As a new year approaches, a business owner must prepare a budget for their business. Decisions must be made as to how many workers will be employed, what compensation can be afforded for those employed, will new equipment be needed, and if the business is sales oriented, how much inventory will be needed. However, a successful business owner cannot begin the budget with these thoughts. Where does the process begin? The first decision must be to determine the amount of revenue (sales) that will be created. The revenue must exceed the expenditures or the business will eventually fail.

Individuals also must in some form go through the same process. Before purchasing a home, car, or even type of food, one must determine if there are enough funds to pay for the expense. This is again called budgeting. The household must determine that enough income exists before making expenditures or eventually failure in the form of bankruptcy will occur.

How does the process work when our local towns and school districts prepare their budgets? Local governments analyze their expenses first. They analyze the payroll, heating, electricity, fuel, debt repayment, equipment costs, maintenance, and so on. The analysis is done on the basis of whether they will spend more or less on each item in the budget in the coming year. After compiling all of the numbers, a budget of total expenditures is complete. Only then do they consider income. Income in this case is called taxes. If the “necessary” expenditures exceed the amount of taxes collected in the previous year, then a property tax increase is indicated.

Using this method the local governments avoid the negative implications of running out of money and shift the burden to individuals and businesses. Individual households and businesses must adjust their budgets to pay the required increased property taxes. In the last few years statistics tell us that the disposable income of individuals and the profitability of small businesses have actually decreased. While it is admitted that local taxation is not the only cause of these decreases, it is certainly a significant contributor.

What is the result of continually rising property taxes? Individuals, businesses, and the community as a whole experience a tremendous loss of wealth. Compare the value of single pieces of real estate in a highly taxed community to similar real estate in a much lower taxed community. The value of real estate in the highly taxed community will be significantly lower. One might think that this “bargain” real estate would be bought up immediately. This is not so. You buy a piece of real estate once, and pay property taxes forever. What is the impact on wealth? Between the property taxes and cost of real estate the owner in the highly taxed town is paying about the same as the owner in lower taxed town. However, the owner in the lower taxed town has a higher value of their real estate and thus greater wealth.

What would be the impact of towns and school districts being required to change their approach to budgeting? The assessors in each municipality would provide estimated property tax revenue based upon existing rates and values. Budgets would then conform to these amounts. As assessed values of a town’s real estate increases, there would be a corresponding increase in the amount of revenue available. There would be an immediate stabilization of property taxes and a huge incentive for the town government to make decisions based upon increasing property values and general wealth as the source of increased income.

While the details of this approach are admittedly simplistic, the concept of simply raising taxes to accommodate new spending is not the correct choice. The general population is aging. Retirees are finding it more and more difficult to pay property taxes and are being forced by economics to make difficult choices as to where they are able to live. High taxes contribute to rent or monthly payments that are too high for young folks who wish to purchase a home, making it unaffordable. Solutions to ever increasing property taxes need to be found and having local government learning to live within its means is a good place to start.

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Another View is a Maine Press Association award-winning column written by various members of a group of concerned citizens who meet regularly in the Mid- Coast area.