AUGUSTA, Maine — Will Maine’s nine town academies, private schools where at least 60 percent of students are local and publicly funded, be subject to Gov. Paul LePage’s proposal to allow towns and cities to tax large nonprofit organizations?
And if they are, does it make sense for a town to pay tuition for local students with one hand and collect a new property tax from the schools with the other?
Even Suzan Beaudoin, the Maine Department of Education’s director of school finance and operations, was stumped when asked that question Wednesday by Sen. James Hamper, R-Oxford, Senate chairman of the Appropriations Committee.
“Oh, good question,” she said. “Would that be an eligible cost for the tuition rate? That will be a good question.”
It’s one of many for which detailed answers have been scarce.
How town academies, such as Fryeburg Academy, Maine Central Institute in Pittsfield and Lincoln Academy in Newcastle — all of which are nonprofit organizations — will fit into the school funding mix is one of several unanswered questions related to how the flow of education funding would change if the proposal in LePage’s biennial budget to require municipalities to tax large nonprofits becomes law.
Lawmakers from both sides of the aisle and Department of Education officials agree that the ramifications on some school districts could be significant. They also agree that understanding how significant might be weeks, or months, or maybe even years away.
How would taxing large nonprofits affect state education funding for cities or towns with large nonprofit organizations? Maine’s school funding formula heavily factors a municipality’s overall taxable property value into the calculation to determine how much state aid local school districts receive. Towns and cities with high property values — such as coastal, urban and industrial communities — generally receive less state education funding. Adding properties like hospitals and colleges, which are currently untaxed, to a town’s assessed value could reduce state funding.
Service centers such as Portland, Bangor and Lewiston could experience significant decreases in state aid to education if the taxable value of hospitals, colleges and museums is added to current overall valuations. Those communities would have to use new tax receipts from nonprofits not only to compensate for LePage’s planned elimination of state revenue sharing, but also to cover reduced state aid to local school systems.
Department of Education spokeswoman Samantha Warren said whatever the impact, it will be phased in over three years.
“I don’t want to speculate on the impact of this particular tax proposal on education funding, as it is far too early to do so,” wrote Warren in response to questions from the BDN.
Would the new funding levels be fair to all the towns within a single school district? If one town in a given school district experiences a sharp decrease in state funding because its taxable value increases, the percentage of education costs paid by that town would increase relative to surrounding towns. What each town within a district pays and whether that’s fair has caused controversy all over Maine, including in Regional School Unit 1, where residents of West Bath voted earlier this month to withdraw from the district over a funding dispute.
Will the revenues gained from new taxes on nonprofit organizations balance the loss in state education funding? Nobody knows. Most of the state’s nonprofit organizations have not been assessed for tax value, because they’ve never been taxed. How much education funding will be available three years from now when the proposal takes full effect is another among myriad moving parts.
How will the proliferation of charter schools affect school funding? LePage has proposed paying for public charter schools out of the pool of all state money earmarked for local schools, as opposed to the current practice of having a charter school student’s former school district pay the local cost. It’s an approach that has been debated extensively in recent years as a means of minimizing the financial impact on any single district. LePage says he is proposing $6 million in new money for charters while essentially flat-funding the overall state budget for local schools at $888 million per year, which is a less than 1 percent increase over the current level. However, he is also proposing to shift more of the cost of education to municipalities by increasing how much they must raise from property taxpayers in order to trigger full state funding. He proposes that towns pay $8.44 for every $1,000 of their valuation, as opposed the current rate of $8.10. That equates to a shift in costs to municipalities of tens of millions of dollars statewide. That essentially means that LePage wants credit for dedicating money for charter schools even though overall, the state’s percentage share of education costs is decreasing. As Maine’s seven charter schools increase enrollments, including two virtual schools, and up to three more charter schools are created under Maine law, state funding for traditional public schools will be diluted to some degree as long as overall funding stays flat because there will be more schools drawing from the same pool of money.
Is this all leading to what lawmakers in Augusta call “spreadsheet politics”? Inevitably, the Department of Education or some other group will crunch some numbers — hypothetical as they may be. As has happened before, lawmakers will scroll down the spreadsheet to the row with their district’s name at the left and see whether the changes will help or hurt their local schools. Will they vote accordingly?
How important is taxing large nonprofits to LePage’s overall tax reform vision? Probably not very important. Most of the plan is based on a massive reduction of the income tax rate and increased sales taxes. Forcing the new property taxes on nonprofits is LePage’s way of smoothing over other changes he wants to make to municipalities — chiefly, cutting municipal revenue sharing. Given the potential effect on education funding and the rock-and-a-hard-place situation municipal leaders will find themselves in when levying taxes on their local hospital, for example, this piece of LePage’s tax reform might be the one at highest risk of being amended out.
So what’s a lawmaker to do?
“Many of us are looking to see some of these answers before speculating,” said Republican Sen. Brian Langley of Ellsworth, who co-chairs the Education Committee. “It’s why people aren’t jumping up and down and ready to comment for or against these proposals. We just don’t yet have a good handle on what will happen.”
Sen. Rebecca Millett, D-Cape Elizabeth, said past funding debates have shown that changing property valuations for towns and cities trigger drastic impacts on state funding for schools.
“My question is how much has the Department of Education even been able to think about the impact of the nonprofit proposal,” said Millett. “I’m not even sure how much that has entered into the realm of their analysis.”