Property tax stabilization program for seniors raises concerns for towns and taxpayers

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A law intended to stabilize property taxes for full-time Maine residents aged 65 or older who have owned a homestead in-state for at least 10 years will go into effect in 2023 and is projected to require millions of dollars in appropriations beginning in fiscal year 2022-2023.

The law, which was passed without the governor’s signature on May 8, allows eligible individuals to apply to the municipality in which their homestead is located for stabilization of their property tax, freezing the property tax rate for future years for which they apply for a stabilization to the rate for the year in which they applied.

Eligible individuals must apply by December 1 each year, with the stabilization taking effect on April 1 of the following year. Individuals must also submit a new application for each year in which they are requesting stabilization and can transfer the stabilization should they move.

The law requires that, for all applicants it finds eligible, a municipality stabilize the property tax rate for the year in which they apply. Municipalities can recover 100 percent of the amount they lose in property taxes on stabilized properties from the state. 

Municipalities must submit a claim for compensation to the Bureau of Revenue Services by November 1 of the year in which the stabilization was made. The bureau will then review municipal claims and determine the amount to be repaid to municipalities.The state treasurer will repay municipalities for compensation claims by January 15 of the following year.

The bill included a General Fund appropriation of $315,242 for fiscal year 2022-2023, the first year the law will go into effect, which will cover personnel costs for the Department of Administrative and Financial Services (DAFS). The appropriation will cover the cost of one full time property appraiser, one temporary, part-time property appraiser, mandated reimbursement costs to municipalities, and all other costs associated with processing and auditing applications.

The fiscal note also states DAFS will require a General Fund appropriation of $1,955,000 in fiscal year 2023-2024 for “reimbursement to municipalities for property taxes lost due to stabilization.”

Per the fiscal note, the bill is projected to cost roughly $2.25 million in fiscal year 2023-2024 and just over $7 million in fiscal year 2024-2025. An earlier version of the fiscal note showed a $14 million appropriation in the following fiscal year. 

This projected estimate, which is likely to rise each year as more property owners join the stabilization program, reflects Maine Revenue Services estimates. According to population estimates from the 2020 census, 21.7 percent of Maine’s population is over the age of 65 and could potentially qualify for property tax stabilization.

Michael Allen, associate commissioner for tax policy with DAFS, raised “administrative and constitutional issues” with the bill during his testimony at a May 25, 2021 public hearing. 

“I would like to raise the following administrative and constitutional issues. Durational residency requirements, such as the ten-year ‘homestead’ requirement in this bill, raise constitutional concerns. The bill would also add a significant amount of work for municipal assessors, requiring annual processing of applications and submitting detailed reimbursement information to the State for a significant number of taxpayers. Under the Maine Constitution Article IX, Section 21, the State is required to reimburse the municipalities for 90% of the costs associated with the municipalities’ administration of this new program,” Allen wrote in testimony submitted for LD 290’s public hearing.

The legislature’s Committee on Taxation did not discuss these concerns during the bill’s work session. The committee’s majority voted the bill ought not to pass, but the legislature ultimately accepted the minority ought to pass as amended report, leading to the bill’s passage. The bill’s language did not change between its introduction and its final passage; the only amendment to the bill was a fiscal note. 

DAFS did not respond to a request for comment about whether the agency continues to have concerns about the law, or whether the concerns Allen raised in his testimony were discussed with members of the tax committee.

According to Justin Hennessy, tax assessor for the town of Topsham, MRS has not provided information about how the program will be implemented.

“As of yet no information has been issued by Maine Revenue Service regarding how the program will be implemented. We will do our best to inform our residents when we are provided more information from the State,” said Hennessy.

According to Kate Dufour, the Maine Municipal Association currently opposes the law and has done so since the bill first received a public hearing in May 2021. 

“Although the law currently requires the state to reimburse municipalities for 100% of the lost property tax revenues, that level of reimbursement can be amended by a future legislature. As provided in Article IV, Section 23 of Maine’s Constitution, the Legislature must reimburse municipalities ‘for not less than 50% of the property tax revenue loss…because of the statutory property tax exemptions or credits enacted after April 1, 1978.’  If a future Legislature reverts to the 50% minimum, the costs associated with lost property tax revenues will be shifted to other property owners, including younger homeowners and businesses,” said Dufour.

Further, Dufour noted that the law does not require means testing or place any limit on the value of the benefit. 

“Furthermore, the burdens associated with administering the program will be borne by municipalities, which are struggling with the same workforce attraction and retention issues plaguing employers across the state and nation,” Dufour added. “It would have been preferable if the Legislature had left municipalities out of this arrangement and instead extended a benefit directly to homeowners, administered the program using state employees, and paid for all related costs directly from state coffers.”

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