The debate over property tax reform moved out of the abstract and closer to the pocketbook Friday with the release of a Maine Revenue Services report predicting an average savings of $207 for Maine property owners next year.
The study, presented Friday afternoon at the Maine Center for Economic Policy forum in Augusta, is the first to attach numbers to the savings promised by the tax reform plan advanced by Gov. John Baldacci and revised by a special legislative committee this week.
But as is the case with most studies, including statewide averages, caveats abound.
Leaders in some rural communities – where uncertainty about education funding persists – are asking residents to take the projected 8.2 percent average drop in property tax bills with a grain of salt.
“Certainly there will be ups and downs in there,” Presque Isle City Manager Tom Stevens said of the potential impact of any tax reform effort. “It’s not that everybody is going to see their taxes go down.”
Characterized as a “work in progress” by Maine Revenue Services research director Michael Allen, the study’s predictions nevertheless came as welcome news to the Baldacci administration, which named tax reform its top priority this session.
Baldacci spokesman Lee Umphrey agreed that winners and losers were inevitable in any tax reform package, but that the revenue services study demonstrated this plan’s potential.
“It’s not a perfect plan, but it’s a good plan, and it’s a first step toward significant tax reduction,” Umphrey said Friday.
The Select Committee on Property Tax Reform approved a final version of the package, LD 1, by an 11-3 vote Friday night. It includes expansions of the circuit breaker and Homestead property tax relief programs as well as state, county, school and municipal spending caps.
Maine Revenue Services analysts used one anonymous town south of Augusta to demonstrate how the package would affect three different hypothetical households.
In the study, the household with the lowest income realized the greatest savings when analysts factored in all the plan’s provisions.
That homeowner, a single elderly person earning $14,297, owns a $235,073 home. Under the current tax rate and given existing state exemptions and credits, that person pays $1,740. Under the proposed plan, the annual bill would be cut to $858, a 51 percent drop.
For a married couple with two dependents living in a home worth $204,712, the savings are less. The couple, with an income of $51,225, would see a 13 percent drop in their tax bill for fiscal year 2005-2006.
Last, a family of four making $101,787 and living in a $590,122 home would see an 8 percent drop in their tax bill, according to the study.
Perhaps the biggest factor in assessing the potential savings under the new plan is how a town fares under a new school funding formula known as Essential Programs and Services.
Larger cities such as Bangor, Portland and Lewiston stand to gain millions of dollars under the new formula, which ties state funding more closely to student population.
While Presque Isle, a small city in Aroostook County, will also gain money – about $430,000 – under the new formula in the next fiscal year, SAD 1 officials say it won’t be enough to cover even the cost of living expenses for employees.
Stevens said Friday that people in his city might have to wait a few years for education funding to increase, as expected, before they see the level of property tax relief outlined in the Maine Revenue Service report.
“I don’t think we’re going to see it right away,” Stevens said. “There are still a lot of variables, but depending on what happens, we should be OK in the long run.”
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