Homeowners’ tax shelter

With the memory of Carol Palesky’s failed property tax referendum still fresh in their minds, legislators in Augusta seem to be in an overzealous frenzy to pass any bill that would alter Maine’s property tax system, for better or worse. This can be the only rational explanation for three proposed constitutional amendments (LDs 2, 189, 902) currently before the Taxation Committee.

While the specific details of these bills vary, their central tenets are all variations on the same theme. Currently, the Maine constitution requires that real property taxes “shall be apportioned and assessed equally according to just value,” or market value. These proposed amendments would either allow or force towns to cap property valuations at their current levels for as long as someone owns their home. Once the property is sold, the valuation would be restored to its fair market value. In short, the longer you own your home, the larger your tax benefit.

This begs the question: Why should the state single out only long-time homeowners for property tax relief instead of directing relief to those who need it most? Herein lies the fatal flaw of these three proposals. They arbitrarily award a financial windfall to ALL long-time homeowners, regardless of their ability or inability to pay their taxes. Cloaked in the guise of property tax “reform”, these bills provide neither “reform” (which implies improvement) nor “relief” (there is no burden being “relieved”). All these amendments do is shift the property tax burden from long-time homeowners (whose valuations would be suppressed) to new homeowners (whose valuations would be based on current market value) and business owners (whose valuations are not shielded under LD2).

It gets worse. In order to bridge the difference between the decreased revenues that will be generated from taxing properties with suppressed valuations versus the revenue that is generated from taxing properties at fair market value, municipalities will be forced to raise their mil rates. Not only will new homeowners be taxed at higher assessments than their neighbors, but they will also be absorbing the brunt of any mil rate increase. One of the most absurd outcomes of these amendments is that many new homeowners in shoebox houses will end up paying higher tax bills than millionaires living in waterfront mansions. LD902, which also benefits non-residents, would actually provide some of the largest tax benefits to wealthy out-of-state residents since high-end waterfront valuations typically increase at a faster rate than inland valuations.

One argument frequently made about the current tax system is that there is a tenuous correlation between property valuations and one’s ability to afford their property taxes. While there is some validity to that argument, there is an even weaker correlation between tenure of homeownership and ability to afford taxes. To be sure, there are many long-time homeowners who are deserving of tax relief, especially those who live in waterfront properties and have seen their valuations rise meteorically in recent years due to the market forces of supply and demand. But asking first-time homeowners and business owners to subsidize a statewide, across-the-board tax windfall for all long-time property owners is not a fair or equitable solution to Maine’s tax dilemma.

For a young family struggling to purchase their first home in today’s inflated real estate market, these amendments put the American dream of homeownership further out of reach. For the worker who loses his/her job and is forced to relocate to find employment, these amendments will assess a substantially higher tax bill on their new home. For elderly people who own large homes that suited their family needs in the past, while their children lived at home, but now want to downsize to a smaller home to help decrease home maintenance and utility expenses, these bills will discourage such a move due to the tax penalties they will incur for doing so.

What is interesting is the extent to which legislators are going to ramrod LD2 through the process. Consider the following: Rather than risk having LD2 stand and fail again on its own merits, as it did in January, that bill’s supporters have discretely tucked the entire wording of LD2, verbatim, into the back of the innocuously named LD189, an amendment “To Provide Property Tax Relief to Owners of Property Used for Commercial Fishing and Homestead Land”. The reason for this shell game is because a virtually identical version of this bill (LD 299) was just approved by the legislature last month with little opposition. By tweaking the language of the popular LD299 slightly, giving it the name “LD189”, and attaching the language of LD 2 to the back of it, LD2 supporters are hoping to shoehorn their bill through the back door by riding LD 189’s coattails to victory. This is deceitful at best and immoral at worst. Mainers deserve the opportunity to vote on these completely unrelated proposals separately as the “working waterfront” provisions in LD189 are worthwhile but the regressive LD 2 provisions are fatally flawed.

Protecting a relatively small number of economically vulnerable families cannot justify a tax windfall for all long-time property owners. Tell your legislators that unjust tax discrimination has no place in Maine.

Ethan J. Croce is a member of the Planning Department for the town of Falmouth.