AUGUSTA — A cornerstone of Governor Paul LePage’s proposed $6.3 billion budget is drawing mixed reviews in Maine cities and towns.
LePage proposes to cut their share of state income and sales taxes. In exchange for losing revenue sharing, the municipalities would be able to tax some property held by local nonprofits.
This would require institutions, such as The Jackson Laboratory in Bar Harbor and the county’s hospitals, to pay property taxes.
Communities such as Bar Harbor could collect some $1.5 million in new property taxes while losing just $136,000 in revenue-sharing funds, according to very preliminary figures.
Justin VanDongen, tax assessor for Bar Harbor, said exact figures of how much could be collected in property taxes are not available since assessments are outdated.
However, a cursory review shows that the total in new property taxes for Bar Harbor under the governor’s budget would be $1.5 million.
The town now receives about $136,000 in revenue sharing funds.
“This could be a pretty large windfall,” said VanDongen.
Of the $1.5 million, $1.1 million would be paid by The Jackson Laboratory.
On Wednesday, Jackson Laboratory officials declined to comment on the specifics of the governor’s proposal citing the possibility of substantive changes during the legislative process.
Other Bar Harbor institutions that would be subject to taxation under the proposal are the College of the Atlantic; Mount Desert Island Hospital; the Abbe Museum; the Bar Harbor Village Improvement Society; the Bar Harbor Yacht Club; the MDI YMCA; the Masonic Lodge; the Jesup Memorial Library; and possibly the American Legion Post.
The tax on the property owned by nonprofits would not apply to churches or any municipal building.
Institutions to which the proposal would apply would be taxed on 50 percent of the total assessed property value over $500,000.
The proposal is just one facet of the governor’s draft two-year budget.
Other major changes would include, among others, increasing the sales tax, decreasing the income tax and getting rid of the corporate and inheritance taxes altogether.
The budget debate in the Legislature will take place over several months until a spending plan is adopted, maybe by the end of the legislative session in June.
Richard Rosen, acting commissioner of the Department of Administrative and Financial Services, Tuesday presented an overview of the budget to the Joint Standing Committee on Appropriations and Financial Affairs.
Rosen said later the budget has to be looked at as a whole.
One complaint about taxing nonprofits is that only about 150 towns and cities have nonprofits to tax. The remaining 300 would simply lose revenue sharing.
Rosen said it’s not that simple.
He said there is relief for towns and cities that say they would have to increase property taxes to make up for the loss in revenue sharing.
Rosen said the Governor’s proposal would double the homestead property tax exemption for residents 65 and older. He said the income tax would decrease and all military pensions would be exempt from taxation. In addition, the threshold for the tax exemption on pension income would increase from $10,000 to $35,000 and the property tax fairness credit would be enhanced.
The property tax fairness credit approved in the last legislative session reimburses residents based on their property tax liability when compared to their income.
Rosen said the credit for eligible taxpayers under 65 would increase to $1,000 and for those over 65, up to $1,500.
The LePage budget estimates Maine families and small businesses could expect to see a collective $300 million annual reduction in taxes.
Rosen said the governor included $20 million in funding to help municipalities look at and institute consolidation of services such as schools.
“There are opportunities to collaborate and look for greater efficiencies, whether it is a back office function or developing alliances,” Rosen said.
The key, he said, is that the consolidation is voluntary and the $20 million would help pay for the process.
The Maine Municipal Association (MMA) has alerted its membership to what has become yet another effort to delete the revenue sharing that has been in place since 1972.
The MMA has said repeatedly that the distribution to towns and cities of 5 percent of all sales and income taxes has been steadily decreasing while the state uses the fund as a personal “magic ATM machine.”
Geoffrey Herman, director of state relations for MMA, said nearly 60 percent – or $86 million – has been siphoned from the local government fund in the current fiscal year.
The distribution of revenue sharing is based on population as well as the amount of taxes towns and cities collect in order to pay their bills.
Sen. Brian Langley, (R-Ellsworth), said it was premature to comment and that legislators are just beginning to absorb the finer points of the budget.
He did say taxing the property of large nonprofit groups has been proposed in the past without much success.
“There are tremendous numbers of nonprofits that are part of the economic engine in the area,” Langley said. “All of that has to be carefully weighed.”