Economic issues, especially the sharp rise in property taxes driven by inflation and a runaway real estate market, were top of mind for many voters last fall.

Now Maine lawmakers who heard those concerns firsthand while campaigning are debating how to respond.

But they’re finding that any solution — whether it’s once again freezing property taxes for older adults, expanding the homestead exemption or allowing municipalities to adopt local option sales taxes — come with a host of concerns and drawbacks, the biggest of which is the enormous cost of relief programs.

Maine lawmakers are finding that any solution to a sharp rise in property taxes — whether it’s again freezing them for older adults, expanding the homestead exemption or allowing municipalities to adopt local option sales taxes — come with a host of concerns and drawbacks, the biggest of which is the enormous cost. Drew Johnson/The Forecaster

The Taxation Committee on Wednesday held hearings on six property tax relief bills, and more are on the way.

Their fate is uncertain, though, because the Mills administration opposes them all, citing unsustainable costs and exclusion of renters. Instead, the administration urged lawmakers to focus efforts on bolstering existing tax credit programs designed to help older Mainers, low-income homeowners and renters.

Mike Allen, the state’s associate commissioner of tax policy, said increasing the state’s homestead exemption would shift property burden to other property owners and cost the state too much money. He said the Property Tax Fairness Credit program would provide targeted relief at a lower cost, including for renters.

“The administration thinks that is the most cost effective way of providing property tax relief,” Allen said. “It’s a bigger bang for your buck.”

Property taxes became a hot topic in the previous Legislature, which repealed a new and popular senior property tax stabilization program that had quickly proven to be financially unsustainable.

That program froze the property tax bills of people 65 and older and allowed them to pay the same amount each year, even if they expanded their homes or moved to a more expensive home in another community. The law required the state to reimburse municipalities for lost property tax revenue to maintain needed funding for local public safety, schools and other municipal programs.

The stabilization program was quietly passed in 2022 and took many municipalities by surprise. Municipalities received an estimated 100,000 applications in the first year. Cost projections for the following two years grew from $21 million to $46 million and were only expected to grow further.

That program was replaced by expanding and bolstering two existing programs, including the property tax fairness program, which is a means-tested way of targeting tax relief to people who need it most.

People who pay more than 4% of their income in property taxes, or more than 26.67% on rent, qualify. Lawmakers doubled both the maximum income for the tax deferral program to $80,000 and the maximum asset test to $100,000. They also opened the program to taxpayers who are delinquent on their taxes for at least 18 months, who were previously excluded.

Lawmakers also increased credit for people 65 and older by $500, to $2,000, and they established a new $4,000 benefit base — which is used to set the benefit amount — for older adults regardless of filing status. That change would allow a surviving spouse to receive the same assistance after their partner dies.

Rep. Stephen Wood, R-Greene, said older residents of his rural community saw their property taxes increase by $800 when the stabilization program ended, and town officials estimate another $300 tax increase this year. He said hundreds of his constituents said during his campaign that they were worried high property taxes would force them to sell their homes.

“This Legislature has to do something, especially for the seniors and veterans,” Wood said. “They’re on fixed incomes. People are going to lose their houses.”

A look at what’s been proposed

Several of the bills presented to the committee Wednesday sought to expand the Homestead Property Tax Exemption for all or some homeowners. Bill sponsors argued that the exemption is easier for people to access, while the tax credit program requires people to apply for the credit annually with their state income taxes,  even though many seniors living off Social Security don’t file annual returns.

House Minority Leader Rep. Billy Bob Faulkingham, R-Winter Harbor. Joe Phelan/Kennebec Journal

Both House Minority Leader Billy Bob Faulkingham, R-Winter Harbor, and Sen. Joe Baldacci, D-Bangor, presented separate bills aimed at expanding the state’s Homestead Exemption, which provides residents who have been in their homes for at least a year a maximum $25,000 exemption on their home value for municipal taxation purposes.

Faulkingham’s bill, LD 658, would double that exemption to $50,000, while Baldacci’s bill, LD 140, would incrementally increase the exemption by $10,000 a year over a six-year period until it reaches $95,000, when it would indexed for inflation.

Baldacci said his bill, which includes a Republican co-sponsor, is the one that “most realistically” can be implemented by the state.

But Allen noted that Baldacci’s bill is estimated to cost $28 million in the first year and ultimately cost $280 million once fully phased in, while Faulkingham’s bill would cost an estimated $90 million, since the state reimburses municipalities for up to 76% of their lost property tax revenue.

Efforts to expand the homestead exemption were supported by the Maine Association of Realtors and the Maine Municipal Association, because they provide relief to all homeowners.

Sen. Rick Bennett, R-Oxford, presented a bill, LD 7, that would expand the exemption to $75,000 for people 65 and older who have lived in their homes for more than 10 years.

“During my reelection campaign, one of the most common complaints I heard from my constituents was the unbearable cost and sudden shocking changes to their property taxes,” he said. “I’m sure you have all heard similar horror stories from the people in your districts.”

The Maine Service Centers Coalition, which represents 26 of the state’s larger towns and cities, opposed those bills, because they would either lead to a loss of revenue or require an increase in property taxes, since municipalities would not be fully reimbursed by the state.

“As service center communities, it is critically important we meet our municipal obligations for the residents of our own cities and towns as well as for those who live around us and rely on our programs, facilities and amenities,” the coalition wrote in unsigned testimony to the committee. “For the bills specifying eligibility, the shift would be onto other property owners. The bills providing every eligible resident with a higher exemption would raise tax rates for all property owners.”

Sen. Donna Bailey, D-Saco. Contributed photo

Sen. Donna Bailey, D-Saco, took a different approach. Her bill, LD 559, would give municipalities the opportunity to create a property tax stabilization program for older residents — like the one jettisoned last year despite its widespread popularity because it was financially unsustainable and also benefited wealthy homeowners.

To make up for the loss of revenue, Bailey proposed allowing those municipalities to enact a local option sales tax on lodging and restaurants — a perennial proposal that always fails to advance because of concerns that it would increase Maine’s overall tax burden and unfairly benefit cities and exclude smaller rural communities that have fewer businesses that would pay the tax.

But Allen warned that Bailey’s bill would be unsustainable and raised concerns about the local option tax, saying the Maine Constitution states that the state cannot delegate its power of taxation.

Each of the bills heard Wednesday will be debated further before any votes. Baldacci urged the committee to take some sort of action this session to address property taxes.

“We have a duty to Maine taxpayers to deliver meaningful tax reform that’s also fiscally responsible,” he said. “I’m supportive of many of these bills coming in front of you, including Rep. Faulkingham’s. As long as we can move this issue forward and deliver property tax relief is the most important thing in my mind.”