Panel examines Baldacci tax bill Homestead refinements criticized

AUGUSTA – While supported by the state’s major business lobbying group, a tax reform package advanced by Gov. John E. Baldacci was scrutinized Thursday by lawmakers who disagreed with some aspects of the plan.

Members of the Legislature’s Taxation Committee reviewed the governor’s bill during a public hearing that dominated the entire afternoon and half of the evening. The lawmakers are in the process of attempting to craft legislation that could compete with, or draw votes away from, two tax relief initiatives that will be on the statewide ballot later this year. The governor’s bill, LD 1923, recommends significant changes in current tax relief and tax reform policy that include:

. Repealing the municipal personal property tax on business equipment and machinery effective April 1 and reimbursing only half the amount to communities.

. Placing a voluntary cap on county and municipal spending growth.

. Replacing the current Homestead Exemption Program with a new Homestead Cap Program applicable only to those households earning $65,000 or less annually and whose property taxes are greater than 4 percent of that income.

. Adding $25 million in the current 2005 supplemental budget to expand eligibility under the circuit-breaker tax relief program for low- and middle-income Mainers.

Baldacci plans to provide about $50 million in revenue to fund LD 1923 by transferring funds from the current Homestead program, by sweeping year-end balances in state agency accounts, and by using new revenues generated by Maine’s inclusion in the multimillion-dollar Powerball lottery game.

Dana Connors, president of the Maine State Chamber of Commerce, joined several paper company representatives in commending the governor for preserving the Business Equipment Tax Reimbursement program while eliminating the collection of municipal property taxes on new business equipment purchases.

“We believe that the creation of a personal property tax exemption for new equipment will send the strongest of signals across America and the world,” Connors said. “A signal that Maine is strengthening its policy to attract investment and is aware that existing jobs and future jobs depend upon a stable, secure set of investment tax policies.”

Representing the administration, Jack Cashman, commissioner of the Department of Economic and Community Development, said the current municipal tax on equipment is particularly burdensome to capital-intensive companies, which, he added, include nearly all of the state’s natural resource-based industries. Acknowledging municipalities will get less from the state than in the past because of the legislation’s 50 percent reimbursement limit, Cashman argued local tax increment financing programs could offset a large portion of municipal losses.

“I know the paper mill in my community [Old Town] received a 90 percent TIF for any new investments on machinery and equipment,” he said. “That’s pretty much the case everywhere with all of our capital investment industries. So to get a 50 percent reimbursement from the state will not leave communities, for the most part, in worse shape than they would be with a 50 percent TIF.”

Also representing the administration Thursday was Michael Allen, director of economic research for Maine Revenue Services, who presented the revamped Homestead program that would remove the current tax relief benefit for half of the 310,000 homeowners currently enjoying it. Allen said the administration plans to take nearly $35 million from the existing Homestead program and invest $25 million of the fund into the new expanded circuit-breaker program. The remaining $10 million would be used to increase funding for local education.

“Given the state’s scarce resources, property tax relief must be targeted to those Maine families that are truly burdened by the local property tax,” Allen said.

While many lawmakers agree there is a need for targeted tax relief, they are also aware of public support for the current Homestead program, which eases the tax burden at some level for every homeowner in Maine. Rep. Deborah L. Simpson, D-Auburn, told Allen that the administration’s revamped Homestead was a de facto tax increase for about 150,000 homeowners.

Simpson was also critical of the program’s income eligibility standards and insisted there are highly taxed coastal property owners with retirement incomes that do not necessarily reflect their ability to pay their property taxes. Many of those residents, she continued, have other savings or stocks they could draw upon to pay their taxes but “prefer not to.”

“I represent low-income people who live in a town with a very high mill rate,” Simpson said. “They have no other places to go to get money to pay their property tax bill. This feels like the people I represent are going to be losing something to give something to someone who may not necessarily need it.”

No work session was set by the committee for LD 1923 during its afternoon public hearing.