Westport Island Selectmen reviewed the preliminary analysis of Governor Paul LePage’s proposed state budget at their meeting, January 14. The analysis was prepared by Geoff Herman from the Maine Municipal Association’s State and Federal Relations staff. The selectmen were not happy with what is being proposed, nor in their opinion, should it sit well with Maine taxpayers.

“This proposed budget will strip $420 million over the next two years, either from the municipal government directly or from the property taxpayers that support municipal government,” Herman said.

In referring to the proposed budget for the next two fiscal years and the proposed supplemental state budget for the current fiscal year (FY 13) Herman said in his analysis, “Between them, the proposed budgets either completely break or seriously violate nearly every significant financial agreement that has been struck over the last 80-plus years between state and local government as currently codified in statute, including:

• The motor vehicle excise tax system established in 1929

• The municipal revenue sharing system established in 1972

• The “Circuitbreaker” property tax relief program established in 1987

• The property owners’ Homestead Exemption established in 1998

• The 55 percent education funding directive established by voters in 2004

• The business equipment tax exemption system established in 2008.”

Excise taxes

In reviewing the preliminary analysis, First Selectman George Richardson said the Governor is trying to balance the state’s budget on the backs of local government, and the taxpayers of Maine. “Towns will either have to raise their taxes or cut services; these are hard times for everyone, and the Governor’s budget proposal is going to make it even harder for people,” Richardson said. “The state’s appropriation of the commercial excise tax proposal will create serious issues for large municipalities.”

Westport Island collects a total of $121,126 in excise taxes, $9,000 from commercial excise taxes and $112,126, from passenger vehicle excise taxes. Westport Island’s estimated annual total expenditures on roads, and bridge maintenance, repairs, reconstructing resurfacing, plowing and local road assistance cost the town $256,877 annually. “There was a time when the excise taxes paid for all the road work in town, but now over $100,000 comes from property taxes already.”

Richardson said should the state decide to take the commercial excise tax, the town would have to replace the lost revenue with property taxes and cut back on local road work.

According to Herman’s analysis, in the area of highway funding, the Governor’s budget is proposing to supplement the revenues that support state road and bridge projects by requiring municipalities to give over to the state some of the money collected through motor vehicle excise tax. The proposal would require all excise tax revenue related to trucks, tractors, trucks that pull trailers, to be collected locally, as is it is being done currently, then give it over to the state for two years. The proposed estimated loss to municipalities is about $4 million each year, for a total of $8 million, also means a gain of $8 million to the state.

Homestead exemption

The property tax Homestead Exemption currently subtracts $10,000 from the assessed value of the home of all Maine residents. Fifty percent of the lost tax revenue associated with the exemption is paid to each municipality by the state. The other 50 percent is paid by the taxpayers within the municipality through an increased property rate. The reimbursed value of the Homestead Exemption costs the state $24 million each year.

The Governor is proposing to eliminate the existing Homestead Exception and replace it with a $20,000 exemption, but the program would only be available to homesteaders who are 65 years of age or older, according to Herman. “Although the proposal would enhance the property tax benefits for elderly Mainers, it will simultaneously increase property taxes for 200,000 Maine homesteaders by approximately $120 per year,” he said in the analysis.

Circuitbreaker Program

The Circuitbreaker is a program where eligible Maine residents can receive a partial refund of property taxes and/or rent paid on their primary residence. Similar to the reduction proposed for the Homestead exemption, the Governor’s proposed budget would eliminate the Circuitbreaker property tax and rent relief program for all beneficiaries except those who are 65 or older.

In addition to the age limitation the proposal also includes additional restrictions: the maximum annual income levels would be reduced from $60,000 to $38,000 for a single person household, and from $80,000 to $59,300 for a multi-person household, according to Herman.

Business Equipment Tax conversion

In 1995 the Business Equipment Tax Reimbursement (BETR) program was implemented under which businesses paying property taxes on the machinery, equipment and other business personal property first installed after April 1, 1995 were fully reimbursed by the state for their taxes paid. In 2008 the Business Equipment Tax Exemption (BETE) was created, under which the same types of commercial/industrial personal property first installed on or after April 1, 2008 were made exempt from being taxed all together, with the municipalities receiving from the state 50 cents on the dollar for their lost tax revenue.

In the Governor’s budget proposal, according to Herman, the personal property installed between 1995 and 2008, which is now governed by the BETR program would become completely exempt under the BETE program. Instead the municipalities receiving full tax revenue and the businesses then being reimbursed, the municipality would receive no tax revenue from the businesses and 50 percent of the lost tax from the state. According to Herman’s analysis, this will save the state about $12 million a year, which the towns will lose.

Municipal revenue sharing

The Governor’s proposal to completely eliminate the distribution of municipal sharing beginning July 2013 would discontinue the distribution of $283 million in property relief over the next two year period.

Education funding

The Governor’s proposed 2-year budget includes several changes in state funding for public education. According to Herman, for the first time in history it requires the school systems to pay 50 percent of the annual “normal cost” appropriation for the teachers’ retirement premium.

Other proposed changes is reducing the minimum school subsidy calculation for low receiving school systems from the original five percent of the Essentials Program Services (EPS) factor to two percent of the EPS factor; reducing the obligation for every school system to be provided at least 100 percent of the school special education costs to just 25 percent of those costs, which also targets the low receiving schools; and reducing the adjustments in the EPS model for economically disadvantaged students by applying a 98 percent factor in the first year and a 95 percent factor the second year.

General assistance

The Governor is proposing to cap state’s reimbursement obligation at $10.2 million which is currently appropriated. As soon as the state runs out of reimbursement funds under the cap, all municipalities would be authorized to discontinue their general Assistance program. Unlike other proposals, being for just two years, this cap would become a permanent annual cap as a matter of law, according to Herman.

“The Governor’s proposal delivers a double whammy to all property taxpayers in this state by first jacking up the property tax rate in a variety of ways and then eviscerating the programs that designed to help people who are having trouble paying their property taxes, Herman pointed out in his analysis.

Public hearings on the Governor’s proposed budget will not begin for several weeks. “Working together, the municipal officials will make a strong case to the legislature to reject this extraordinary overuse of the most regressive tax in Maine’s tax code, the property tax,” Herman said in conclusion of his analysis.

Charlotte Boynton can be reached at 207-844-4632 or cboynton@wiscassetnewspaper.com.