GARDINER — Like officials in cities and towns across the state, Gardiner officials are scrambling to understand what last-minute changes wrought in the state budget mean to them as they get ready to complete their property tax commitment later this month and send out property tax bills.

When state lawmakers reached an agreement on the state’s spending plan three days into a partial state government shutdown earlier this month, among the changes were a decrease to the state’s reimbursement for the homestead exemption and an increase to general purpose aid to school districts.

Both will have affect the property tax bills of residents across the state now and in the future.

Kate Dufour, a member of the Maine Municipal Association’s state and federal relations staff, said these moves show there was a desire to deliver property tax relief to state residents, but the way it was done doesn’t bring much relief.

JUGGLING THE BUDGET

Gardiner Finance Director Denise Brown brought city councilors four options for dealing with the loss of promised reimbursement from the state on the homestead exemption.

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The exemption is one way to lessen the property tax that eligible homeowners pay by sheltering a portion of the value of a homestead or primary residence from taxation. Until 2015, residents who had applied for the program could shelter $10,000 of the value of their home. By state law, that amount was raised to $15,000 starting on April 1, 2016, with the promise of a 50 percent reimbursement from the state to lessen the effect on municipal coffers. That amount was raised to $20,000 on April 1, 2017, with the promise of a reimbursement rate of 62.5 percent.

That’s what Gardiner and other cities and towns counted on when they were putting together their budgets for the fiscal year that started July 1.

But when the dust settled from the heated budget negotiations in the hours after the partial state shutdown, the reimbursement amount was dropped back to 50 percent and the increased reimbursement was delayed for a year.

Statewide, that amounts to a gain of about $10 million for state government.

For Gardiner, it was a loss of $60,000 in revenue. In Augusta, it was a decrease of $151,000.

Because Gardiner’s budget, passed on June 7, is required to be balanced, Brown brought city elected officials four options — raise the property tax rate by 15 cents per $1,000 of assessed value, increase the use of fund balance to make up for the state revenue loss, cut spending or increase projected revenue by tapping the city’s excise tax collection.

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The City Council opted for the last option, but councilors are left with some questions about the effect of the general purpose aid.

In Somerset County, similar discussions are in the works in Skowhegan, but with a wrinkle.

“We’re in a different situation because we’re doing a revaluation as well,” Skowhegan Town Manager Christine Almand said. “We’ve got a lot of balls in the air.”

Almand said she hasn’t had a chance to have a thorough discussion with the town assessor because his top priority right now is completing the revaluation. The change in the homestead reimbursement will bring a shift in taxes in addition to the shifts likely to happen with the revaluation, she said.

“We’re used to some last-minute adjustments from the state,” she said.

GENERAL PURPOSE AID

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School districts, and the cities and towns that make up those districts, may get a measure of tax relief through their shares of additional general purpose aid that also was part of the budget compromise.

Lawmakers were under pressure from Gov. Paul LePage and Republicans to repeal the 3 percent income tax surcharge on high incomes in Maine that voters approved in November 2016 in a statewide referendum. Instead of the surcharge, state elected officials approved $162 million for the two-year budget cycle from one-time funds.

This apparent windfall, $48 million in this fiscal year and $114 million in the next fiscal year, which starts July 1, 2018, comes with some strings attached. Half of the money must be used to reduce the property tax assessment for education.

School districts had the option this year of asking voters through a warrant article to give school boards the authority to spend unanticipated state funding for specific purposes — for eligible education programs, for the school district’s reserve fund or for return to taxpayers as property tax relief.

In School Administrative District 11, which consists of Gardiner and three neighboring towns, at the recommendation of the school board, voters passed over that option at the school validation vote in early June.

Eric Jermyn, chairman of the SAD 11 school board’s Finance Committee, said that school district is expected to get $627,689.

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“We’re currently researching our options,” Jermyn said. The school board typically does not meet during July.

District officials have asked for guidance from their attorneys about the return of money to cities and towns.

When unanticipated funding comes to the district, it’s termed “carry forward funds,” he said, and it’s used to reduce the effect of budgets on taxpayers.

“There’s some question as to whether carry forward funds meet the definition of the law,” he said.

Almand said Regional School Unit 54, which includes Skowhegan, plans to use some of that unanticipated money to reduce taxes.

“Our school district had a vote on the warrant to allow the school board to make the determination on how to use the funding,” she said.

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THE FALLOUT

Elected municipal officials say they are concerned about the effect of these last-minute changes and the limitations they impose on local decision-making.

Shawn Dolley, who represents Distinct 3 on the Gardiner City Council, summed it up this way at Wednesday’s meeting:

“It seems to me with the state underfunding education and not participating in revenue sharing and not participating in this (homestead exemption) program as they should, it continues to be a squeeze for municipalities,” Dolley said. “And sure, it’s going to be a wash, but this is money we should have in our budget to spend on what we want to spend it on. We’re trying not to raise taxes, but we have less money to spend.”

For Dufour, it’s clear that legislators were thinking of some measure of property tax relief by requiring a share of general purpose aid to be used to bring down property taxes.

“It would appear that the express directive to school districts to return the new state aid indicates there is an interest in delivering property tax relief that way, rather than through the homestead exemption,” she said.

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Because it comes from taxpayers to begin with, she said, it’s the same dollars coming back to them a different way, and it’s far less than they would have received if state lawmakers had funded the full 62.5 percent reimbursement on the homestead exemption and full funding of the state’s revenue sharing program. In recent years, state officials have failed to fund revenue sharing with municipalities at the 5 percent spelled out in state law. The result has been cuts to programs and staffing at the municipal level or increases in property taxes to maintain services or some combination of the two.

DuFour said the state’s revenue sharing is expected to be at 2 percent until 2020.

Many communities are getting ready to commit their property taxes and calculate the actual tax rate.

In Gardiner, Brown said she was concerned that the commitment would have to be delayed, which in turn would delay sending out tax bills, which include an assessment for the school district.

The Gardiner City Council is expected to request a meeting with school board officials to talk about the how the general purpose aid will be used.

Jessica Lowell — 621-5632

jlowell@centralmaine.com

Twitter: @JLowellKJ


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