The state brought back income limits to reduce the cost of the program after opening it up for about seven years to every homeowner 65 and older, regardless of income.
Critics say the program is now overly restrictive after years of giving life-long tax property breaks to many wealthy older Ohioans who did not need them.
“We think the exemption is worthwhile, but isn’t fashioned the way it should be,” said Zach Schiller, research director for Policy Matters Ohio, a liberal-leaning policy research group. “To my mind, a better system would be much more correlated to income and need.”
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In 2016, about 43,810 taxpayers in Montgomery County received the homestead property tax exemption, which was down 3.2 percent from the prior year, according to county auditor records.
About 700 new Montgomery County taxpayers were accepted into the program last year, down from 5,100 three years earlier.
The number of recipients in the county has declined 10 percent since 2013, when the state reintroduced the means test for applicants. This year, the income threshold for program eligibility is $31,800.
Receipt of the homestead exemption shields $25,000 of the market value of a person’s home from property taxes. The exemption works essentially as a state tax credit.
The exemption is intended to protect disabled Ohioans and seniors on fixed incomes from rising property taxes, officials said.
Montgomery County homeowners in the program on average saved about $673 in 2014, which was the second largest property tax reduction in the state, behind only Cuyahoga County, according to data published in October by the Ohio Department of Taxation.
The size of the tax break is a direct reflection of property tax rates in local counties.
“What that’s saying is we have the second highest average tax rate in the state,” said Montgomery County Auditor Karl Keith. “That’s just a fact.”
Keith said most people who are eligible for the tax break receive it, but some residents who qualify still have not heard of the program or incorrectly believe they do not qualify for it.
The homestead exemption dates back to the early 1970s, when Ohio voters approved a constitutional amendment that helped establish the tax relief program to help low-income seniors.
Participation in the program required meeting income and age restrictions.
In 2007, the Ohio Legislature expanded the program to all Ohioans 65 and older who own and occupy their homes, regardless of income. The program also is open to totally and permanently disabled Ohio homeowners.
But in 2013, Ohio Gov. John Kasich signed a two-year budget that re-established the income limits to help reduce the cost of the program.
The state estimated that tougher restrictions would save it $9 million in 2015 and $27 million in 2016.
Re-instituting the income cap holds down the amount of growth in a program with a history of constant expansion, said Gary Gudmundson, spokesman with the Ohio Department of Taxation.
The removal of the income cap was controversial and created some strange bedfellows.
A decade ago, liberal-leaning Policy Matters Ohio opposed eliminating the means test, as did Republican Jon Husted, who at the time was a state representative from Kettering and speaker of the Ohio House.
The Buckeye Institute, a conservative-leaning think tank, also has supported means tests.
Taxpayers should be in control of making decisions about tax rates at the local level, but under the homestead program, the state defrays the cost of local government, said Greg Lawson, senior policy analyst with the Buckeye Institute.
The upshot is that jurisdictions and schools that collect property taxes receive less money from local homeowners but more from the state, some critics say. The state reimburses counties for the revenue loss attributed to the homestead exemption.
Exemptions like this “really obscure the real cost of local government, because local taxpayers ultimately are not exposed to the full cost,” Lawson said.
Restoring an income cap was the right move, but the state could raise it to about $50,000 to help more low- to moderate-income seniors, said Schiller, with Policy Matters.
Social Security payments and certain pensions and interest income are not counted as part of income calculations for the program.
Some very wealthy older Ohioans were granted the tax break between 2007 and 2013 and will continue to receive it for the rest of their lives, which is unfair to the lower- and moderate-income residents who turned 65 in 2014 or anytime thereafter who will not get the tax relief, Schiller said.
Ohioans accepted into the program can remain in it indefinitely.
“If you are making a couple hundred thousand dollars per year, or you are living in a house worth a couple of million dollars, why is it in the interest of the state of Ohio to give you a tax break on your property taxes?” Schiller said.
Schiller also supports limiting eligibility only to people whose homes are valued at $150,000 and less.
The county auditor estimates that 80 percent of the people in the program have homes worth $125,000 or less.
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