March 26, 2013

Governor Paul LePage’s $6.2 billion two-year budget proposal cuts off all revenue sharing with municipalities and reins in two of the state’s main property tax relief programs, the Circuit Breaker refund and Homestead Property Tax Exemption. The proposal also ends the Business Equipment Tax Refund program, which reimburses businesses for equipment they purchase, and requires school districts to pay a much larger share of their teacher retirement benefits, and eliminates state revenue sharing.

How the LePage administration has outlined his objectives in this budget proposal amounts to over $400 million in a tax shift to communities across the state.

The Republican controlled 125th Legislature pushed through tax cuts that mostly favor the wealthiest 2 percent of Mainers when they enacted more than 50 tax-related bills. But they only paid for less than a tenth of the total long-term tax cuts they set in motion.

Essentially, LePage is raising taxes in order to pay for his income tax cuts, passed in 2011.

Hardest hit by what Rep. Seth Berry, who was the minority chair on the taxation committee called, “the biggest tax shift in Maine’s history,” will be the middle class and low income-working citizens when their property taxes skyrocket. In a 2012 Op-ed Berry warned that the vast majority of Mainers would be in, “for a world of hurt, while a select few are in for a major new tax windfall.”

“Due to the many tax measures passed by the 125th Legislature by the majority, the few making $350,000 and up will receive an income tax cut of $3,000 next year. In future years, that windfall will increase to more than $24,000 per year,” wrote Berry. “In contrast, the single parent, and tens of thousands of similar Maine households, will receive an annual income tax cut of $8 a year, growing in future years to less than $9. At the same time, they will receive a property tax increase starting in the hundreds . . . The largest tax shift in Maine history has already cost thousands of Maine homeowners and renters more than $400 apiece. Maine’s families, schools and towns can expect a far greater pinch as the future payments come due.”

Many of those payments are now due.

“Thousands of Maine families can expect their property tax bills to skyrocket, if Governor LePage’s proposed budget is approved,” said Garrett Martin, executive director of the Maine Center for Economic Policy. “The budget directly increases property taxes for 75,000 households by an average of $462, and as much as $1,600 for some households. At the same time, income taxes will go up for families who can least afford it, because of proposed changes to income tax brackets.“

The Homestead Property Tax Exemption and the Circuit Breaker program have helped stabilized the unfair property tax system, which are the most regressive taxes people pay. Regardless of your income you are billed after an assessment on your property is completed.

The homestead exemption gives property owners, who have lived in their home primary residence for at least 12 months a deduction of $10,000 off our property assessments, which reduces the property tax bill. The state then makes up the difference to the community. The governor has proposed ending the Homestead Property Tax Exemption for those under 65. End the exemption and property taxes automatically go up on the majority of property owners.

The circuit breaker offers about 200,000 low-income homeowners and renters a maximum property tax or rent refund of $1,600. The average refund is $480 annually. LePage’s budget proposal recommends limiting circuit breaker relief to only elderly residents, saving the state $73.4 million over the next two years.

The reduction in property tax bills would far exceed what residents, under 65 years old, may have gained with the governor’s income tax cut. For them ending these programs amounts to a tax increase.

The biggest cost-shifting hit would apply to cities and towns that would lose over $200 million of dollars in state revenue sharing over the next two years. State revenue sharing is paid yearly to municipalities from five percent of yearly sales tax revenue.

“The cuts for Bangor are over $7million—$7million. That would amount to laying off, if not cutting, 150 teachers, policeman, fireman and public works employees. Our public safety would be at risk, our children’s educations will suffer and economic development would be impeded,” said Bangor City Councilman Joe Baldacci.

Taking away the revenue sharing funding stream would devastate local town and city budgets, most likely forcing up property taxes, while at the same time property tax relief would be cut. LePage has said it’s a “local choice” to raise property taxes.

“There has never been anything as radical and far-reaching as this proposal,” said Portland Mayor Michael Brennan. “It affects every municipality across the state — I can’t believe legislators would support such a radical proposal.”

All these measures together, and a few others, represent cost shifts of over $400 million.

All because the governor won’t get rid of his tax breaks for the wealthiest citizens.

There is hope.

The supplemental budget did not fund many of LePage’s radical cuts. The Appropriations and Financial Affairs Committee stood firm on the principle of working in a bipartisan fashion for all the people of Maine. They reworked the governor’s proposal so the measure passed by a two-thirds majority of votes in the Maine House and Senate, which means LePage’s signature was not required for it to become law.

Budget hearings are taking place and with a bipartisan effort the committee could pass a reasonable budget that would not need LePage’s signature.

And House Majority Leader Seth Berry, has submitted a bill “to provide tax fairness” to middle-class and working families. The proposal will examine state and local tax burdens to ensure that taxes are based on the ability to pay.