LEWISTON — A state budget with a raft of new tax-rule changes might not be as bad for the city’s budget as first thought, City Administrator Ed Barrett said Tuesday.
Barrett told city councilors that cuts to state revenue sharing, the homestead exemption and General Assistance could balance with new revenue from taxing nonprofits.
“One of the issues, I think, for municipalities is how much of this package is going to hold together,” Barrett said. “It’s clear that there are going to be changes. It’s clear that when the Legislature deals with complicated issues, they tend to just shave off rough corners.”
Legislators are reviewing Gov. Paul LePage’s proposed $6.5 billion two-year budget that would change several tax programs.
“This is by far the most comprehensive proposal I have seen come forward in terms of overall tax-system changes,” Barrett said. “It’s really quite impressive in some ways. It’s almost mind-boggling, trying to get your hands around all the different parts.”
The proposed budget would lower the income tax rate for the highest income earners while expanding the income tax exemption for middle- and low- income earners while eliminating most tax credits.
It would also increase the sales tax and lodging tax rates and let the state begin collecting sales taxes on candy and snacks, amusements, barbers and legal and accounting services.
State revenue sharing, money paid to municipalities from income and sales taxes, would decrease in the first year of the budget and go away entirely in the second year.
On the other hand, the proposed state budget would make the homestead exemption exclusively a benefit for senior citizens. It would eliminate the exemption for anyone younger than 65 while doubling it for seniors. That would increase property taxes $242 on average for people younger than 65. It could also tilt up the city’s assessed values.
Barrett said revenue sharing and increased money from the homestead exemption would balance each other out.
“So for us, it looks like in terms of our tax rate, this is a wash,” Barrett said. “There should be no direct effect on our tax rate if those numbers hold up.”
Changes to General Assistance would cost the city about $45,000 in the first year, Barrett said. The state currently reimburses 50 percent of General Assistance paid by cities and towns to help people who have no other way to pay for food, shelter and medicine. Once the municipalities hit a threshold, the state reimburses them for 90 percent of the costs.
The new policy uses the previous six years of payments as a measure. The state reimburses cities and towns 90 percent of their costs until they reach a 40 percent average of the previous six years’ payments. Then, the state’s reimbursement drops to 10 percent.
Those lost revenues would be replaced by additional taxes on nonprofits. But Barrett said he was skeptical that legislators will agree to tax nonprofits.
“They have talked about that idea before, but it is something that has never gotten any traction from the Legislature,” Barrett said. “I am not overly optimistic that this will be adopted because it will certainly be opposed by very important groups and organizations.”
The entire budget package would give Lewiston an additional $800,000 over two years, Barrett said, if it is all adopted.
“That’s if you assume you get $3.6 million from nonprofits,” he said. “We would come out ahead. But if you back that $3.6 million out, we’d take a hit in the range of $2.5 million.”
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