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State lawmakers are considering changes to a poorly considered property tax relief program that is having unintended consequences while ballooning in cost. On Thursday, Democratic members of the Legislature’s Taxation Committee supported a bill that would better ensure that property tax relief for seniors is targeted to those who need it, without unduly burdening towns — and other taxpayers — with the cost of an unwieldy and unfocused program.
Last spring, lawmakers hastily passed a new property tax break for seniors that was badly targeted and likely to cost communities unexpectedly large, and growing, sums of money.
The new law, which was passed quickly and became law without the governor’s signature, freezes property tax payments for Mainers over age 65, if they have owned a home in Maine for 10 years, which don’t have to be consecutive. There are no income limits or limits based on property value. A homeowner could make substantial improvements to their property and not pay more in property taxes. A homeowner could even move from one community to another with higher taxes and continue to pay the lower property taxes. The state is supposed to reimburse communities for the taxes that they will lose, but not enough money was appropriated for this and the cost of the program is expected to rise each year.
One of the biggest flaws in the property tax freeze plan is that it doesn’t target the relief to those who actually need it.
“I believe the Property Tax Stabilization Program will create unintended consequences and many inequities going forward,” Sen. Rick Bennett, R-Oxford, told members of the Taxation Committee in March. “It will be gamed by people who have ample means to pay property taxes to pass their costs to others. It will allow those who get windfalls such as large inheritances to move their residences to homes with high property taxes and avoid paying them.”
“If this program is allowed to continue, I believe we will come to regret it,” he said.
Bennett is the sponsor of LD 130, a bill that, as amended, would end the Property Tax Stabilization Program and instead expand two existing programs. One allows seniors to defer property tax payments until they sell their home or die, when towns would then recoup the deferred tax payments. The other program provides seniors a tax credit for rent or property tax payments. Both are targeted to low-income seniors and contain income and asset limits.
The amended version of the bill would increase the tax credit and raise the income limits for the deferral program.
“It does not put property tax revenues at risk and shifts the burden of administration to the state,” Kate Dufour of the Maine Municipal Association, which represents local governments, told committee members. “The use of the state deferral process, as well as amendments to the Property Tax Fairness Credit, will better target aid to those who are most in need. It is an excellent solution that we urge the committee and Legislature to support.”
The two Republican members present for the Taxation Committee work session opposed the changes because, they said, the property tax freeze was popular. It may have been popular, but it was deeply flawed, giving tax breaks to many people who don’t need them and prompting towns and the state to worry about the cost of the generous tax reductions. The rising costs of the senior property tax freeze would largely be borne by the rest of the state’s taxpayers, raising questions of fairness.
Moving to a targeted alternative, as the Taxation Committee voted to do, is a more thoughtful way to deliver tax relief to those seniors who need it without a costly and overly broad program.
