Debate Over Senior Property Tax Deferrals

(from Maine Townsman, October 2010)
by Douglas Rooks

Kathleen Chase served for 16 years as the assessor for Wells. Back in the 1980s, when property values along the Route 1 commercial zone began skyrocketing, she came across an elderly woman who was trying to hold onto her home and large plot of land, but couldn’t afford to pay the escalating property taxes.

“In the course of a few years, the value of her property went from $160,000 to $800,000,” Chase said. “She was trying to pay a $7,500 tax bill with an income of less than $25,000. She was legally blind and she had no family to help.”

This was back when the state’s circuit breaker tax relief program had started, and for a few years “that worked just fine,” Chase said. But when state revenues began declining, the Legislature capped reimbursements and the woman ultimately sold her property and moved away.

Chase decided that, if she ever had a chance to do something for people like that elderly woman, she would. This year, she did.

In her second term as state representative for Wells, she became ranking minority member on the joint Taxation Committee. From that post, she convinced her committee colleagues, and then the full Legislature, to unanimously adopt her bill, LD 1121, which authorizes municipalities to adopt tax-deferral programs for seniors. Wells is now one of the towns considering such an ordinance.

But the prospect of a new locally administered property tax relief program concerns some municipal officials – and the debate over whether, and how, to design such programs has just gotten started.

In general, tax assessors like Chase have the most sympathy for elderly residents who feel they are being taxed beyond their ability to pay. She notes that the criteria to qualify for tax deferrals is fairly stringent – seniors must be 70 or over, have lived in their homestead for at least 10 years, and have incomes less than 300 percent of federal poverty guidelines.

Property taxes are deferred, not forgiven, and the heirs or property buyer must pay the full amount, plus interest, when the resident dies or the property is sold.

QUESTIONS FROM TAX COLECTORS

Tax collectors, however, have many questions about the program. Vera Parent, Tax Collector for Peru and president of the Maine Municipal Tax Collectors and Treasurers Association, wonders whether the existing system couldn’t serve elderly taxpayers in this situation.

“There are no limits on the town’s ability to abate taxes,” she said. “There are other ways to handle the situation some taxpayers find themselves in.”

Others wonder whether, if the Legislature considers this such a high priority, it couldn’t create a state program to accomplish the same end, without asking towns and cities to take it on.

As it happens, the state did authorize such a program not long after the circuit breaker was enacted, but only a handful of taxpayers are still enrolled. When Chase first proposed her bill, it took the form of reopening applications to this nearly forgotten state program, enacted in 1989, that helps pay the property tax bills for seniors in exactly this situation.

David Ledew, director of Maine Revenue Services’ property tax division, said 175 taxpayers signed up for the program before the Legislature, amid falling revenues, suspended enrollment.

“They reopened applications briefly twice, but then closed them for good,” Ledew said.Participation going down

In its peak year, fiscal 1992, the state was reimbursing municipalities $132,000 for 158 taxpayers who had taxes deferred. As residents died or sold their properties, enrollment dwindled to just 14 taxpayers by fiscal 2005. Only seven remain today, and their cases need to be administered each year.

In the meantime, concern about excessive property taxes rises each time there’s a real estate boom – including the latest that ended with the 2008-09 recession – and various solutions are offered.

Chase and Ledew both said that by January of this year, when the Taxation Committee was again discussing the held-over bill, there was no possibility of a state appropriation.

The state also enacted significant reductions in the circuit breaker tax relief program for individuals, reducing the maximum reimbursement from $2,000 to $1,600. The Legislature cut the Homestead Exemption from $13,000 to $10,000, only half of which is reimbursed by the state.

By that time, Chase had decided a local program might work better anyway.

“There’s a reluctance among some people, particularly elderly people, to get involved in a state program. They’re more comfortable with something closer to home,” she said.

Ledew essentially said there are some reasons why a state program might work better, at least under the original design.

“In theory, this could be administered more efficiently at the state level. The state has expertise and knowledge, and can do things that municipalities are not as familiar with,” he said.

Before the Legislature cut back, MRS planned to add staff to handle applications and write rules – hiring that was never carried out.

Ledew said a lack of reliable funding has been a problem for senior deferrals and other state tax relief programs, including municipal revenue sharing.

He noted that in the mid-1990s, tax-deferral reimbursements were briefly cut to 90 percent, which prompted a number of taxpayers to leave the program.

Municipal and state budgets are fundamentally different in the way they are constructed, Ledew said.

“When the state faces a revenue shortfall, it starts looking for somewhere to cut, and that usually means everything,” he said.

Municipalities, by contrast, “start with a budget plan, and then assess the taxes to pay for it,” he said. Towns may cut back programs, but look at funding them first before making that decision. Under these circumstances, it seems a better bet that a municipal tax deferral program will continue as envisioned than one administered and funded by the state.

TOWNS HAVE A CHOICE

The new law permits, but does not require, municipalities to run their own property tax deferral programs. It became effective in July and towns are now discussing whether they want to participate. Among municipal officials, opinions differ about the need for and practicality of the program.

Assessors like Chase tend to be the most supportive. They often work with annual or periodic revaluations of property and see the effects of dramatic rises in the assessed value of commercial property or shoreline lots on the coast and interior lakes.

Tax collectors, who would administer the program, have more reservations. Paul Labrecque, Lewiston’s tax collector, said situations where elderly taxpayers face unaffordable tax bills are rare. Over two decades, he can think of only a half dozen cases where substantial abatements were requested. Applications for poverty exemptions are even rarer.

Labrecque is concerned about the ability of municipalities to administer such programs. “The way I read this, the municipality has to file a lien on the property every year,” he said. “Otherwise, the claim isn’t legal.”

Ledew confirms that this is the case – each year, the state files a list with the county registries. That recurring work is something for municipalities that don’t have managers or that elect their tax collectors and treasurers to consider, before enacting local ordinances.

“If you have new people on the job, without the institutional memory, it could be an issue,” Ledew said.

Labrecque said that Lewiston does set up payment plans and finds other ways to help people pay taxes. “We’ll work with them to the umpteenth degree if they ask.”

Whether many elderly taxpayers are “taxed out of their homes” can be seen in different lights. Some observers, such as Rep. Chase, say that most people would rather sell and move than ask for what they see as a form of charity. It is this group, supporters say, who would be most likely to use the deferral program.

INTEREST IN BELGRADE

Dennis Keschl, town manager of Belgrade, says there is considerable interest among the board of selectmen in offering a deferral program. Last year, Belgrade was one of a number of towns setting up a program, authorized by the state the previous year, that allows seniors to volunteer to work for the town and be forgiven up to $750 of their tax bills.

“We have a lot of lakefront and typically those lots have greatly increased in value,” he said. “We don’t expect to have dozens of applicants – maybe there would just be two or three – but it may really help certain individuals.”

Keschl has seen how some elderly residents struggle on fixed incomes. He recalled one case when a couple whose home had been in the family for seven generations had to come up with $11,000 for a drilled well.

“I don’t know how they did it, and now the well is contaminated, too,” he said. “We’re trying to help them raise enough money so they can afford to buy a filter.”

A committee will begin meeting shortly with the goal of writing an ordinance that can be considered at the 2011 Town Meeting. Figuring out how budget for the program, and whether there need to be any additional eligibility requirements, will be part of the discussion, Keschl said.

Another municipality actively considering a program is Wells. Selectmen Chairman Bob Foley said it was clear after an initial meeting in July that, “We like the concept of the program and see the need.”

There are a number of issues that need to be addressed, however. One is that Wells has a number of homesteads where ownership has been transferred to a family trust or other legal entity, but whose residents – with lifetime tenancy – might be eligible.

“I don’t see that the state law addresses that situation, so we might have to,” he said.

There are also instances where mobile homes are located on leased lands, or where the owners have an agreement to convey the property to a land trust. “We don’t want to discourage people from applying but we have to make sure we’re covered legally,” he said.

LOCAL BUDGET IMPACT?

Perhaps the biggest municipal concern is how deferred taxes will be reflected in the annual budget.

“At some point, the program should pay for itself,” said David Ledew at MRS. “There will be enough properties exiting the program and producing revenue for the town to balance the ones being enrolled.”

Ledew acknowledged that the break-even point “is somewhat hypothetical.” In some towns, it might take four years to reach, in others 10 or more.

In Lewiston, Labrecque wonders whether smaller towns might have more difficulties finding the right balance.

“We have a revenue stream of $45 million so it’s hard to see much of an impact there,” he said. “But what about a town with a much smaller budget?”

Ledew thinks one advantage of a local program is that it’s easier to keep tabs on the properties enrolled. In one case, a taxpayer involved in the state program moved to a nursing home but the property remained unsold and deteriorated for years before the taxpayer died.

“We were concerned about whether we’d even get our money back. We did, barely, but that’s the kind of situation you need to watch,” he said.

Douglas Rooks is a freelance writer from West Gardiner and regular contributor to the Townsman, drooks@tds.net