By Michael Starn, Editor
A working group of the MMA Legislative Policy Committee (LPC) was created in January to look at factors and policy issues which affect property tax rates and how local government services are provided in service center and non-service center communities. The group is expected to issue a report that presents its findings and makes recommendations to the entire LPC by June, 2005.
Members of the Service Center-Rural Community Working Group include: co-chairs, John Sylvester, Alfred selectman, and Larry Mead, Portland assistant city manager; regular members, Errol Additon, Leeds selectman; Elaine Aloes, Solon selectman; Steve Aucoin, Waterville city councilor; Eugene Conlogue, Millinocket town manager; Phil Nadeau, Lewiston assistant city administrator; Donald Shepley, Hermon town councilor; John Simko, Greenville town manager; Michael Thorne, Harrison town manager; and from MMA’s Executive Committee, Andrew Hart, Union town manager; Linda Pagels, Calais city manager; and Anne Swift-Kayatta, Cape Elizabeth town councilor.
The working group had held three meetings through mid-April. A brief organizational meeting was held February 17, at which time the group requested that MMA staff provide them with data that gives a baseline comparison of property tax rates in service center and non-service center communities.
MILL RATE DISPARITY
At the group’s second meeting on March 24, MMA’s Geoff Herman presented data that compared mill rates in the 63 service center communities to the mill rates in their “rim” communities. A separate analysis was made of service centers and all non-service centers; however, staff felt the service center-rim community analysis was more useful to the group.
Rim communities were defined as communities that border the service center. The MMA staff also looked at other New England states to see if there were any disparities in mill rates between service center and non-service center municipalities. Because of the differences among states, that analysis was also felt to be marginally useful.
The service center-rim community analysis supported the conclusion that there was a mill rate disparity between service centers and non-service center municipalities. On a statewide basis, the average service center to “rim” community disparity was 3.83 mills. That disparity varied depending on where the communities were located and was affected by the mill rate of the service center.
What MMA found was that higher mill rate service centers tended to have a greater disparity with their “rim” communities that did the lower mill rate service centers. For example, in the higher mill rate service centers – over 20 mills – the average disparity was 6.85 mills, while the lowest mill rate service centers – under 15 mills – had a difference of only 0.57 mills.
CONTRIBUTORS TO DISPARITY
The working group discussed at length what might be contributing factors to the disparity and ask MMA staff for more data. The staff pulled together data on three potential contributing factors to the mill rate disparity: public safety, exempt property, and multi-family housing.
Public Safety. It came as no surprise that the data showed larger communities, with a municipal police department and mostly, full-time, paid firefighters, spend more on public safety than smaller communities.
For this analysis, MMA took three service center communities and compared their mill rates to “rim” community mill rates with public safety costs included and then after public safety costs were excluded. The service center communities selected were Augusta, Madawaska and Lewiston. In Augusta, the mill rate disparity is 10.10 mills before public safety is taken out; when public safety costs are excluded, the mill rate disparity drops to 5.42 mills. In Madawaska, the MMA data showed a mill rate disparity of 3.14 mills dropping to 2.21 mills when public safety is excluded. In Lewiston, the mill rate disparity gets cut in about half dropping from 5.98 mills to 2.86 mills.
Exempt Property. To illustrate the effect that exempt property has on service center mill rates, MMA staff compared the six service centers represented on the working group to the seven non-service center communities represented on the group.
Waterville and Lewiston have the most exempt value in relation to taxable value. According the MMA analysis, if the exempt property in those two cities were taxable, the tax rate in Waterville would drop 3.5 mills and the tax rate in Lewiston would drop almost 4 mills.
The mill rate impact of taxing exempts in the seven non-service center communities was negligible. The non-service center community with the greatest impact was Alfred which would only see a 2/10 th of a mill drop.
Multi-family Housing. MMA’s analysis of multi-family housing’s impact shows that service center communities have significantly more multi-family housing than non-service center communities. Rental housing appears to place as much of a demand on certain municipal services, such as education and public safety, as single family homes, but without the a comparable amount of property taxes being paid toward those services.
For example, the City of Lewiston has 7,507 rental units that are estimated to have an average value, for tax purposes, of $28,400 per unit. The median home value in Lewiston in 2003, according to Maine State Housing data, was $114,110. The average rental household, according to this comparison of values, would pay only 25% of the property taxes that a single family household would pay. Applying Lewiston’s full value mill rate of 24.55 (2004) to the single family house valued at $114,110 would generate $2,801; whereas the mill rate applied to the $28,400 rental unit would generate only $697.
Leeds, another community on the working group, has only 15 rental units, with an average value of $21,687. The town’s median home value is $106,000. Applying Leed’s full value mill rate of 13.88 to the single family home, the town gets $1,471 and from the rental unit, $301.
ADDRESSING THE DISPARITY
The charge to the working group was to develop finding-of-facts with regard to the mill rate disparity phenomenon, identify factors that create, support or influence the mill rate disparity, identify appropriate sources of funding for the purpose of reducing that mill rate disparity, and identify specific strategies and recommendations to be presented to the full LPC for its consideration.
Identifying strategies and sources of funding to address this mill rate disparity between service centers and non-service centers is the most difficult part of the working group’s charge.
County Reform. A legislative bill that was introduced in December with the initial support of the MMA Legislative Policy Committee was the impetus for the creation of this working group.
LD 249, An Act to Amend the Calculation for Annual County Tax Assessments, would have required county law enforcement services to be paid for by those communities that do not have municipal police departments. The bill got a favorable vote in early December by the MMA Legislative Policy Committee.
When word got out about the MMA position, the response from municipal officials in rural communities was swift and strongly opposed to the LPC position. Reacting to that membership feedback, the MMA Executive Committee asked the Legislative Policy Committee to take another look at this issue. After much discussion and debate, the LPC voted in January to take a “neither for nor against” position on LD 249. The policy committee, at that meeting, also decided to form the Service Center-Rural Community Working Group.
The working group is looking at several issues that relate to county government and the way that county government services are funded, including rural patrol.
LD 1. The impact of LD 1 and Essential Programs & Services (EPS) will be of significant benefit to most service center communities.
LD 1 increases state support for education to 55% of the total EPS cost over a four-year period. Data from the Department of Education that shows FY 06 and FY 07 anticipated state funding for education clearly demonstrates a significant gain for service center communities, and a much smaller gain for non-service centers.
MMA analyzed the potential mill rate impacts of LD 1 on the 13 communities represented on the working group. The MMA analysis looked at the increased education aid and the changes to revenue sharing. A 2.5% inflationary increase in education spending was used in the MMA analysis. The results showed an average service center mill rate reduction of 1.36 mills and a non-service center reduction of 0.11 mills.
Commercial vs. Residential. Service centers typically have more commercial property as a percentage of total taxable property than do non-service center communities. With education costs comprising a significant part of most municipalities’ total budget, it seems fair to conclude that commercial property is a “net gain” for most municipalities when taxes paid are compared to the demand on services from the property.
MMA analyzed the working group communities to determine percentages of commercial and residential property in service centers vs. non-service centers. In the service centers, commercial/industrial property represented 22.6% of the tax base in Greenville, 47.8% in Lewiston, 78.1% in Millinocket, 49.5% in Portland, and 48.5% in Waterville. In non-service center, the commercial/industrial is 2.6% in Cape Elizabeth, 5.9% in Harrison, 26.8% in Hermon, 12.6% in Leeds, 15% in Solon, and 5.7% in Union.
Other Analyzed Factors. The Homestead Exemption expansion and partial funding under LD 1 will, in most cases, allow service center communities to moderate the amount of increase of mill rates because the cost of the unreimbursed exemption will be shifted mostly to the commercial/industrial properties.
Tax increment financing (TIF) districts are also more prevalent in service centers than non-service centers. If tax revenues from the TIF value that is currently sheltered were used to lower property tax rates instead of being returned to the business, it is estimated that the service center communities would see an average tax rate reduction of about one mill.