Lack of Reimbursement Uniformity A Problem
(from Maine Townsman, February 2001
by Douglas Rooks, Freelance Writer
The issue of current use taxation is usually simmering on the back burner at the Legislature, with a handful of bills being filed over the Tree Growth program, while others seek to revise, adjust or tinker with the Open Space and Farmland programs. All three programs were adopted in 1972, a time of intense concern over rising property taxes - concern that also prompted adoption of the Uniform Property Tax (UPT) for education that was ultimately repealed by the voters in a 1977 referendum.
Last year, current use moved to the front burner. The Legislature passed a bill, part of an anti-sprawl package, which removed penalties for early withdrawal of acreage from the Farmland program. And lawmakers proposed a constitutional amendment to permit current use assessment of commercial fishing waterfront property, a plan voters narrowly rejected in November.
This year, the sponsor of the waterfront amendment, Rep. David Etnier [D-Harpswell], who now sits on the Appropriations Committee, has introduced a bill to study the current use idea and other means of preserving the working waterfront. The study committee would produce recommendations for the Legislature in January 2002.
Meanwhile, Rep. Bonnie Green [D-Monmouth], now House chair of the Taxation Committee, has reintroduced her bill to reduce the minimum acreage for enrollment in the Farmland program from five to two acres. She says the change is intended to benefit horticultural landscape businesses, one of the most successful and fast-growing agricultural enterprises in Maine, as elsewhere.
The Maine Municipal Association has had concerns about both the waterfront and farmland proposals. Last year, MMA's Legislative Policy Committee initially took a "neither for, no against" stance on Etnier's constitutional amendment. Before the election, however, the MMA Executive Committee came out against the amendment, which passed handily in most coastal communities but failed to pass muster with skeptics in the inland towns. The constitutional amendment was narrowly defeated in the statewide vote.
Etnier said the Executive Committee vote came as a surprise to him. "I started from the premise that it was patently unfair to offer current use to two of the three major natural resource industries, forestry and farming, and not do anything for the coast, where we're losing so much of the working waterfront," he said. Etnier says property values in coastal towns have escalated to the point where all the private access points are in danger of being converted to house lots. "We've seen it happen in other states, and it's happening in York and Cumberland (counties) right now," he said. The alternative to private port facilities is municipal and state-owned piers: "We know fishing will continue, but public piers are expensive to build and pay no taxes."
Green similarly sees her proposals as protecting an indigenous industry that can't pack up and move away, as many manufacturers have. "We don't see our farms as an important source of economic growth, as Vermont does," she said. "But they could be."
Geoff Herman, MMA's Director of State and Federal Relations, says towns are sympathetic to the concerns of these legislators, but also wary of providing more tax exemptions that simply shift the burden to other taxpayers. "It's a good thing we have to amend the Constitution to offer these programs, or we'd probably do it a lot more often," he said. Added Jim Murphy, an assessor for three Knox County towns, "Sometimes you wonder if you're going to be the last property taxpayer in town."
Herman points out that the Open Space and Farmland programs provide no state reimbursement to towns for the lost revenue, and MMA believes the Tree Growth reimbursement rates, based on county-wide undeveloped land price averages, are often inadequate as well. While the amendment for "commercial fishing activities" would have required enabling legislation to set up a program, there's no guarantee the state would provide reimbursement.
Ironically, the one tax-related constitutional amendment to pass in recent years, one intended to benefit owners of historic properties, has so far resulted in no actual tax relief. Spurred by an unsuccessful attempt to preserve a lighthouse property in Cape Elizabeth, the committee charged with producing enabling legislation got stuck over the issue of how to assess historic value. Ultimately, it decided to allow towns to adopt local programs and forgive as much of the tax bill as they wanted to. So far none, including Cape Elizabeth, have done so.
HOW THEY WORK
The waterfront current use program, most observers agree, would resemble the Farmland and Open Space programs more than Tree Growth. Said Rep. Etnier, "I never say this will be the salvation of the waterfront. It may help, but it's no silver bullet."
For despite the lack of reimbursement, towns generally don't complain a lot about the Farmland and Open Space programs, according to Jim Murphy, who's the assessor for Union, Warren and St. George, riding circuit between the three towns each week. Except in fast-growing suburbs around Portland, and parts of York County, the value of farmland isn't high enough to create a major tax loss - or even much participation in the program.
David Ledew, supervisor of municipal services in Maine Revenue Services' Property Tax Division, said that only 76,000 acres of a potential one million acres are enrolled in the Farmland program, and even less in Open Space. By contrast, at least 11.5 million acres of a potential 18 million acres of forestland are enrolled in Tree Growth, including 3.6 million acres in municipalities.
A recent study of current use tax impact on towns by MMA confirms these observations. It examined 14 communities with varied amounts of farmland, and determined that the tax loss from the Farmland program was typically 20 to 30 cents on the mill rate. The loss in tax dollars was highest in Farmington - $32,343 - but that only amounted to 13 cents on the tax rate because of the size of the town's tax base. In Bowdoinham, which lies halfway between Portland and Augusta and has experienced rising land values, the tax loss was $27,486, or 26 cents on the mill rate.
The survey of 16 communities in the Open Space program showed similar results. The highest tax loss was in Gouldsboro, with $55,124, and 39 cents on the mill rate; and in Hollis - $56,056, or 45 cents. In towns with no Open Space enrollments, obviously there was no effect on the tax rate at all.
The Tree Growth tax is a larger factor in many towns, despite the state reimbursement program. The reason, Geoff Herman said, is that the program makes no allowance for waterfront property, either coastal or inland, whose higher value can create much bigger tax losses.
The MMA survey of 49 communities under Tree Growth showed that the biggest tax loss, $325,215, occurred in Ellsworth. But because of its large tax base, that amounted to only 59 cents on the city tax rate. The situation is different in smaller communities. Byron showed a tax loss of $109,682, amounting to $3.89 on the mill rate. Atkinson lost $81,290, or $3.52, and even more populous Medway, which lost $168,559, saw a tax rate impact of $2.24. Lack of adequate Tree Growth reimbursement played a part in the deorganization of Madrid, the most recent case of a town giving up its local government.
WHAT IT MEANS
What this all means is, of course, open to interpretation. Assessors like Jim Murphy argue that, employing the law properly, existing uses ought to be able to continue without excessive rises in valuation, because the state requires commercial assessments to be based on the income a business produces, not its alternative value for housing.
To David Etnier, however, that's a moot point. The increases in value have been so large, and are so pervasive as the retirement and second-home boom spreads up the coast, that local assessors are practically bound to set higher values. In actual practice, as opposed to assessing theory, Etnier believes many waterfront uses are being priced out of the market.
The Farmland program is an example of a state effort that's often resisted by its intended beneficiaries. Even where farmers face rising property taxes, they seem reluctant to enroll, despite several legislative efforts to make the program more attractive.
One such effort was last year's elimination of the change-in-use penalty; now property owners are liable only for back taxes plus interest. And in fact, even the existing penalty wasn't a big deterrent. "We did a calculation on some farmland that came out of the program through an estate sale after only six years," Jim Murphy said. "The penalty was $56."
In the end, it may be the innate caution of farmers, used to the vagaries of the weather and the market, that may prevent more from signing up for the Farmland program. In the back of every farmer's mind lurks the possibility of selling off a small piece of the farm - to pay taxes, for instance. And in that sense, they can have their cake and eat it too.
Open Space, too, is a program with fewer acres enrolled than one might expect. Potentially, the program is quite attractive to a property owner, said Geoff Herman. Through a additive series of deed restrictions - no development, a "forever wild" clause, and guaranteed public access - a landowner can get a tax break of up to 95 percent, in what Herman calls "an intelligently developed, performance-based formula."
In its most restrictive form, the Open Space program can provide what amounts to a public park on private land. One such property in Hallowell, known as the Vaughan Woods, provides exercise, nature walks, bird-watching, sledding and cross-country skiing for the community over a 100-acre parcel between the high school and the developed core of the city. There are examples in many other communities as well. Because of the public values they provide, such exemptions are unlikely to rouse much opposition from either municipal officials or taxpayers.
The waterfront commercial fishing program might be more complicated, in terms of designating just what properties are eligible. At the Property Tax Division, David Ledew points out that, "It's pretty clear what's farmland and what's forestland. In the forest, there's no development at all, and farms usually just have a house and barn," which are excluded from current use valuation. It might be harder to make that clear distinction in mixed-used areas like a waterfront, he said. From the state perspective, the rules from the three long-standing current use programs are reasonably clear, while the waterfront proposal seemed vague, he said. "But I suppose you could have said that about all these programs at one time," he added.
Etnier said it's misleading to either characterize or oppose the waterfront program because it isn't completely spelled out. "You can't amend the Constitution with a 16-page bill. We always knew that part would come later."
WHAT TO DO
For now, all the major players in the legislative arena are pledging cooperation. Etnier is sponsoring MMA's bill to provide fairer reimbursement for the current use programs, and is seeking input from MMA, the State Planning Office, and others in putting together the proposed waterfront study. Bonnie Green hopes that MMA will support, or at least not oppose, reducing the minimum farmland acreage. "I'm totally in support of what they're seeking in terms of reimbursement. It makes complete sense to me." In her view, the best way to proceed is to "agree on the language in the bill, and then work on funding."
Funding is indeed one of the key concerns MMA brings to the table, Geoff Herman said. "If there was a reasonable, coherent standard about land use decisions, with a legitimate state reimbursement program to back it up, we'd be supportive," Herman said. MMA's preference would be to examine all the current use programs together, both to see how they are working, and if the state is funding them fairly. He considers such a project ambitious, but possible.
MMA agrees that keeping land undeveloped or in productive uses is beneficial both to communities and to their tax bases, Herman said. Etnier said that preserving a commercial waterfront is vital to both aims. "We've lost the western coast (south of Portland) already, for the most part. I think there's one pier left in Biddeford Pool, leased from a yacht club. It's the mid-coast, Phippsburg and Harpswell and on up, that we're hoping to save." And Green said, "We don't have agribusiness here, and I'm glad we don't. But we have to pay attention to the small landowners, too. As my grandmother said, we have to take care of our own."
MMA can point to examples of where the state has agreed to provide local funding and then reneged. In the 1980s, the state, faced with growing prison populations, decided it was far cheaper to keep short-term prisoners in county jails, and passed the Community Corrections Act to do just that. Yet the program has often been funded at far below the counties' expenses - which are funded by property taxes. In the King administration's budget this year, for instance, the jail reimbursements are again proposed for flat funding.
So it may be vital to make any current use reimbursement program a matter of law, with the rates well defined. That doesn't mean that the Legislature can't change the law, or the reimbursement scale, but with programs as well established as the current use options, the chances of that happening would be much smaller.