Homestead exemption could vanish Tax cap backers, foes agree benefit would be affected

BREWER – When asked, neither proponents nor opponents of Carol Palesky’s tax cap initiative could say for sure if the homestead exemption many Mainers use to reduce their property taxes would continue if the cap is passed by voters in November.

Members of both sides of the issue – Tax Cap Yes! and the Maine Municipal Association – did agree funding is an issue with the homestead program and said there is a possibility the exemption could disappear if the tax cap passed.

Brewer officials are saying it’s a good likelihood.

“It stands to reason that if you cut somebody’s taxes in half, and it’s a 10-mill tax rate, they wouldn’t need that exemption anymore,” Brewer Assessor Mary Lynn Hunter said Wednesday. “Homestead exemptions will go away – they will no longer exist.”

Hunter said the logic behind eliminating the exemption is simple: “There will be no state funds available to reimburse the town for the loss value.”

The so-called Palesky tax cap would limit property taxes to $10 per $1,000 of assessed value. It also would limit assessments to an increase of 2 percent a year while the property remains in a family.

Proponents say under the tax cap the homestead exemption would no longer be needed. Opponents are saying the state would not have the money to fund the program.

In the spring, House Speaker Pat Colwell of Gardiner proposed expanding the homestead exemption as a way to reduce Maine residents’ tax burden, but the idea was defeated by the Legislature.

Under the current system, properties valued at less than $125,000 can receive a $7,000 exemption; those that are valued more than $125,000 but less than $250,000 can receive $5,000 in exemptions; and above that, a $2,500 exemption is allowed.

The exemption is deducted from a homeowner’s property value before taxes are assessed, and the state reimburses the municipality.

According to the Maine government Web site, 2,034 Brewer residents qualified for $13.5 million in homestead exemptions, or reductions in property valuations, during 2003, which cost the state approximately $328,000 in reimbursements.

In Penobscot County, there were 33,994 participants in 2003 with $224.8 million in exemptions, and statewide the number grew to more than 308,000 participants and $1.8 billion in exemptions. Each community’s reimbursement is calculated using the tax rate and a formula based on whether the city or town’s property is near the true market value.

Former state Sen. Phil Harriman of Yarmouth, who is a volunteer for Tax Cap Yes! said Thursday the homestead exemption program has been reducing in size ever since its first inception in 1998.

“Since that time, the Legislature has tinkered with it and has significantly reduced the amount,” he said. “It was not properly funded. The same thing could be said about the circuit breaker [property tax and rent refund] program.”

At first the homestead exemption made the first $7,000 of each home’s value exempt. Last year the program was changed to the three-level tier.

“If property taxes are lowered, that will put dollars in the hands of the people who actually pay the taxes,” Harriman said.

Nobody really knows what would happen if the initiative is passed, but MMA members are telling voters to be wary about potential cuts to tax relief programs.

“It’s all speculative but it’s not an unreasonable determination,” Geoff Herman, director of state and federal relations for MMA, which opposes the tax cap, said Thursday. “One of the characteristics of the [tax cap] proposal is that it generates unceasing response.”

If voters pass the Palesky tax cap, it would be up to the Legislature to decide if the homestead exemption or any other tax reduction programs are eliminated, Harriman said.

In Brewer, Hunter is hopeful that people are educating themselves about the initiative.

“It affects a lot of people,” she said. “They need to understand the impacts.”