Valuation Limits Create Problems
SIDEBAR: LD 2 Is A Value Limitation System

(from Maine Townsman, December 2006)
By Liz Chapman, sidebar by Jeff Austin, MMA Legislative Advocate

In 2005, Governor Baldacci proposed a Proposition 13-style limit in a bill known as LD 2. In its first version, the proposed constitutional amendment would authorize (but not mandate) municipalities to limit the year-to-year growth in the assessed value of the buildable lot under the primary residence of all homesteaders at the rate of inflation (3.39% in 2004/5). The valuation limitation system would not apply to any physical structures and it would only pertain to the amount of the land reasonably necessary to support a primary residence.

Subsequent versions of LD 2, all of which were rejected by the Legislature, would have mandated enrollment in the program, applied it to all of the homesteaders' property (land and buildings) and required the payment of a penalty whenever the residential property was sold.

The 122nd Legislature rejected this idea. The Governor has stated that he will resubmit the legislation for the upcoming 123rd Legislature, the exact form the new version of LD 2 might take is not yet known.

States across the country employ a variety of systems to redistribute the property tax burden. Some of the most common are:

• homestead exemptions – where a portion of residential value is exempt from taxation;

• classified valuation – where some classes of property (e.g. utility and commercial) are taxed at a higher percentage of market value than are other classes (e.g. farm and residential)

• classified tax rates – where some classes of property (e.g. utility and commercial) are taxed at a higher tax rate than are other classes (e.g. farm and residential).

All of these approaches give certain groups of property taxpayers a tax break at the expense of other property taxpayers.

A less common approach is to redistribute tax burden by placing a limit on the annual increase in assessed value for people who don't sell their home. LD 2 is patterned after this model. The most famous example of this approach is California's Proposition 13, enacted by that state's voters in 1978. Prop 13 is very comprehensive in that it limits value increases to all classes of property at the inflation rate or 2%, whichever is less. When a property sells, a cash value (what it sold for) is used as its assessed value and then becomes the base for the value limiting system of Prop 13 until it is sold again.