Bipartisan efforts to expand property tax exemptions face pushback from Mills administration

Yahoo

19-03-2025

The Legislature's Taxation Committee hears public feedback on bill proposals in Augusta. (Emma Davis/ Maine Morning Star)
Lawmakers on both sides of the aisle are trying to expand the state's tax exemption for homeowners. Some want increased exemptions for all Mainers, whereas others want to see expansion for certain groups, including seniors, veterans and those with low incomes.
There is bipartisan agreement that Maine's property tax system needs reform, with legislators saying it was the most common concern they heard on the campaign trail this fall and sharing stories of Mainers who have lost their homes because of the tax. Maine has the highest property tax burden in the country, a statistic Republicans have reiterated throughout the session when voicing opposition to tax increases of any kind.
However, the projected cost of expanding this exemption in any way remains a barrier to change, evidenced by opposition from Gov. Janet Mills' administration during public hearings on the proposals Wednesday.
Currently, the Homestead Property Tax Exemption provides a reduction for property tax purposes of up to $25,000 from the value of a home. In order to qualify, a homeowner must be a permanent resident of Maine, the home must be their permanent residence and they have to have owned a home in the state for at least one year before applying.
The state previously tried to provide tax relief for Maine's oldest residents in 2022.
The Property Tax Stabilization Program allowed those at least 65 years old to freeze their property taxes at the previous year's level regardless of income, as long as they owned a permanent residence for at least 10 years and were eligible to receive a homestead exemption. Mills allowed the law to take effect without her signature.
Taxes take center stage in budget debates
However, the Legislature repealed that program after just one year in effect, following skyrocketing cost projections, concern about wealthy property owners taking advantage due to a lack of income restrictions and the administrative burden it left on municipalities.
While lawmakers last year tried to soften the blow by expanding eligibility to the Property Tax Fairness Credit and creating a Property Tax Deferral Program, the relief from those changes has done little to address the huge property taxes that remain for many seniors, lawmakers argue.
However, some of the tax plans being considered this year borrow from the funding model of the Property Tax Stabilization Program, prompting concern among some who testified.
But while these bills seek to expand the existing exemption, others are eyeing a restructure. For example, the committee will consider a constitutional amendment to allow municipalities to divide taxes on real estate and personal property equally according to their value. A change to the state constitution would require the support of two-thirds of the Legislature to then send the proposal out to voters to ultimately decide.
Sen. Joseph Baldacci (D-Penobscot), along with two other Democratic co-sponsors and one Republican, proposed LD 140, which will increase the tax exemption by $10,000 of the just value of a home starting on or after April 1, 2026.
The increases will stop once the total exemption reaches $95,000, but afterwards the exemption amount would be adjusted annually for inflation.
Baldacci argued that incrementally increasing the tax exemption would be the most fiscally responsible method because it will be more feasible for the general fund to absorb costs.
SUBSCRIBE: GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX
'By staging these annual increases over a six-year period, we can deliver property tax relief in a completely fiscally responsible manner based on our current state budgetary resources,' Baldacci said.
House Minority Leader Billy Bob Faulkingham (R-Winter Harbor) has proposed a smaller overall increase all at once.
LD 658, which has nine Republican co-sponsors, would double the exemption from $25,000 to $50,000 of the just value of the home.
'This disconnect between the rising cost of property taxes and stagnant incomes is putting pressure on homeowners,' Faulkingham said. 'Increasing the homestead exemption would provide much needed relief.'
While the bill as currently drafted states that this change would begin on or after April 1, 2025, the committee discussed pushing that start date back given the quick turnaround it would require, and Faulkingham said he was open to doing so.
'Many residents, particularly seniors and low to moderate income homeowners, struggle with property tax burdens that exceed their ability to maintain or afford their homes,' Faulkingham said.
Those specific groups, as well as veterans, are the focus of the other bills that seek to change this tax exemption.
'Every bill heard today offers the committee potential tools to bring about property tax relief, as has been well established property taxes are on everyone's mind,' said Amanda Campbell, legislative advocate for the Maine Municipal Association, a nonprofit that provides professional services to local governmental entities across the state.
However, Campbell said the association is only supportive of LD 140 and LD 658 because it is opposed to targeting such relief to limited groups.
Three bills seek to increase the tax exemption for seniors, though by different means and to different degrees.
The exemption would increase to $75,000 for residents who are 65 years old or older who have owned a home in Maine for at least 10 years under LD 7, which Sen. Rick Bennett (R-Oxford) proposed along with three other Republican co-sponsors and one Democrat.
'Expanding the homestead exemption, which is a tried and true program that Mainers are already familiar with, simply makes sense,' Bennett said. 'It's administratively very simple.'
Michael Allen, associate commissioner for tax policy for the Maine Department of Administrative and Financial Affairs, said the Mills administration opposed this bill and others because of projected costs it would incur the state and because of the 10-year residency requirement, which he argued could be unconstitutional. That residency requirement had been in the Property Tax Stabilization Program.
Alternatively, Sen. Donna Bailey (D-York) wants to see changes to the tax exemption made at the local level.
Through LD 559, Bailey and six Democratic co-sponsors are seeking to allow municipalities to adopt a property tax stabilization program for their senior residents approved by ordinance.
The Property Tax Deferral Program, which Bailey advocated for last year, is often seen as a last resort for Mainers who cannot pay their property taxes. Bailey described LD 559 as a 'next to last resort.'
Similar to Bennett's bill, a municipality adopting such an ordinance would have to require the person has owned a home in Maine for at least 10 years. However, the age threshold for this bill is anyone who is at least 62 years old.
This bill would allow a municipality to offset the loss of revenue through a local option sales tax approved by referendum. This funding model raised several objections.
Campbell from Maine Municipal Association argued it mimics the model used by the Property Tax Stabilization Program, which was repealed due to insufficient funding.
Linda Caprara, vice president of advocacy for the Maine State Chamber of Commerce, argued the model would result in some municipalities having more funds than others and not account for seasonal fluctuations or unexpected changes such as tariffs and natural disasters.
Rep. Stephen Wood (R-Greene), along with nine Republican co-sponsors, proposed LD 934 as another avenue to provide relief for seniors, as well as veterans.
Currently, the $25,000 exemption must be adjusted by the local certified ratio, generally the percentage difference between the fair market value of a home and the local assessed value.
This means that unless a municipality has a certified assessment ratio of 100%, the exemption is less than $25,000.
Under LD 934, 100% of the exemption amount would be provided regardless of the assessment ratio of the municipality, if a qualified applicant is either at least 65 years old or a veteran. The bill would also require the state to reimburse a municipality for 100% of the revenue lost, compared to the current 76%.
Greene told the Taxation Committee he knows the bill won't pass because of the high cost to the state. In addition to that concern, Allen with DAFS argued this proposal in particular would be administratively complex.
However, Greene emphasized, as many other lawmakers did Wednesday, that his constituents have voiced to him persistent fears of losing their homes due to the high tax burden.
'We have to do something,' Greene said. 'Especially the seniors and veterans who are on fixed incomes.'
Sen. Cameron Reny (D-Lincoln) took a different approach with her proposal to expand the exemption.
LD 570 would provide an additional tax exemption of $75,000 to families and individuals who make below a certain income, bringing the total tax exemption available for those eligible up to $100,000.
The higher exemption would be available to those who made a federally adjusted gross income for the prior income tax year of less than: $200,000 for a married couple filing jointly, $150,000 for heads of household, and $100,000 for single people or couples filing separately.
The Mills administration is also opposed to this plan, with Allen specifically recommending against the eligibility cliffs and estimating the fiscal impact would be an additional burden on the general fund of about $173 million per year.
'I have seen this committee produce really good compromises that can help all Mainers and I also know each committee member here is aware of the current property tax burdens that are causing a lot of stress,' Reny said. 'I offer this bill to you as a possible aide to our constituents, or as a property tax vehicle for the committee to use.'
The Legislature is also considering other tweaks to the Homestead Property Tax not discussed on Wednesday, such as removing the 12-month waiting period. The Taxation Committee already voted down a plan to change the definition of 'homestead' under this exemption law that sought to expand eligibility to irrevocable trusts.
SUPPORT: YOU MAKE OUR WORK POSSIBLE