Governor wants cap on taxes Year-round homeowners would benefit from plan

AUGUSTA – Gov. John Baldacci says the first bill he will introduce to the new Legislature in December will be to fundamentally change the way property taxes are levied, limiting the value of a person’s home to current levels as long as they live there.

“I think it is important that year-round residents – not second-home owners, not seasonal residents, but year-round residents that pay income taxes – have a cap on property taxes,” he said. “To do this, we are going to have to change the constitution.”

Property taxes must be assessed uniformly and valued on the basis of highest and best use, unless the Maine Constitution allows an exception. Voters last fall, for example, passed an amendment allowing working waterfront property to be valued at its current use, of say a fishing wharf, and not its potential use as a mansion for an out-of-state multimillionaire.

“It’s similar,” Baldacci said, “People are being taxed out of their homes by increasing property taxes and we need to allow people to stay in their homes.”

The governor said that under his proposal, the value of a residence would be determined by its sale price, and the person buying the house would know that value would stay the same until they sold the house.

Baldacci acknowledged his proposal is similar to LD 2 that was before the Legislature this year, but failed. It was supposed to be a companion bill to LD 1 that requires the state pay for 55 percent of the cost of elementary and secondary education by fiscal year 2009.

A version of LD 2 was supported by Republicans on the Legislature’s Taxation Committee and opposed by Democrats. Sen. Joe Perry, D-Bangor, co-chair of the committee, said the GOP version was unacceptable.

“It was a version that was based on purchase price but did allow an increase in valuation every year, but one that was limited,” he said. “It was too complicated. It was different from what the governor has been talking about.”

Sen. Jon Courtney, R-Sanford, the lead Republican on the Taxation Committee, said the GOP embraced Baldacci’s idea and modified it slightly. He said the fundamental concept of limiting property taxes on residences had his support and that of many other republicans.

“If he [the governor] had pushed this with the Democrats, I think there would have been enough votes to put it out to the voters this fall,” he said, “People need tax relief now, not after the election.”

Perry disagreed with Courtney’s version of events. With a constitutional amendment requiring a two-thirds vote in both the House and Senate to be sent to the voters for their approval at referendum, Perry does not believe there were enough votes in the Legislature to approve the measure.

“I don’t think they [the Republicans] would have voted for it when it came to the final votes,” he said. “They would not support anything this governor would get credit for.”

There is also the possibility lawmakers would not have passed the constitutional change, once they had the opportunity to fully discuss its implications. Geoff Herman, the chief lobbyist for the Maine Municipal Association, nearly lived in the Taxation Committee during the session because of the various tax proposals.

“Whenever you cap value, the rate will go up,” he said. “People may see their valuation stay the same, but the rate will go up and it could be a wash in some communities.”

Herman said some communities already have experienced a “wash” effect from the property tax homestead exemption passed last year. The towns were reimbursed for only half the lost value, so tax rates went up.

“Some property owners will get a distinct advantage, no doubt about it,” he said, “and others will pay for it.”

Those that stay in their homes for a long time will see the largest benefit, he said, with new homeowners, second or vacation homeowners and businesses picking up the cost of the residence tax cap.

“That shifting is why I think we really need to do a re-balancing of all the major taxes in our state,” Perry said. “We rely too much on property taxes, and we don’t export enough of our tax burden like other states.”

Courtney said shifting taxes around “like the deck chairs of the Titanic” is not the solution. He said the state needs to rein in spending, and he would like to see a constitutional amendment to limit spending.

“We wouldn’t be worrying about taxes forcing people out of their homes then,” he said. “And we could lower the overall tax burden and spur the economy. That’s really the kind of constitutional amendment we need.”