Property tax stabilization program shifts burden to state taxpayers
Starting this August, senior citizens in Maine will be able to freeze their property tax rate, preventing their bill from increasing so long as they are a homeowner in the state. Municipalities will be reimbursed by the State for the lost revenue.
LD 290, An Act To Stabilize Property Taxes for Individuals 65 Years of Age or Older Who Own a Homestead for at Least 10 Years, was sponsored by Sen. Trey Stewart of Presque Isle on behalf of an Aroostook County resident who was concerned about the impact of rising property taxes on older Mainers living on a fixed income.
In his testimony to the Joint Standing Committee on Taxation, Sen. Stewart stated, in reference to this bill: “Ensuring that our seniors are truly able to stay in their homes in their ‘golden years’ should be a priority for every legislator.”
Maine residents 65 or older who have owned a home for at least 10 years may apply to have their property tax bill frozen. Whatever amount was paid in property taxes during the year in which the stabilization was first requested is the amount they will continue to pay, so long as they continue to own a home in Maine. Even if the resident moves to another location in the state, the stabilized tax amount will follow them. The program does not have any income eligibility requirements. As outlined in the bill, homeowners must apply for the stabilization annually with their local assessor by December 1.
According to the legislation, municipalities will be reimbursed “100%” by the state for the difference between the amount paid and the sum that the city would otherwise have collected on the property. Referring to this clause, Presque Isle tax assessor Lewis Cousins asserted: “It’s no loss to the municipality or to the other taxpayers with the way this is designed…There’s nobody harmed here.” This statement, however, fails to recognize that this program will ultimately constitute yet another expense in the State’s budget, the cost of which will be passed along to other taxpayers in the state.
The cost of the program is expected to rise significantly as more individuals become eligible and sign up. According to estimates in the 2020 Census, roughly 16% of Maine’s population could potentially qualify for this program, as about 20% of Mainers are over the age of 65 and approximately 80% of that subset are homeowners.
The bill’s fiscal note projects that the price tag of reimbursing municipalities will roughly double year-over-year, costing $2.6 million for FY 2023, $7 million for FY 2024, and $14 million for FY 2025. It will be up to the next Legislature to determine whether or not to continue funding the program beyond FY 2023.
Sen. Stewart has acknowledged the cost associated with this program. “I think this is a better use of money than a lot of other programs that have been funded in recent years…I’m more concerned about the people making a choice between paying property taxes and buying groceries or prescriptions.”
While this is certainly an admirable sentiment, the impact and feasibility of new spending packages must be analyzed within the context of the State’s current fiscal landscape, taking into account already-existing programs and budget items.
One aspect of this legislation, while well-intentioned, that is likely to cause unintended consequences, is a clause which allows individuals to carryover their frozen property tax amount if they choose to sell their home and move elsewhere in the state.
Under this program, individuals can freeze their property tax bill, sell their home, and continue to pay the same amount in property taxes for their new home as they did previously. Given that mill rates, and therefore property taxes, vary drastically across the state, individuals from low-tax districts who have frozen their bill may elect to move to a higher-tax district. Consequently, these individuals would put a greater financial strain on state taxpayers than they otherwise would have, as the difference between their frozen rate and their actual rate would be markedly different.
Furthermore, there are no means testing for this program, meaning that all residents over the age of 65 who’ve owned a home for 10 years, regardless of their income, wealth, or assets, can take advantage of this program. As a result, the overall price tag associated with this program is likely going to be higher than it otherwise would have been due to there being a larger pool of eligible individuals, a percentage of whom may not truly need the assistance this program offers.
Sen. Stewart has responded to criticism regarding the lack of means testing by stating that he believed it would be too much of a burden for municipalities to vet the financial eligibility of homeowners applying for the program.
Concerns about the constitutionality of the program have also been raised. Michael Allen, Associate Commissioner For Tax Policy at the Department of Administrative and Financial Services testified before the Joint Standing Committee on Taxation that “the ten-year ‘homestead’ requirement in this bill” is constitutionally questionable.
Dufour also raised constitutional concerns in her testimony before the Committee. She refers to Article IX, Section 8 of Maine’s Constitution, which requires that all “taxes upon real and personal estate, assessed by authority of this State, shall be apportioned and assessed equally according to the just value thereof.” She then explains that the bill appears to be in violation of this provision. “Directing assessors to essentially cap a qualifying resident’s tax, while others are required to pay the full amount, strikes municipalities as treating similar property owners differently.”
This is actually not the first time that the state has considered property tax relief measures for older Mainers. Last year, Gov. Janet Mills signed into law a property tax deferral program for senior citizens age 65 and older who made less than $40,000 a year, reinstating a property tax deferral program that initially ran from 1989 to 1991.
This program, however, comes with a notable caveat. Once a property is no longer eligible under the program guidelines, “the total amount of deferred property taxes, including accrued interest and costs” must be paid back to the State by April 30 of the following year. If repayment does not occur, the State would then have the authority to place a lien on the property.
Neither of these programs presents a perfect solution to the challenges older Mainers on a fixed income face when it comes to their property taxes. The property tax deferral program essentially serves as a government loan for older, lower-income Mainers, and the recently-passed Stabilization Act ultimately passes the excess cost along to state taxpayers.
It is unsurprising, however, that senior citizens’ property taxes have been a continued subject of discussion in the state. Maine is considered to be the oldest state in the nation, with a median age of about 45. In addition, according to the American Legislative Exchange Council, Maine has the highest property tax burden in the nation. On average, Mainers spend $56.02 on property taxes out of every $1,000 they earn. For senior citizens living on a fixed, and often limited, income, this hefty of a burden can quickly become unbearable, especially as costs rise while their income remains the same.
One older Maine resident, Richard Smith, was quoted explaining how he fears rising property taxes may ultimately force him out of his home. “If the property taxes keep going up, I may not be able to live here. I may have to move into an old folks home, an apartment building. Somewhere,” he said.
Although less than 10% of seniors in Maine technically live below the poverty line, about a third of them rely on Social Security alone to cover their expenses, bringing in an average of $18,000 a year. According to ElderIndex, created by the Gerontology Institute at the University of Massachusetts in Boston, this figure falls far short of what the average senior citizen would need to make in order to cover their basic cost of living. Especially in the face of skyrocketing inflation and rising home valuations, many senior citizens need support in order to make ends meet.
While helping senior citizens to afford their expenses, including their property tax payments, is a laudable goal, it may be more appropriate, and likely more effective, to look to charitable, philanthropic solutions as opposed to governmental ones. It’s not necessarily surprising that neither of the programs that have been developed by the state have proven to be a panacea for the struggles faced by older homeowners. In contrast, an organization that specializes solely in providing this kind of relief to senior-citizen homeowners would likely be much more effective in distributing aid to those who need it most.
That said, it would be worthwhile for municipalities to consider partnering with such a group to make sure that older homeowners, who could substantially benefit from their efforts, are made aware that they exist. Something as simple as posting a link to the group’s website or providing their contact information to those seeking information could go a long way. Especially for senior citizens, who may be uncomfortable searching online and often find themselves the target of scammers, being directed toward help by a trusted, government source could potentially make a real difference.
This discussion surrounding rising property taxes also highlights the need for municipalities to develop smart, cost-efficient budgets that allocate resources in the most effective manner. Local property tax revenue in Maine is primarily used to cover municipalities’ educational expenses, understandably leading to a hesitancy to discuss budget cuts in this area.
Counterintuitively, however, high educational spending is not necessarily associated with better student outcomes or improved parental satisfaction. Furthermore, many School Administrative Units spend a substantial percentage of their budget on administration, suggesting that many municipalities have the capacity to rethink their spending, both by trimming that which is unnecessary and by redirecting funds, as appropriate, to enhance the in-classroom experience of their students.
Over time, if municipalities become more intentional with their spending, the amount of funds that need to be generated in property taxes would likely decrease, leading to a lower property tax burden for all property owners in the area. Furthermore, if towns focused on providing high-quality, reasonably-priced services, including education, more people would be drawn to the area, thereby increasing the number of properties from which the local government can collect taxes. This, consequently, would further reduce the individual property tax burden each resident would have to carry.
While taking care of our senior citizens is certainly important, adding a potentially unmanageable expense to the state’s budget is not necessarily the way to do so. Smarter municipal spending would help reduce the property tax burden across the board, and charitable solutions are likely a more appropriate and effective way to address the financial struggles faced by our older residents. Help should be focused on those who truly need it.
Although this program may be “a better use of money than a lot of other programs that have been funded in recent years,” the fact remains that the price tag associated with the program is not replacing other state expenditures, but adding to them. A program that doubles in cost year-over-year in the oldest state in the country is simply not a sustainable long-term solution.