AUGUSTA — Several of Pownal’s neighboring towns could see something of a tax revenue bonanza and reduced property tax rates if Gov. Paul LePage’s two-year budget is enacted by the Legislature.
Pownal isn’t so lucky. In fact, the town would likely lose revenue under the governor’s plan. And its 1,500 residents could be forced to make up the difference by paying higher property taxes, said Scott Seaver, Pownal’s assistant administrator.
That’s because the governor’s $6.3 billion budget proposal includes a massive tax overhaul that would eliminate state aid to cities and towns and replace it with a provision that allows localities to tax large nonprofit organizations. Many communities would more than make up for the lost state aid by taxing nonprofits. The problem for Pownal, and about 350 other Maine towns, is that it doesn’t appear to have nonprofits within town limits that would be taxable under the governor’s proposal.
The same goes for neighboring Durham, which also would be on the losing end of tax overhaul. Meanwhile, the nearby communities of Freeport, Cumberland, New Gloucester – even tiny North Yarmouth – are among the 150 municipalities that could either break even or greatly benefit, according to a preliminary analysis by the Maine Municipal Association.
The prospect of winners and losers among municipalities and property taxpayers is weighing heavily on state lawmakers, who are in the process of unpacking LePage’s comprehensive tax plan. The administration is sensitive to the potential disparity, too. According to the best available data, the potential loss of revenue is more pronounced in the same rural communities that played a key role in re-electing the governor in November.
Pownal and Durham, for example, are among the vast majority of small towns that supported LePage, while most voters in neighboring communities that might benefit from the plan – Freeport, Cumberland and North Yarmouth – voted against the governor.
IDENTIFYING ALL THE NONPROFITS
On Wednesday, Richard Rosen, the governor’s budget chief, said it was too soon to make definitive conclusions about winners and losers.
“When folks try to quickly identify who these private nonprofits are, people automatically go to the obvious institutional organizations,” he said. “I think when we take a look at this we’ll probably discover that there are more private nonprofit property owners that would become subject to half of the tax liability in many more communities throughout the state than we’re perhaps thinking of off the top of our heads.”
LePage administration officials said they’ll scour federal tax filings to determine just how many taxable nonprofits are out there.
For now, however, local officials such as Seaver are relatively confident that any discoveries would end up in the localities that already have known organizations to tax. For Pownal, the governor’s budget plan would mean a loss of about $74,000 in municipal revenue sharing, according to data from the state treasurer. That’s about 5 percent of the town’s annual budget.
“To be truthful, I don’t see any way that we could make up the lost revenue without raising property taxes,” said Seaver, who noted that the town has a volunteer fire department and contracts for police services through the Cumberland County Sheriff’s Office.
SWEEPING REVISIONS TO TAXATION
LePage has proposed the elimination of municipal revenue sharing in his budget, a sweeping and complex proposal containing a tax initiative that reduces income taxes, eliminates the estate tax and raises sales taxes. In exchange for eliminating an estimated $250 million in revenue sharing over the next two fiscal years, the governor has proposed allowing towns and cities to offset the losses in state aid by beginning to collect property taxes from nonprofits with $500,000 or more of assessed value. Churches and government-owned entities would remain tax-exempt.
Additionally, municipalities would receive roughly $9 million in telecommunications taxes now collected by the state. Qualifying individual property taxpayers could benefit from a $63.4 million increase in funding for the property tax fairness credit, and property owners 65 and older would see an increased homestead exemption. Those below age 65 would lose the homestead exemption entirely.
UNEVEN IMPACT ACROSS THE STATE
It’s unclear whether all the proposed changes would provide the property tax relief that revenue sharing is designed to achieve. According to the Legislature’s Office of Fiscal and Program Review, Mainers’ per-capita spending on property taxes increased from $1,623 in 2008 to $1,987 in 2014. Property taxes represented 4.9 percent of personal income in 2014, and in 2011 the Tax Foundation ranked Maine the 14th highest in per-capita state and local individual income tax collections.
Nonetheless, the available data suggests that eliminating revenue sharing and replacing it by taxing nonprofits would have a disproportionate benefit across the state. Service centers such as Portland, where revenue sharing comprises just 2 percent of the city and school budget, would likely benefit. The city listed at least $750 million worth of tax-exempt property held by charitable, scientific, fraternal, veterans organizations and other nonprofits in 2013, according to a report compiled by Maine Revenue Services.
That same report, the 2013 Municipal Valuation Return Statistical Summary, shows that 23 of 28 towns in Cumberland County have nonprofit properties with a valuation of $500,000 or more. The five others, including Pownal, Baldwin and Gray, either don’t list any, don’t have enough property to qualify or are on the bubble.
BLOW TO NON-SOUTH RURAL AREAS
The disparity is more pronounced outside of southern Maine. Fourteen of 38 towns in Washington County list nonprofits with valuations that would be taxable. In some instances, the towns that could offset the loss in revenue sharing by taxing nonprofits are neighbors of towns that can’t.
Take Harrington, which lists $10 million in nonprofit valuation. Right next door in Milbridge? Zero.
Lewis Pinkham, Milbridge’s town manager, said that unless the tax plan allows him to tax property owned by the U.S. Department of Interior – it does not – property taxpayers could take a hit.
“It would dramatically impact us,” Pinkham said. “It’s going to raise property taxes.”
There are similar scenarios all over the state, particularly in rural Maine. The town of Readfield reported over $15 million in tax-exempt valuation in 2013, thanks in large part to the existence of Kents Hill School, a private school. Next door, the town of Mt. Vernon didn’t show enough exempt property to tax.
TAX-EXEMPT DATA INCOMPLETE
Michael Allen, LePage’s tax policy commissioner with Maine Revenue Services, said the current nonprofit data is incomplete. Some town officials interviewed by the Portland Press Herald agreed. Although towns are required to report tax-exempt property to Maine Revenue Services annually, many don’t put a lot of resources into assessing properties they haven’t been taxing.
Allen estimated that towns could generate between $60 million and $90 million in revenue from the plan. When Allen presented the estimate Wednesday to the Legislature’s budget and taxation committees during a joint briefing at the State House, several lawmakers noted that those revenues won’t be distributed across all municipalities, only those with taxable nonprofits.