AUGUSTA, Maine — After a long history of being the main funding source for state government, the property tax lives on as the mainstay for every Maine city and town budget.
Now, it’s back at the center of tax policy talks in Augusta after last decade’s recession and burst housing bubble — followed by former Gov. Paul LePage’s crusade to lower income taxes — forced municipalities to rely more heavily on the state’s biggest tax than they have in recent memory.
Members of the new Legislature — controlled by Democratic majorities and backstopped by Gov. Janet Mills — submitted more than 50 bills aimed at property taxes, not including dozens more on related issues, including the state’s share of K-12 education funding.
While there’s bipartisan support for the concept of property tax relief, it’s a task complicated by New England’s long heritage of local government, the spread-out way that Mainers live and a desire not to raise other taxes. Whether lawmakers can overcome those hurdles in a way that satisfies property owners and municipal officials without nudging Mills to break her vow not to raise taxes will be a main story of the 2019 legislative session.
“That’s what people are struggling with across the state and that’s our priority,” said Senate President Troy Jackson, D-Allagash.
The property tax has long been targeted for lowering, partially because it has grown more unfair to low-income people. Property tax revenue has funded local governments since colonial times, but it was also the main way to pay for state government services through the beginning of the 20th century. In 1870, a property tax represented 98 percent of the state’s revenue, according to a 2005 article in the Maine Law Review.
That mix diversified after 1900, when income and sales taxes gained popularity and the rise of the automobile led to gas and excise taxes. Maine adopted a sales tax in 1952. In 1969, Gov. Kenneth Curtis shepherded a progressive income tax through a Republican-led Legislature.
Now, state government relies on income and sales taxes. Municipal governments rely on the property tax.
Cities and towns amassed nearly $2.4 billion in property taxes in 2015, the Maine Municipal Association estimates. It’s far larger than the individual and corporate income tax or the sales tax, of which Maine collected $1.8 billion and $1.4 billion, respectively, in the 2018 fiscal year.
The income tax is only paid by Maine residents and the sales tax is largely paid by them. Comparatively, Maine residents paid $959 million in property taxesin 2012, but the tax is regressive for those people as property value has become an increasingly flawed way to measure wealth.
On average, the bottom 80 percent of households — those making less than $78,000 — paid more in property taxes than in income taxes in 2012. The top 1 percent of earners paid an effective property tax rate of 0.57 percent, less than a quarter of what Maine paid on average.
Property taxes reflect how people live and move. A 1997 report from the State Planning Office under then-Gov. Angus King largely blamed sprawl for increases in local spending. Nearly half of the $727 million to fund new school construction from 1975 and 1995 was used in fast-growing areas, though Maine’s overall student population decreased.
“My 30,000-foot perspective is that we’re over-reliant on the property tax,” said Evan Richert of Brewer, who ran the State Planning Office under King. “It kind of warps decisions from time to time because we’re so reliant on it — whether it’s decisions about economic development or decisions about needed infrastructure or the funding of schools.”
Maine has responded with state-level programs aimed at easing property tax burdens. They have often been shorted, though that could soon change. The state began sharing tax revenue with cities and towns in the 1970s. Maine passed a 2004 referendum saying the state must pay 55 percent of essential local education costs. Other relief programs exist, including the homestead exemption, which lowers the taxable value of a household’s primary residence.
However, the 55 percent threshold has never been met. Revenue sharing was shorted in the recession and during the tenure of LePage — who repeatedly proposed ending the program — to the tune of $700 million, according to the Maine Municipal Association. In 2013, the Legislature replaced the “circuit breaker” property tax relief program with a smaller tax credit.
During this time marked by a rebounding economy, cities and towns grew even more reliant on the property tax, which accounted for 56 percent of municipal revenues in 2015, according to the Maine Municipal Association. That was up from 53 percent in 2010.
In the Legislature, there are at least 13 bills looking to restore revenue sharing in some way, though the $219 million price is figured into state revenue projections. Others want to meet the 55 percent school funding threshold. That will cost $320 million, according to the liberal Maine Center for Economic Policy. Jackson wants to restore the circuit breaker program.
Complicating matters is Mills’ campaign promise not to raise state taxes in her two-year budget proposal due to the Legislature in February. Mills spokesman Scott Ogden said high property taxes “are of serious concern” to her after campaigning on promises to work toward full school funding and restoring revenue sharing.
It’s unclear what kind of property tax relief lawmakers could provide if they stick to those tax constraints. Jackson said he’s “adamant” revenue sharing be fully funded. But he “can’t say for certain that we’re going to get all the way to 55 percent” on school funding, though he called it “a definite priority.”
While Mills remains in a honeymoon period with Democrats, there are liberal divisions on taxes. Many see the reversal of LePage-era income tax cuts as ways to reduce property taxes, and the Maine Center for Economic Policy has proposed hikes on high earners that Mills opposes.
Rep. Ryan Tipping, D-Orono, the liberal co-chair of the tax committee, said while he hasn’t discussed taxes with Mills, he’s “optimistic that we can make progress on a lot of different issues.”
Some urban legislators have proposed allowing cities and towns to enact local-option sales taxes. Republicans oppose that.
Senate Minority Leader Dana Dow, R-Waldoboro, is proposing allowing service centers to get higher revenue-sharing rates than other cities and towns. He said all lawmakers want to lower property taxes, but if other taxes are raised to do it, it amounts to taking money “out of one pocket and into the other.”
“My solution is we better the economy and continuously work on that so we don’t have to take that buck out of your pocket,” Dow said.
After LePage’s heavy focus on income taxes, Kate Dufour, a lobbyist for the Maine Municipal Association, said cities and towns are back “on the radar” in Augusta, waiting to see “how high we are” on the list of priorities.
“It’s just nice to know that people are acknowledging that there has been a significant shift onto the property taxpayers,” she said.
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This article originally appeared on www.bangordailynews.com.
