Expanding the Homestead

Maine taxpayers didn’t need the recent study from the nonpartisan Tax Foundation to tell them their property taxes have ballooned in the last decade – the local tax bill told them that. And while the Legislature tried to reduce some of the pain by passing the Homestead Exemption in 1998, the $7,000 deduction was merely a good start on a large problem. Lawmakers last week worked on legislation that would expand that good start to something more substantial.

LD 1453, presented by Rep. Kenneth Gagnon of Waterville, identifies three new sources of revenue for the property-tax exemption that would push it as high as $10,000. The sources are overflow from the Rainy Day Account, unused revenue from the Circuit Breaker Program for low-income residents and leftover funds from the previous year’s Homestead Exemption. These sources don’t guarantee increases in the Homestead Exemption — the Circuit Breaker actually will run a deficit of its own this year — but at least it provides the opportunity for increases if the money is available.

Property tax should be prominent in lawmakers’ discussions this session, with this bill just one of many proposals to reduce what has become an unacceptable burden on taxpayers. The Tax Foundation looked at property taxes n all states between 1986 and 1996 and concluded that Maine not only had among the highest taxes but that they were the fastest rising during that time. Taxpayers here know the reason. The state’s refusal to fund its share of K-12 education costs shifted the obligation to municipalities. The state fell well over $100 million behind its planned payments to school districts and almost all municipalities raised taxes to cover the shortfall, though it was impossible for most to raise them fast or high enough. Much of the current surplus — and arguably all of its ongoing money — is the result of this tax shift.

So expanding the Homestead tax break makes sense because is a direct way of sending municipalities the money they have been denied. At the current $7,000 level, the Homestead sends back approximately $50 million to municipalities. Increasing the state’s General Purpose Aid to Education also is essential, but it will require sustained increases before school districts recover sufficient lost revenue to pass on all of those funds for tax relief.

In the meantime, expanding the Homestead Exemption under Rep. Gagnon’s proposal is a practical way to reduce the impact of the last decade of tax increases.