Wednesday, February 17, 2010

What Promise? Dept.: Baldacci, Dems raise broad-based taxes

Published in the Portland Phoenix

Despite numerous repeated claims that he and his party will not raise "broad-based taxes" while attempting to solve Maine's decade-old budget disaster, Democratic governor John Baldacci and legislative Democrats have done exactly that, and are now expanding those efforts by increasing an additional tax that hits many Mainers.

Baldacci's typical methods for balancing the budget have involved drastic spending cuts, increasing fees for government services, and shifting money within state coffers. He has regularly promised not to raise taxes paid by most Mainers. But rather than cut roughly $6 million in state spending (such as in corporate subsidies, or Baldacci's favorite targets, health and education funds) or increase other revenues (by, say, taxing the wealthy slightly more), Baldacci and his party are doing what they promised not to: Nearly all Maine homeowners will see increased property taxes in the 2010-2011 fiscal year because of state policies.

The governor has repeatedly in the past, and again this year, pushed lawmakers to slash millions of dollars in state support for local school systems, forcing towns to raise their own taxes. Baldacci elegantly sidesteps the blame for that, saying those tax-increase decisions are made locally — ignoring the fact that local officials wouldn't need to raise taxes if the Baldacci's administration met its legal obligations for education funding. That's not new.

What is new this year is a reduction in the so-called "homestead exemption," through which roughly 315,000 Maine residents get a break on their local property taxes, courtesy of the state treasury (for owner-occupied homes only, and not for second homes or those owned by out-of-state residents), in an effort to reduce local governments' reliance on property taxes to fund services.

When the exemption was introduced in 1998, the state paid the local property tax on $7000 of a home's assessed value (so a person owning a home worth $100,000 would pay tax on $93,000). In 2003 and 2005, the Legislature increased the amount, such that last year the exemption was $13,000 (a $100,000 home would be taxed on $87,000).

But last year in a little-noticed revision to the budget, Baldacci and his party's majority in the Legislature reduced the exemption to $10,000 (meaning a home worth $100,000 would be taxed on $90,000), starting with tax payments due this August.

Baldacci's spokesman, David Farmer, says the governor's proposal was to reduce the exemption by 10 percent, to $11,700, but the taxation committee went with the lower $10,000 figure, in part in an attempt to reduce the severity of cuts to other programs, such as the state's "circuit-breaker" program (which provides state rebates to people whose property taxes are higher than a certain percentage of their income).

Farmer says it's not a broken promise: "It's not a broad-based tax. It's a reimbursement to municipalities." He's sort of right: the state pays towns half of the amount they would receive from taxpayers if there were no exemption. (The other half is just absorbed by the towns, which may have to raise property tax rates slightly to cover the difference; Farmer notes that "it's not just a benefit to the state," because there will be less of a difference for towns to make up.)

But remember that the point of the program was to lessen upward pressure on property taxes, not to give towns more money. Based on last year's tax rate, the change could cost Portland residents $53.22, city spokeswoman Nicole Clegg says. And the state will save roughly $6 million in the bargain, according to Dave Ledew of Maine Revenue Services. Less money in taxpayers' pockets and more money in the state treasury? Sounds like a tax to us.