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Some coastal communities in Maine crying the loudest for property tax relief would not be likely to get any under the so-called Palesky tax cap referendum in November.
In all, 77 communities are either too rich or too poor to be affected by the measure. All other Maine towns would realize varying reductions in the amount of property tax they could raise to support both municipal government and local schools.
“If people along the coast are looking for property tax relief, this offers them nothing,” Geoffrey Herman, director of state and federal relations for the Maine Municipal Association, said this week.
The referendum, promoted by veteran tax activist Carol Palesky, has two components:
. A rollback of property values to 1996 levels, which state supreme court justices and the state attorney general have advised is unconstitutional.
. A cap on municipal tax rates at 1 percent, or 10 mills, which computes to $10 per $1,000 in property value.
Property-rich towns, many along the coast from Mount Desert Island to Kennebunkport, have such high property values that their tax rates would fall below the 10-mill limit, Herman said.
Those communities would get property tax cuts only if the rollback provision were upheld in a legal challenge. That’s because their home values would drop dramatically from today’s values, guaranteeing sometimes huge tax reductions.
Under Palesky’s measure, people who bought or built new homes since 1996 would be assessed and taxed at the full market value of their property, while their neighbors could still be taxed on 1996 values.
But former state Sen. Philip Harriman, a leader in the Tax Cap Yes! group, said referendum supporters agree the rollback in property values is unconstitutional and should be explained to voters during the debate leading up to the Nov. 2 election.
Earlier this year, the Maine Supreme Judicial Court, in an advisory opinion only, concluded that towns couldn’t roll back property values to 1996 levels because taxes must be fairly distributed based on equalized values.
The 77 towns that would not likely be affected if the rollback provision were thrown out include the coastal towns in Maine where the values are so high that the mill rates, based on 2003 full market value, would fall below the 10-mill cap; or inland plantations with few people and no municipal services, and therefore little need for property taxes.
“I believe we have been as clear as we could be” about telling coastal homeowners that their taxes are not likely to be reduced under the tax cap proposal, Harriman said Tuesday.
“We are making that known,” he said.
But Palesky, of Topsham, chief author of the referendum, disagreed strongly with Harriman. She said property owners in all towns would get a significant tax reduction regardless of whether the rollback provision is thrown out.
“I don’t know if Phil has read the language” of the tax cap proposal, Palesky said Wednesday. “Even if the rollback is found unconstitutional, that is not the critical part. The meat of our proposal is the [10-mill] tax cap.”
But Herman and others argue that either way, the rollback on property values is the crucial part of the measure for the wealthier towns:
. If legal, the rollback would freeze home and business values at 1996 levels, far below today’s values, especially in coastal areas where prices have exploded since 2000, and in turn drastically lower tax revenue to the municipality.
. If illegal, full-value property assessments would be used and the mill rates would drop below the 10-mill limit.
Herman said some property owners in the high-value coastal towns could even see a tax increase if the state helps mitigate the revenue loss to municipalities by raising state fees or taxes.
Palesky accused MMA and town officials of trying to scare Mainers into rejecting it.
“They’re lying,” she said. “They lie. They’re not going to give taxpayers a break” unless forced into it.
Harriman, meanwhile, who owns a financial consulting business in Yarmouth, said the Palesky referendum is still the only hope Maine has of getting government spending under control.
He noted that education spending, and not municipal spending, is responsible for driving up local budgets in recent years, thanks in part to lack of state funding and an increase in state and federal mandates.
“The truth is that most municipal sides of the budget have been pretty responsible,” he said. “It has been education costs that have driven up property taxes” in most communities.
Harriman said his group and other tax cap supporters agree the property value rollback is not constitutional. He still supports the measure because it will force towns and schools to control spending.
People who won’t get a property tax break under the Palesky proposal, Harriman said, “can have confidence and comfort going forward in the fact that well-intentioned, exuberant municipal officials would know they are limited” in the amount of property taxes they can levy.
“We will be happy to work with people to tinker with [the referendum] a little bit to make it work,” he said.
But one coastal town isn’t willing to count on either tax cap supporters or the Legislature to “tinker” with the law – or its future.
In a “worst-case scenario” presentation to the Town Council this week, Bar Harbor Town Manager Dana Reed said the Palesky measure would cost the town and its elementary school $4 million in tax revenue annually.
As the state’s premier tourism town, Reed said, Bar Harbor would be forced to cut services and increase existing user fees and impose new ones to keep the town viable.
However, without the rollback provision, Bar Harbor’s 2003 full value tax rate would be less than 8 mills, leaving the town essentially whole in property tax collections.
Reed is still not in the gambling mood.
“I feel firmly that if the voters approve the tax cap, the justices will do everything they can to see it is implemented,” Reed said in an interview Tuesday. “I can only assume the way it is written is the way it will be implemented.”
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