000	$13,000	$1,000,000+
Reading	$890,000	$10,000	$1,000,000+
Andover	$957,000	$12,000	$1,000,000+
Sudbury	$1,078,000	$16,000	$1,000,000+
Wayland	$1,085,000	$17,000	$1,000,000+
Hingham	$1,183,000	$13,000	$1,000,000+
Concord	$1,477,000	$19,000	$1,000,000+
Winchester	$1,595,000	$18,000	$1,000,000+
Lincoln	$1,597,000	$20,000	$1,000,000+

Defining Senior Means Tested Benefits

As you can see in the following table, several towns (Westford, Harvard, Sudbury, Wayland, Concord and Lincoln) only grant a rebate when the property tax LESS circuit breaker amount exceeds 10% of income. Why? When the Town grants a rebate that pushes the tax bill below 10% of income, the state reduces their payment to the taxpayer by that amount in the following cycle.

Table 2. SAMPLE OF SENIOR MEANS TESTED REBATES

Potential Impact of the Senior Means Tested Tax program

To better understand the impact of a Senior Means Tested tax program that is supplemental to the state Circuit Breaker, let's look at what happens to a theoretical taxpayer living in a $483,000 home, with $60,000 income and a $6965 property tax bill (includes estimated 50% of water and sewer bill), in a town that offers a 50% match. If the goal is to limit their property tax to 10% of income, the maximum they should pay is $6000. The state Circuit Breaker will pay the homeowner the difference between the tax bill and 10% of income, up to $2730. In this case, $965. To keep things simple, I have haven't included inflation, but the results will be similar. And in this scenario, we are allowing the town's rebate to reduce the tax below the 10% threshold unlike Sudbury and other towns who do not.

Table 3. SAMPLE IMPACT OF SENIOR MEANS TESTED TAX PROGRAM

Here we can see that if the homeowner ONLY received the state Circuit Breaker credit, over 10 years their property tax bill would have been effectively reduced by $9654; $965 per year. If they applied for the town's Senior Means Tested tax program in year 1, they would receive and additional $483, the 50% match! Looks good! Unfortunately that windfall won't last.

In year 2, the state would deduct $483 from the property tax bill before calculating the benefit and the taxpayer would then receive only $483 ($965-$483) from the state. And then, the Town's match would subsequently be reduced to $241 (50% of $483). In year 3, the state Circuit Breaker would increase, since the town's contribution has decreased, and then decrease again in year 4. Over the 10 year period, the combined benefit to the taxpayer of the state Circuit Breaker and the town's Senior Means Tested tax program would be $321 ($9,975-$9654). But it will have cost the town $3325! In other words, in this case, each 1$ of benefit is costing local coffers $10.

In effect, most of the rebate that the town would have paid, would go to the State, not the homeowner!

Why Would Towns Do This?

You might wonder why so many towns have adopted this type of program with minimal positive impact to the taxpayer at such a significant cost. First remember that some towns have wisely chosen not to give a rebate to the taxpayer if the state's program has already reduced their tax bill to below 10% of their income. See the Table 2.

Secondly, we have just looked at one potential taxpayer with a relatively high income and relatively modest home value. The impact won't be the same for all applicants. If a taxpayer is paying significantly more than 10% of their income in property tax, it is possible that the State's contribution and the Town's match do not reduce the tax burden to the 10% threshold. This is more likely to occur in towns where the home values and property taxes are high. Until quite recently, the cap on the State circuit breaker was relatively low (around $1000), so it is likely that many taxpayers continued to pay more than 10% of their income on tax even after receiving the maximum circuit breaker amount.

Lower House Value and a Range of Incomes

Lets consider a $300,000 home, $4140 tax bill (includes estimate for 1/2 water and sewer), a 50% match from the town, and taxpayers at various income levels. For incomes between $50,000 and $100,000, the property tax bill is less than 10% of income so the taxpayer does not earn a Circuit Breaker credit . For incomes of $20,000; $30,000 and $40,000 the state Circuit Breaker payment meets 100% of the need but they also receive a 50% town match. Over a 10 year period, the town will contribute $1516, $4960, and $8404 respectively with a relatively small net benefit to the tax payer; the highest net benefit being $813 or $81/yr for the $20,000 income taxpayer. (Note that other eligible rebate programs, like 41C, may impact this outcome). For the $10,000 income level, the Town pays $11,612 with a net gain to taxpayer of $7536, there is better ratio here ($ of benefit to $ paid, $2 to $1) because the state did not meet full need.

Table 4. SENIOR CIRCUIT BREAKER IMPACT ON $300,000 HOME

High House Values and a Range of Incomes

For the $1,000,000 home with a $14,100 tax bill, we can see that at every eligible income level, the tax / income is greater than 10% even after the maximum Circuit Breaker amount is applied. The $100,000 income family are paying 11.4% and the $50,000 individual is paying 22.7%. In this scenario, even adding in the 50% match from the town doesn't reduce tax/income to below 10%. e.g. the $100,000 family is paying 10% of income, and the $50,000 individual is paying 20%.

Every dollar of rebate paid by the town, goes to the taxpayer, and there is no reduction in Circuit Breaker contribution in the following year.

What about Williamstown?

In 2022 tax year (the latest year for which have data), 97 people in Williamstown received the state's Senior Circuit Breaker. The average payment was $979 at a total cost of $95,001. (Only those people who received the Circuit Breaker in the previous year are eligible for the town's Senior Means Tested tax program. ) The state's maximum credit in 2022 was $1200. We don't know how many, if any, of these seniors received the maximum Circuit Breaker amount. But since the average payment is below the maximum we know that some of the these taxpayers have had their full need met even when the maximum was $1000. It seems likely that with a $2730 state maximum most, if not all, of the town's Circuit Breaker participants will have their full need met by the state's rebates. In these cases, any amount the town offers will be deducted from their next year's Circuit Breaker. If the numbers of applicants are similar to 2022 Circuit Breaker recipients, the town could pay out $47,000 - $50,000. Its unlikely that all Circuit Breaker recipients will qualify (house values are lower for the town) or that all who qualify will apply.

What's Next?

Across the country, Circuit Breaker programs are instrumental in helping make rent and homeownership more affordable. If you want to dig deeper into understanding the impact and approach to Circuit Breakers, I suggest taking a look at this report from the Lincoln Institute, Property Tax Circuit Breakers, Fair and Cost Effective Relief for Taxpayers.

One point that stood out for me in this report, is how few people who qualify for circuit breakers take advantage of these programs.

Finding ways to increase the Circuit Breaker participation rate will make the biggest impact on housing affordability for seniors. This is especially true since it is possible to apply for the Circuit Breaker retroactively. A taxpayer may be eligible for 3 years of credits. And even those (renters and homeowners) who don't pay income tax are eligible!

The best way to target support for low income seniors is to adopt a means tested tax program that pays a rebate only when the tax bill is above 10% of income after the state's circuit breaker is factored in. And instead of matching (at 50% or 100% etc. of the Circuit Breaker) set a maximum dollar amount. We'll be able to get more taxpayers to the 10% threshold this way. I'll write more about that in a future post.