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January 16, 2015; Portland Press Herald

The first tax reform proposal for 2015 has been rolled out by Governor Paul LePage of Maine. The Republican governor, a Tea Party favorite, recently won election to his second term despite being heralded as one of the “craziest governors” in the nation. A litany of some of the more outrageous remarks he made in his first term in office can be found here.

Tax reform is not new to Gov. LePage, having earlier signed a tax cut totaling $150 million that also reduced the top income tax rate and increased the estate tax exemption. Continuing on his promise to reduce taxes, LePage’s new budget includes tax reform that, among other things, would eliminate $60 million in state aid to cities and other local municipalities. Where would this money come from? The answer, which is of interest to NPQ, is that in large part it would come from nonprofit organizations. (Details on the whole proposal can be at the Tax Foundation website, although admittedly that organization is in support of any and all tax reform.)

The proposal in the new budget, which is likely to see significant pushback from the Democrats and some Republicans in the legislature, is that nonprofit organizations with assets assessed in excess of $500,000 should be charged property taxes. This would not include religious organizations, which would retain the 100 percent exemption.

Several concerns are being raised about the proposal. One is that this would cause an imbalance in the amount of revenue the municipalities would receive. Some municipalities have a number of nonprofits at that size while others have few or none at all. In one account, for example, Cumberland County in southern Maine has almost 750 charities, approximately 30 percent of the state’s total, while Piscataquis County has only 24. So, it is possible that municipalities hosting a number of larger nonprofit organizations will actually benefit from the plan, ending up with higher revenues than under the current revenue sharing plan. The Maine Municipal Association estimates that there are about 150 municipalities in this category. Unfortunately, MMA also estimates there are 350 municipalities in smaller, more rural areas of the state that will lose revenue because they have few or no nonprofits of that size.

The other issue is that this $60 million in revenue derived from nonprofits paying property tax is a new line item in their budgets. It will have to come from somewhere and unless the organizations have large reserves, it will have to come from their operating budgets. Theoretically, then, organizations such as hospitals, clinics, and Boys & Girls Clubs will have less money to run their programs and services. Will donors be able to replace that funding, or does it mean that there will be a weaker safety net and that the quality of life in the state for its poorer residents will go down?

As noted, it appears that the legislature, which is traditionally Democrat-controlled, will challenge this budget, so it may not pass as written. Still, it is an important trend to watch progress to see whether governors in other states pick it up. For some time now, as NPQ has reported, nonprofits have been paying some fees to municipalities in the form of PILOTS (payment in lieu of taxes), but this is different, opening up nonprofits to paying according to the whims of assessed value as established by a municipality looking to make its budget.—Rob Meiksins