While many lawmakers say there hasn’t been a broad-based tax increase in Maine in years, municipal officials and property taxpayers may find this a hard claim to believe.

That’s because amid the recent budget cuts, the state trimmed the Homestead Exemption — the popular property tax relief program that went into effect in 1998 — by reducing the exemption Maine homeowners can take off the taxable value of their properties by $3,000, from $13,000 to $10,000.

It went into effect April 1.

Municipal budgets already were squeezed by reduced state aid to education; the cut to the Homestead Exemption, officials say, only added more pressure by reducing what is essentially a property tax refund.

The impact was felt unevenly in local municipalities during this spring’s budget and Town Meeting season.

Homeowners in Augusta, for example, will see tax bills increase by about $50 due to changes in the exemption.

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In Gardiner, homeowners eligible for the Homestead Exemption will pay $60 more this year in property tax. In Randolph, officials say tax increases will amount to an additional $42.90 per tax bill. In Winthrop, property owners who qualify for the exemption will each pay $39.84 more. Vassalboro residents who receive a Homestead Exemption will see an increase of $30.30.

State tax officials, however, warn it’s difficult to conclude tax bills are higher because of the exemption. Municipalities could absorb it either by cutting spending or voting not to exceed the tax levy limit.

Still, said Stan Davis, a former Wayne selectman who also served on the town’s planning board and school board, cuts to the Homestead Exemption put the lie to claims the state is not raising taxes.

“When I heard that, in addition to loading more cost of education on local communities, the Homestead Exemption was reduced, I don’t think I’ve been as angry about anything in decades,” Davis said. “It’s the reverse Robin Hood tax.”

HISTORY OF CHANGES

In 1998, the Legislature responded to complaints that budgets were overly reliant on property taxes by enacting the Homestead Exemption.

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David Ledew, director of the property tax division at Maine Revenue Services, said the program was created as “targeted property tax relief for resident homeowners.”

The exemption has become one of the most popular tax rebates the state offers — some 85 percent to 90 percent of resident Maine homeowners take advantage of it, according to Maine Revenue Services.

Paralleling Maine’s long-standing property tax exemption for veterans, the original Homestead Exemption reduced property tax bills for Maine homeowners who sought it by subtracting $7,000 from the assessed value of their homes.

The Legislature has made numerous changes to the exemption — in 2003, 2005 and 2010.

In 2003, legislators created a tiered exemption: Properties valued $125,000 or less kept the $7,000 exemption; properties valued $125,000 to $250,000 got a $5,000 exemption; property valued $250,000 or more got a $2,500 exemption.

In 2005, the exemption was changed to a flat $13,000 per eligible property; in 2009, it was reduced to $10,000 — a 23 percent cut. The savings to the state budget was approximately $5.6 million.

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In municipalities not at full assessed value, the exemption can be even smaller.

In Mount Vernon, for example, the state’s assessment ratio — the relationship between an assessed home value and the “full value” as envisioned by the state — is 95 percent, so the amount of the exemption is only $9,500 for residents there.

‘EXTRA SHOT’ AT TAXPAYERS

With the flagging economy crimping all revenue categories, many towns have made deep cuts to municipal and school budgets.

But even after cutting or flat-funding local services, officials were frustrated to find they still had to raise local property taxes.

Town managers and selectmen lay the blame mostly with reduced state funding for education, which ballooned the amount towns had to pay for what is every municipality’s largest expense.

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But the cut to the Homestead Exemption was what one official called an “extra shot” aimed at taxpayers.

Manchester Town Manager Mark Doyon said the homestead cut is “substantial” and “directly affects” the town’s property taxpayers.

“The governor and certain legislators have made comments on how they didn’t raise taxes,” Doyon said. “The reduction in the Homestead Exemption and state aid to education Well, they didn’t raise state income tax or sales tax, but instead shifted it onto the backs of the local taxpayers. They’re giving each other a huge slap on the back, and I don’t know if it’s deserved.

“Even if all our revenues and budget numbers stay the same, taxes would go up because of the fact that the state changed the formula on the homestead reimbursement,” he added. “And I think that’s indicative of any community.”

Winthrop Town Manager Cornell Knight said that, after cutting expenditures for schools, “they still required $375,000 more on the tax rate, which is 62 cents for every $1,000 of assessed property value.”

“Couple that with a slow economy and reductions in revenue sharing,” Knight said, and “it’s disappointing to have to put more pressure on the property tax.”

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Davis, the former Wayne selectman, calls the homestead cut a “reverse Robin Hood tax,” because, while the state’s attempt to raise the income tax on wealthier Mainers was repealed at referendum in June, the cuts to the Homestead Exemption stuck.

“You’re choosing to tax the poorest citizens and not increase the income tax on the wealthiest people in Maine, and I just think that’s wrong,” he said.

“A large enough Homestead Exemption says, below a certain income, you will not be taxed out of your home if the cost of education or local services go up. The idea is if your income is below a certain level, then your property tax won’t be more than a certain percentage and state aid to the town will make up the difference.”

While the cut to the Homestead Exemption hit lower-valued properties harder — the loss of $3,000 is a 3 percent cut for the owner of a home valued at $100,000, while the owner of a $200,000 home only takes a 1.5 percent cut, Ledew disagrees with Davis’ notion of a regressive tax.

“It’s not regressive in terms of people’s ability to pay,” Ledew said. “If you look at the owner of a $200,000 home, their ability to pay, their income, will be higher than for the owner of a $100,000 home.”

MAKING CASE FOR TAX REFORM

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While many municipal officials see the Homestead Exemption cut as a de facto tax increase, some also see it as a necessary one.

“Both the governor and legislators have done this,” Gardiner City Manager Scott Morelli said. “Unfortunately, I can’t shift too much blame on them because, in reality, here in Gardiner we’ve had to increase fees, as well, as a means to try and not raise everyone’s taxes.”

In Randolph — where the 448 homeowners who receive a Homestead Exemption will pay $42.90 more each in property tax this year — Ed Gorham, chairman of the Board of Selectmen, said legislators are doing the best they can.

“I don’t think people understood what the Legislature has done in cutting back the reimbursement level,” Gorham said. “Unfortunately, it’s a hard way to find out.

Eric Conrad, spokesman for the Maine Municipal Association, said taxpayers need to realize that the reduction in the Homestead Exemption is just one of the state’s “menu of cuts” to municipalities.

The biggest hit, he said, is the state’s failure to pay 55 percent of the cost of educating children in kindergarten through 12th grade.

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Doyon thinks he has a better idea than cutting aid to towns.

“At least in my humble opinion, we need to do some serious tax reform in the state with sales, income and property taxes,” he said, “or this will continue to be a burden.”

Kennebec Journal City Editor Bob Mentzinger contributed to this report.

 


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