CAP AND TAX

For those who thought predictions of massive holes in municipal budgets and deep cuts in services were hype meant to scare voters away from approving the tax cap measure on the November ballot, a report released this week by the University of Maine provides some sobering numbers. Not only would the Palesky tax cap deprive towns of more than $687 million in local revenue, the measure could lead to increases in taxes collected at the state level, according to an analysis by the Margaret Chase Smith Center for Public Policy.

Not surprisingly, the biggest losers under the tax cap would be service-center communities, such as Bangor, Lewiston and Portland. The 15 largest municipalities would lose more than $243 million in property tax revenue, 35 percent of the total loss across the state.

Tax-cap supporters counter that such warnings are scare tactics and that more prudent budgeting by municipal officials will minimize the effects of the tax cap. No amount of belt-tightening will reduce municipal expenditures by half, as would be necessary in service center communities if the tax cap passes.

Property tax rates would drop for most residents in 391 communities, but they could increase in 81 towns, many of them with high-value coastal or mountain property. That’s because such communities have such high total property valuations they can now afford to assess taxes on less than a property’s full value. The tax cap requires that taxes be assessed on a property’s full cash value. The taxes on a $150,000 home in Bangor, for example, would have dropped from $3,117 to $1,677 in 2003 if the tax cap had been in effect. The taxes on the same value home in Scarborough, however, would only drop $62 from $2,123 to $2,061, according to the UMaine analysis. Taxes on a home of the same value in Bar Harbor would have increased from $1,494 to $1,518 if the tax cap were in place.

To make matters worse, municipalities would forgo nearly $51 million in property taxes paid by vacation home owners, money that would have to be made up by Maine residents.

The result is that the tax cap would wreck budgets in the state’s largest cities, which provide services, such as hospitals, high schools, libraries and sports venues that are relied upon by residents of nearby smaller towns, to benefit taxpayers in communities, primarily in southern Maine, where property values have risen rapidly. These communities will be better able to weather the tax cap because they already easily raise money for local services while maintaining a low mill rate.

In Massachusetts, where a measure capping local property taxes at 2.5 percent of fair market value was passed in 1980, poor, small communities with declining populations fared worst. According to the UMaine analysis, total municipal spending on services other than education, such as fire protection, law enforcement, road maintenance and social programs, would be cut by nearly 65 percent if the 1 percent tax cap passes in November.

To compensate, the towns may turn to the state for help. If the state were to make up the full amount lost by the towns, it would take 20 percent of the state’s total budget. As a result, state income taxes would have to increase by 64 percent, costing the average family $652 a year, or sales taxes would have to be raised from 5 percent to 9 percent.

That’s a high price to pay to provide a tax break to everyone, whether they need it or not.