A budget proposal released by the administration of Maine Governor Paul LePage would curtail two popular property tax relief programs while also ending the state’s revenue-sharing program with Maine municipalities.
Under the proposal, Maine’s Homestead and so-called “Circuit Breaker” programs would tighten income restrictions and lower the maximum tax offsets for homeowners and renters who are under 65 years of age. The cuts would effectively halve the expense of the two programs. Critics warn that the combination of the proposed cuts and state aid will cause Maine communities to slash local services and homeowners to pay substantially more in property taxes. The LePage administration counters that the cuts merely “right size” the tax relief programs while still protecting or enhancing the benefits for older homeowners.
Joel Johnson, a policy analyst with the Maine Center for Economic Policy, says the two tax exemption programs were created to mitigate the inequities of Maine’s tax code. Because state government revenue relies heavily on property tax money, lower-income and moderate-income Mainers often are asked to shoulder a greater share of the tax burden, Johnson said.
“Of the three taxes we have in the state, the property tax is one of the most, if not the most, regressive,” Johnson said.
Johnson has advocated expanding the two property tax relief programs to put more money into the economy during the recession. Instead, he says, the LePage administration is proposing cutting back on the programs to plug budget holes created by earlier tax cuts that favored wealthy Mainers.
While the Homestead exemption is open to all Maine homeowners, the Circuit Breaker program targets lower-income and middle-income homeowners and renters specifically.
There is also concern that the proposed cuts could make the cost of coastal living out of reach for longtime residents. There is also fear it will further discourage young families from settling on Maine’s islands.
Maine’s property tax burden has long been considered one of the highest in the nation. A 2007 report by the Maine Center for Economic Policy found that the percentage of Mainers paying more than six percent of their income to property taxes is greatest along the coast; more than 40 percent of residents in Knox, Hancock and Cumberland counties reached that threshold. Overall, the report estimated that the elimination of just the Circuit Breaker program would mean at least 33 percent of Mainers would pay more than six percent of their income on property taxes.
Dr. Michael Allen, the state’s Associate Commissioner for Tax Policy, said that the fortunes of the two programs have ebbed and flowed with the Maine economy, and Maine legislators have tinkered with the two programs nearly a dozen times since the 90s. Allen, who co-wrote the 2007 report, agreed that the governor’s budget is an effort to “right size” the programs. The Circuit Breaker program originally was designed solely for those over 65, Allen said, and LePage’s budget actually expands the benefits for older Maine renters and homeowners.
“The governor’s main concern is the elderly homeowner who has been in that home for decades,” Allen said.
Allen estimates cuts in the two programs could add some $55 million to state coffers, but he understands that the cuts also can cause a budget crunch for Maine municipalities.
“Certainly, local budgets are going to be challenged by some of the other proposals in the budget,” Allen said. “It doesn’t necessarily have to translate into dollar-to dollar increases [in local tax rates].”
But Maine Municipal Association spokesman Eric Conrad calls the budget a forced austerity program for Maine’s communities. The association estimates it will raise local taxes by $420 million over a two-year period, and Conrad said that communities would be forced to compensate for reduced state aid by raising local property tax rates. This can hurt homeowners already stinging from cuts in the exemptions, he said.
“It’s really a double-whammy,” Conrad said.
Coastal communities are already bracing for the cuts. Rockport town manager Robert Peabody has factored in a $181,000 hole in his budget based on the state dropping revenue-sharing alone.
Bar Harbor town manager Dana J. Reed says town records show that 960 Bar Harbor residents receive the Homestead exemption. With the cuts proposed, Bar Harbor homeowners are looking at an increase of $145 to their property taxes, at a minimum. Bucksport town manager Michael Brennan believes Governor LePage’s budget would require deep cuts and creative thinking.
“We’d have to take a look at everything,” said Brennan. “Nothing would be sacred.”
The budget will be sent to committee in the Maine legislature, and it most certainly will be altered by Maine lawmakers there, said state senator Dick Woodbury (I-Yarmouth).
“Never has a budget passed that’s identical to what the governor’s proposed,” Woodbury said.
However, that’s small comfort for Maine communities wondering just how much the governor’s cuts are going to impact their bottom line, said Peabody. He and his constituents must prepare for the worst, he said.
“If this is just gamesmanship, once again the middle class and the towns and cities are being held hostage,” said Peabody.
Craig Idlebrook is a freelance contributor living in Medford, Mass.