‘Guarantee’ of Property Tax Relief (sidebar)

(from Maine Townsman, December 2004)
By Geoff Herman, Director of State & Federal Relations, MMA

An important aspect of the implementation of the School Finance and Tax Reform Act of 2003 (a.k.a., Question 1A) is the so-called “guarantee” of property tax relief.

The central purpose of Question 1A was to reduce Maine’s property tax burden. It was certainly never the intention of the municipal officials who developed this citizens’ initiative to add to Maine already high overall tax burden.

Contained within Question 1A is language that calls for tax revenue neutrality. “. . . the joint standing committee of the Legislature having jurisdiction over taxation matters shall report out revenue-neutral legislation designed in accordance with the intentions of this Act to generate the additional revenue necessary to adequate funding for public education from kindergarten to grade 12 . . .”

Neither the good intentions of municipal officials who crafted Question 1A nor this directive to the Legislature that is part of 1A was enough to satisfy the opponents of the School Finance and Tax Reform Act of 2003 during the November, 2003 and June, 2004 election campaigns. Through TV ads and public statements, they were constantly referring to the “lack of a guarantee” of property tax relief in 1A.

Municipal officials across the state wanted to make certain that the property tax relief intention was clear and without question. Starting with Portland in October 2003, municipal officials in many communities passed resolutions stating their intention to provide property tax relief with the additional state funding of education that comes from the implementation of 1A.

Soon after the passage of Question 1 in June, following the lead of city officials in Brewer, municipal leaders stepped up the pace of adopting resolutions affirming their intention to provide property tax relief with any and all new state funding for education (see article in July, 2004 TOWNSMAN).

The “guarantee issue,” however, has not gone away.

The Chamber’s spending limitation plan makes specific reference to “net new funds.” Under the limitation language for schools, the plan states that “the school administrative unit shall lower its assessment limit in that year in a amount equal to the net new funds” before applying the allowable growth factor to the property tax levy limit. The plan also permits the state to discount appropriations for additional school funding to comply with Question 1A from its spending limitation.

In LD 1924 (implementation legislation for Essential Programs and Services), the Legislature enacted “ramp down” language with the phase-in to 55% state funding for education over a five-year period. Under 1924, a Municipal Budget Analysis Committee will review the implementation of EPS funding “to see if the increased state support for education is translating to reduced property tax demands for the schools”.

Governor Baldacci’s tax reform proposal (LD 1) that is currently being worked by a special legislative committee makes reference in the summary of the bill to a return of 90 percent of the new state education funding, but makes no statutory reference to this in the bill itself. At the first meeting of the committee a spokesperson for the Governor said that under LD 1’s four-year phase-in to 55% state funding, property taxpayers could expect, on average, an 8 percent reduction in property taxes in the first year. Considering that the entire $83 million of increased funding in the first year is less than 5 percent of total property taxes raised in 2004, MMA has difficulty understanding how he came up with 8%.

Identification of increased state funding for education is not a simple calculation. Such factors as student population and valuation changes and inflationary increases will have to be addressed. Municipal officials will want to consult with school officials to establish a rational system for determining the amount of “net new funding” and therefore the level of property tax relief that will be provided.