Gov. John Baldacci will ask the incoming Legislature to put a cap on property assessments for those who call Maine home as his answer to tax relief – a proposal that was defeated several times in the last legislative session and already is drawing fire.
The proposal, which would require a change in the constitution and therefore a two-thirds vote of the Legislature and a vote of the people, would in its simplest form, limit the growth in value on the primary homes of Mainers to the rate of inflation.
Baldacci said on the campaign trail, and has stated often since then, that it is the spike in home values, largely driven by what the new neighbors just paid for their house, that is angering taxpayers. When the assessment goes up, some homeowners pay more of the local tax burden, and the increase can be dramatic, particularly for waterfront property.
Limiting assessment increases on primary residences, but not for second homes, would put more of the tax burden on out-of-state owners and less on full-time residences.
But not everybody is happy about the idea.
“It means more property tax relief to people who own million-dollar homes on the water … borne by people on the back roads,” said Christopher “Kit” St. John of the Maine Center for Economic Policy. “It’s fundamentally unfair.”
He was referring to those year-round Mainers, who live on the water and would be eligible for the tax break while the value of their homes continued to go up with the real estate market.
The business community also worries that it will shift the tax burden from residential to commercial property. Martha Freeman, the director of the State Planning Office and one of Baldacci’s lead people on tax reform, said the details are still being worked out on this year’s version of an assessment cap, but the governor wants something passed.
“It’s coming,” Freeman said.
One of the key details is how much back property taxes, if any, homeowners should have to pay when they sell their homes. Earlier versions of the proposal talked about paying back five years of taxes or some percentage of what would have been owed if the house had been assessed at full value. There also was a proposal in the last session that would have allowed municipalities to adopt the cap on a town-by-town basis.
“We don’t quite know what the governor’s proposing,” St. John said. “We’re not enthusiastic about valuation caps in general because of what we regard as the long-term problems they create.”
Aside from giving tax breaks to the rich or those who can afford waterfront homes, St. John said, the assessment cap would shift the tax burden onto businesses.
“Residential property has grown in value a lot faster than business property,” he said, and an assessment cap on a person’s primary residence would reverse that trend.
“I don’t think the business community is going to welcome a substantial shift back,” he said.
St. John also is worried about limiting municipal revenue.
“Over time, it erodes municipal revenue and does not allow municipal revenue to grow with the cost of services,” he said. “Some people may think ‘let’s stick it to the towns,’ but I don’t think that was the lesson from TABOR.”
The Taxpayer Bill of Rights was defeated, 54 to 46 percent, after the teachers union and Maine Municipal Association campaigned that the tax and spending limits it proposed would cut local services.
Rep. Dick Woodbury, an independent from Yarmouth, chaired the Taxation Committee in the last Legislature and heard the debate over the assessment cap, then dubbed LD2. It was a companion to LD1, which increased state aid for schools.
“What is appealing about LD2 is that taxes are stable and predicable over time and based on what someone could afford when they bought their property. What’s controversial is that identical properties can have very different taxes imposed on them regardless of the owners’ ability to pay,” he said.
“New homebuyers need to pay more in order to provide the relief to long-term property owners,” Woodbury said. “And the biggest reductions in tax burden are provided to people who have had the biggest gains in the values of their properties.”
St. John said he would like to see tax relief given to those who need it most through an expansion of the state’s circuit-breaker program, which limits what percent of income people pay on property taxes through a rebate program. The current ceiling on that rebate is $2,000.
“If you have limited resources to spend in tax relief we should get the greatest tax relief to the households that have the greatest problem. That’s what I would categorize as fair,” he said.
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