A popular tax relief program that allows Maine homeowners 65 and older to freeze their property tax bills would be scrapped at the end of this year under a budget proposal passed by a legislative committee Wednesday.
The so-called property tax stabilization program, which is available to homeowners regardless of income or ability to pay, would be replaced in January by expanding other tax relief programs that better target assistance to people who need it, said Sen. Rick Bennett, R-Oxford, who serves on the Appropriations and Financial Affairs Committee.
Lawmakers created the stabilization program last year and homeowners across the state quickly signed up to freeze their property bills at current levels. The state reimburses communities for the lost property tax revenues.
But the costs to the state were projected to skyrocket in the coming years. And the program was criticized for providing the largest tax breaks to wealthy homeowners, as well as for creating administrative burdens for local tax officials.
Bennett said the existing program, though popular, allowed wealthy homeowners to freeze their tax bills even if they added onto their homes or moved into higher-value homes. The program allows homeowners to carry their frozen tax bills when they move, regardless of the taxable value of the new home.
“The people who would be paying for that are the other taxpayers,” Bennett said. “I think it was bound to have inequities going forward.”
If the budget committee’s proposal is approved and signed by Mills, the program would expire at the end of 2023 and two existing programs would be expanded to help lower-income seniors: the property tax fairness credit and property tax deferral program.
The transition could mean some seniors will see a one-time spike in their property tax bills because they will once again become subject to the current mill rates in their communities. But advocates have argued that the proposed changes to the existing programs would provide greater benefits to income-eligible seniors.
The previous Legislature passed the senior property tax stabilization program with little debate and it took many municipalities by surprise, as they received an estimated 100,000 applications in the first year. Cost projections for the next two years grew from $21 million to $46 million and are only expected to grow.
The current stabilization program is open to anyone who is 65 or older, regardless of income, and has received the Homestead Exemption for at least 10 years, regardless of income or home value. It allows seniors to freeze their property tax bill – a benefit they can carry from one town to the next if they move.
Critics urged lawmakers to better target the program by adding income limits, but municipalities worried about additional administrative burdens if they had to screen for income eligibility. Municipalities also were concerned that the state would eventually reduce funding for the program, leaving towns and cities to cover the costs.
The Taxation Committee considered several proposals to change or replace the program, ultimately deciding to use a bill sponsored by Bennett that ended up being folded into the budget.
The two existing programs – the senior property tax deferral and property tax fairness programs – would be expanded to help low-income seniors avoid higher property taxes and remain in their homes. Both programs already contain income and asset limits and are targeted at lower-income seniors.
HELPING SENIORS WHO NEED IT MOST
Sen. Nicole Grohoski, D-Ellsworth, who leads the tax committee, has said the proposal would result in more financial assistance to seniors who are struggling the most. She said low-income seniors would receive up to $500 in additional tax relief under the expanded tax credit program, compared to the current stabilization program’s average benefit of $128 for someone living in a median-priced home.
The proposal earned the support of the Maine Municipal Association and Legal Services for the Elderly.
The property tax fairness credit provides a tax credit to income-eligible people for rent or property tax payments with enhanced credits available to people 65 and over. People who pay more than 4% of their income on property taxes, or more than 26.67% on rent, qualify.
The proposal also would increase the property tax fairness credit for people 65 or older by $500 to $2,000 a year and establish a new $4,000 benefit base, which is used to set the benefit amount, for seniors regardless of filing status. That change would allow a surviving spouse to receive the same assistance after their partner dies.
The proposal also would expand the senior property tax deferral program, which allows seniors to stop paying their property taxes altogether. Under that program, the state places a lien on the home and recoups unpaid taxes when the homeowner dies or when the property is sold.
The property tax deferral program is available to homeowners with combined assets of less than $75,000 (or $50,000 if a single owner) and combined income of less than $40,000.
The proposed changes would double both the maximum income for the tax deferral program to $80,000 and the maximum asset test to $100,000. It also would open the program to taxpayers who are delinquent on their taxes for at least 18 months. They are currently excluded from the program.
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