AUGUSTA, Maine — As Maine lawmakers continue to dig into Gov. Paul LePage’s two-year budget proposal, which includes sweeping changes to the state’s tax policy, Auburn Mayor Jonathan LaBonte said cities and taxpayers should gain more than they lose.
Among other changes, LePage’s proposal eliminates about $62 million of state revenue sharing with cities and towns in 2017.
It attempts to allow municipalities to make up for that lost funding by allowing them to apply a partial property tax to large nonprofits including hospitals, private schools and colleges and other charities with property worth more than $500,000.
The plan continues to exempt churches or “houses of worship” but would include private parochial schools and other nonprofit schools.
LaBonte, who also is the director of LePage’s office of policy management, said Wednesday during a briefing with reporters that fears the proposal would decimate municipal finances are overblown.
He said in 2008 revenue sharing only accounted for 5 percent of municipal budgets statewide and that the figure had decreased to 3.5 percent by 2012.
“So revenue sharing is not a large share of those municipal budgets and certainly not a large share of what’s going toward those expenditures,” LaBonte said.
When revenue sharing was first put in place, its intent was to provide property tax relief. Because the funding was directed to municipal government and did not go directly to property owners, they never ultimately benefited, LaBonte said.
Instead, property taxes continued to climb along with municipal spending, he said.
“It’s become clear revenue sharing is not providing targeted tax relief, because we are seeing continued increased expenditures and really limited reform in terms of how local governments are providing services,” LaBonte said.
Under LePage’s new proposal, the state’s homestead property tax exemption would be available only to households with a family member who is age 65 or older but would be expanded to exempt the first $20,000 of a home’s assessed value, compared with $10,000 now.
That proposal saves the state about $12 million a year, according to Richard Rosen, commissioner of the Department of Administration and Financial Affairs and LePage’s top budget officer.
LePage’s plan also expands the state’s Property Tax Fairness Credit, which provides property tax relief to low and middle income households.
LaBonte said the intent is to provide property tax relief directly to taxpayers instead of to municipalities.
Opponents to eliminating revenue sharing will say property taxes will increase, but LaBonte said the trends show property taxes have steadily increased regardless.
He also said the trend of increasing property taxes was in full swing, well before LePage, back in 2011, first proposed reducing the amount of tax revenue the state shares with local governments.
LaBonte said there were only two municipal governments where revenue sharing made up more than 10 percent of their total budgets, and both of them were municipalities with relatively small budgets below $300,000 per year.
“So these are really the outliers in this program,” LaBonte said.
LaBonte also suggested Wednesday that the idea to tax nonprofits was an effort at fairness, saying many of the largest nonprofit entities — including private colleges and hospitals — depend heavily on municipal services.
Lawmakers on the Legislature’s budget-writing Appropriations and Taxation committees questioned Rosen on the plan to tax nonprofits during a hearing later in the day.
Rep. Diane Russell, D-Portland, a Taxation Committee member, noted that her city would have plenty of sources for the new tax, given the large number of nonprofits in Maine’s largest city.
But Russell said she worries how smaller towns, including her hometown of Bryant Pond in Oxford County, would fare under the proposal.
“I’m not sure there is extra taxable opportunity for a town like that,” Russell said. “I would love to know what happens to towns like that, that don’t have the scenario like Portland does — where we could overnight tax Maine Medical Center — which I’m sure they will be very excited to hear.”
Rosen said LePage’s staff was “still working to get a sense of how far and wide tax-exempt private property is.”
Rep. John Martin, D-Eagle Lake, an Appropriations Committee member, noted other apparent flaws for his region in the plan.
Martin said the city of Caribou in far northern Maine actually owned the hospital there, which would not be taxable under the LePage plan. Meanwhile, Presque Isle, which does not own the hospital in that city, would be able to levy property taxes on that nonprofit.
Overall, only about 150 of Maine’s 492 municipalities reported property tax-exempt nonprofits within their jurisdictions, according to information from the Maine Municipal Association.
But Rosen suggested other parts of the budget proposal, including the expansion of the homestead tax exemption and Property Tax Fairness Credit programs, would likely offset any increases residents in those towns might face in their property taxes.
LaBonte said people who may be questioning the plan should examine federal tax returns for the nonprofits in question, noting that many make substantial profits.
“Profit is not a bad word, and the intent of a nonprofit isn’t to not make money, but it is to make money so you can provide more services and expand the quality of those services,” LaBonte said.
But, he said, municipalities need a better mechanism to receive compensation from large nonprofits for police, fire, road maintenance and other services that benefit those large nonprofits.
He said when he talks with some of the larger “service center communities” such as Lewiston and Auburn they have long asked for a better way to “balance this relationship.”