(from Maine Townsman, February 2003)
by David Hill
EDITOR'S NOTE: The following article represents the viewpoint of the author, not that of the Maine Municipal Association. Legislation may be introduced this session that would implement the Chebeague Proposal. As of the first of February, no such bill had been printed. MMA's Legislative Policy Committee has neither discussed nor taken a position on the proposal.
One of the more intriguing tax reform ideas to come along in a long time has been developed by a small group of citizens from Harpswell and Chebeague Island. With its roots in Casco Bay, the Maine Land Bank has the potential to benefit communities across the state, from Kittery to Fort Kent.
The Maine Land Bank (or the Chebeague Proposal, as it has become known) seeks to amend the state constitution to extend the categories of land which are allowed differing tax treatments. Currently, these include agricultural, open space and tree growth land. Added to this list would be any land which the owner plans to keep for a long period of time, presumably lifetime and on to subsequent generations.
A base value is established looking back as many as five years. From this base, assessments on land in the program would be allowed to increase at a maximum of two percent per year or the inflation rate, whichever is lower.
Land could be sold or transferred to a direct relative or bequeathed to anybody and remain in the program.
When land is otherwise sold for any reason, it is withdrawn from the program and a significant penalty is paid back to the municipality before the land can pass with clear title. Based on current tree growth tax law, recaptured revenue would be 30 percent of the difference between the sale price and the Land Bank assessed value during the first 10 years. In subsequent years, the recapture penalty would decline to a minimum of 20 percent.
This penalty provides a high ratio of recapture to tax relief, estimated to be 16 or 17 to one. Therefore, given conservative assumptions concerning participation rates, level of tax relief, and withdrawal rates, it is expected that the Land Bank Program will be self-funding and perhaps even provide a positive cash flow which could reduce property taxes overall.
The Land Bank Program provides many advantages to Maine's municipalities:
1) The Land Bank Program solves the most visible and most distressing problem in the field of property taxation - people who are unable to meet their property tax burden and are forced to sell property they do not wish to sell.
2) It provides municipalities with a tool never before available to them and the means to address the vexing issue of long-time residents being forced from their homes.
3) The program operates in a revenue neutral manner.
4) In its inclusiveness, it provides a needed and significant break to small businesses operated by people who intend to own their land (for commercial or any other purpose) for the long term.
5) In small, isolated municipalities, the Land Bank Program encourages long term stability and, in many cases, could prove to be the difference between survival and extinction.
6) It slows the "brain drain" of young people leaving the state by encouraging them to remain in their family homes or to return to those homes when the time comes.
7) The program combats sprawl by discouraging the subdividing of large tracts of land in order to pay property taxes.
With all these positive benefits, one might wonder, "What's not to like about this plan?" But questions have been raised and supporters of the plan believe these criticisms can be addressed.
Some say the plan would involve a cumbersome amount of paperwork and administrative time. With computerized assessment systems, this seems unlikely, particularly in light of the fact that only an estimated 10 percent of properties will be enrolled in the program. Bill Healy, assessor for the Town of Cumberland, was quoted in the Maine Sunday Telegram as saying, "The program shouldn't be difficult to administer once it was set up." He added that "it appears to accomplish some important goals."
Others fear that there will be animosity created between assessors and those asked to pay hefty fines and that excessive and expensive litigation will ensue. In response, it is probably safe to say that those who have been driven from their homes by unaffordable taxes have little love left for the assessor.
As for litigation, it will be important that entrants to the program come into the plan "with eyes wide open" and with a full and acknowledged understanding of the potential for significant penalties (or reduction of profit, more accurately) if they were to sell their land to other than direct family members. With properly executed admission documents, the number of litigations should be minimized, and the number of successful lawsuits should approach zero.
Also, activities relating to the Land Bank Program, the same as any taxation matter, would be subject to appeal through avenues currently open to taxpayers.
Another criticism is that the participation level will be so low as to make the program not worth having. Only time will tell what the actual participation rate will be, but it is axiomatic that the desire for long-term land ownership is not exclusive to only the areas of Maine currently experiencing rapid assessment growth. The tax savings for other areas may be less dramatic, but they are savings nonetheless and therefore attractive to long-term landowners.
And even if the participation rate is low, it should be worth it to save a few individuals the pain and humiliation of "eviction by the taxman." And as the Portland Press Herald said editorially, "The program would still be valuable if it could keep a few fishing communities like Chebeague intact."
Others say that people would never leave the program, leaving a deficit to be satisfied by other taxpayers. Experience with Tree Growth indicates that between three and seven percent of participants will withdraw each year. This is logical considering that people do change plans for many reasons including alterations in personal circumstances, divorce settlements, and heirs who would prefer to "cash out."
Some fear that budgets would be difficult to prepare with the uncertainty surrounding the coming year's Land Bank recapture revenue. In response, it has been years since school budgets have been drafted with any certainty regarding General Purpose Aid and the towns and cities get along somehow. Also, with the passage of time and accumulated Land Bank experience, such estimates will be possible and will become more accurate.
Finally, there is the feeling that the plan would be a "tax break for the rich," who won't mind paying large penalties to save a few bucks on their taxes. The fact is that the rich didn't get that way by making poor investment decisions. Foregoing 30 percent in capital gains to save a fraction of that in taxes is not a good decision. And if a mistake is made and the penalty must be paid, who is the beneficiary? The municipality!
The Bottom Line
The Maine Land Bank Program provides what many municipalities have been seeking - a way to give long-term residents a break on their taxes without raising taxes for anybody else. It provides stability for the community and, in fact, can help the community itself to survive. The Land Bank Program encourages Maine's youth to stay in their family homes or to return later. The program even discourages sprawl.
All in all, the Maine Land Bank Program deserves to be embraced by the communities that it serves as it has already been embraced by the citizens who will participate.
For More Information
If you would like more information about the Maine Land Bank Proposal or if you would like to assist in passing this important legislation, please call David R. Hill at (207) 846-4664 or send e-mail to firstname.lastname@example.org. You may also visit our website at http://home.gwi.net/mainetaxreform/, which includes an interactive Excel spreadsheet which allows "what-if" analysis of the program.
We are also willing to give PowerPoint presentations to municipalities and civic organizations describing the Land Bank and detailing its operation.