Simplest form of homeowner’s property tax relief

Next to the state providing its fair share for the costs of education, as mandated by the voters in the June referendum, the simplest and fairest form of property tax relief is the Homestead Exemption program.

Unfortunately, Gov. Baldacci and the Legislature have already not only increased property taxes under the homestead exemption, they appear to be moving farther away from this tax relief to the homeowner. They should be, if anything, increasing the exemption, not decreasing it.

I don’t know why they are not doing that.

The homestead exemption gives the Maine homeowner a tax reduction by exempting a portion of their property valuation from taxation. It is direct and targeted. It costs nothing to administer.

The voters turned down the drastic “Palesky” tax cap proposal in November, but most everyone acknowledges that voters want lower property taxes. Further, voters indicated they want to see property tax relief across the board, not just for a few.

Instead, the Legislature is talking about increasing the circuit breaker. The circuit breaker is directed at only a small minority of taxpayers; plus, since it is a rebate program, it costs money to administer.

The objective of the circuit breaker is a valid one: to provide relief to those lower-income property taxpayers who need it the most. The homestead exemption provides additional relief to the lower-income property taxpayers as well.

Currently the homestead exemption for a home valued under $125,000 is $7,000. If a home is valued at $50,000, the tax savings for the homeowner, with a $7,000 exemption, is 14 percent; if the home is valued at $100,000, the tax savings equals 7 percent; for

a home valued at $125,000, the savings is 5.6 percent. So, you can see that persons living in lower-valued homes, presumably with lesser incomes, get a greater benefit from the homestead exemption; yet every taxpayer benefits. Besides, the lower the property tax, the less need there is for a circuit breaker.

It is acknowledged that the circuit breaker is underutilized – the money that is appropriated for it has never been fully used. Either not everybody who is eligible for it applies, or there are really not that many people who qualify for it. In contrast, the participation in the homestead exemption is 99 to 100 percent.

Once an initial application to show residency and home ownership is made, the homestead exemption is automatic and the tax relief is carried forward year after year. The property tax relief is deducted from their property tax bill.

In the Circuit Breaker program, residents have to pay the taxes first. Then the taxpayers (and renters) have to submit an application each year to the state, report their income, and, through a fairly involved formula, get a partial rebate check in the mail. Whether that rebate is identified as property tax relief is problematic.

Unfortunately, the governor and Legislature last session cut the benefits under the homestead exemption. While it used to be a $7,000 exemption for all resident homeowners (with its progressive percentage impact), the administration proposed reducing the exemption for homes valued above $125,000. While that may seem progressive, it had the result of raising everybody’s property taxes, excessively compounding the progressive impact, and contributing to the outrage we are now seeing over property taxation.

Some legislators say we want to have targeted relief so that out-of-state business owners don’t benefit, so that rich people who have second homes here don’t benefit, so that wealthy property owners on the coast don’t benefit.

Well, the homestead exemption does all of that. One has to live in the home for a year; this has to be the primary residence; it does not apply to second homes or to nonresidential property; and for really higher valued property such those near or over a million dollars, the exemption is negligible.

Often, when a community is revalued (to meet state requirements), the assessed value of homes increases more than the assessed value of commercial properties does. That reflects the marketplace. Consequently, in many cases, taxes on homes go up while taxes on many nonresidential properties go down. A homestead exemption, especially one of some magnitude, will help offset that.

There are those who argue, as they do in the education funding, that any additional state “aid” to local governments will not be passed on to the taxpayer. Putting aside the speciousness of that argument, the homestead exemption must be passed on to the taxpayer. It is deducted from their bill, and the deduction is shown on the bill. The municipality never even sees it (other than the reimbursement for the lost revenues from the state).

In fact, the homestead exemption is such a fair and inexpensive form of tax relief for the Maine homeowner that the Legislature should, after meeting its voter-mandated educational responsibilities, double the exemption, especially before coming up with any other “targeted” relief program.

Or, is it that the Legislature avoids this very real, directed tax relief to all Maine homeowners because then they don’t get to claim the limited circuit breaker checks that are sent from Augusta?

Terry St. Peter is the Belfast city manager.