Municipal Property Tax Levy Limit - Frequently Asked Questions
In January 2005, Governor John E. Baldacci signed into law LD 1: An Act to Increase the State Share of Education Costs, Reduce Property Taxes and Reduce Government Spending at All Levels. LD 1's goal is to lower Maine's state and local tax burden ranking to the middle one-third of states by 2015.
What is a Municipal Property Tax Levy Limit?
The Municipal Property Tax Levy Limit regulates the amount of money that municipalities can raise through property taxes. It applies only to property taxes used for municipal operations (road maintenance, libraries, parks and recreation, etc). It does not apply to property taxes raised for schools, counties, TIFs, or the overlay. The limit allows a municipality to increase property taxes, but only by an amount equal to the growth of statewide personal income plus local property develOPMent within the municipality. The limit is adjusted downward if a municipality receives extra money from the State that it can use instead of property taxes.
Why does Maine have Municipal Property Tax Levy Limits?
In 2005, the Maine Legislature and Governor John E. Baldacci set a goal of lowering Maine's state and local tax burden ranking to the middle one-third of states by 2015. To achieve this, they created Municipal Property Tax Levy Limits, as well as limits on county assessments, school funding, and state General Fund appropriations. If Maine's government spending and taxes increase at a slower rate than other states, Maine's tax burden ranking will fall.
What is “LD 1?”
“LD 1” refers to the first bill, or “Legislative Document,” filed with the 122nd Legislature in December 2004. The official title of the bill was “An Act to Increase the State Share of Education Costs, Reduce Property Taxes and Reduce Government Spending at All Levels.” The bill became law in 2005. It limits the growth of taxes and appropriations made by state, county, and municipal governments, and school administrative units. The text of LD 1 is available online:
What effect have Municipal Property Tax Levy Limits had on property tax growth?
Aggregate annual growth of property tax commitments statewide has slowed. In the three years prior to LD 1, annual property tax growth ranged from 5.2% to 6.9%. In the six years since LD 1 took effect, annual growth has ranged from 1.5% to 4.7%. In 2010, aggregate annual growth in property tax commitments was 2.5%.
What is the Growth Limitation Factor and how is it calculated?
The Growth Limitation Factor refers to the allowable increase in a town's property tax levy. Each year, a town's Municipal Property Tax Levy Limit is calculated by increasing the previous year's limit by the Growth Limitation Factor. The Growth Limitation Factor is based on the local Property Growth Factor and the statewide Income Growth Factor.
What is the Income Growth Factor and how is it calculated?
According to LD 1, the Office of Policy and Management is reOPMnsible for calculating the Income Growth Factor, which equals the statewide average annual personal income growth from the previous 10 years, adjusted for inflation. The Office of Policy and Management releases a new Income Growth Factor in September of each year following the release of revised estimates of the previous year's income growth from the U.S. Bureau of Economic Analysis.
What is the Property Growth Factor and how is it calculated?
The Property Growth Factor reflects growth in a municipality's tax base. It is equal to the value of newly taxable property in the most recent year for which data is available, divided by the total assessed value of all property in the same year. "New property," or property assessed for the first time since the last April 1st, includes newly created lots, new buildings, building additions, and new personal property. To avoid the impact of reassessments, most towns divide the total value of new property by the most recent total value of all assessed property in the town. New property that is tax-exempt is included in the calculation. For example, if a new tax-exempt regional waste management facility is built, the assessed value of the new facility should be included as "new property."
How should the Property Growth Factor be calculated if the most recent assessment is not available at the time the budget is being determined?
If the assessment information as of April 1st for the current year is not available, then use the most recent year that is available.
Should Urban-Rural Initiative Program (URIP) or General Assistance funds be included in Net New State Funding?
No. State funding for the Urban Rural Initiative Program (URIP) and General Assistance are not subject to any limit. Therefore, they should not be included in a municipality’s calculation of Net New State Funding. For further information see Maine Revised Statues Title 30-A, Chapter 223, section §5721-A, sub-§4. (http://janus.state.me.us/legis/statutes/30-a/title30-asec5721-a.html)
Can a municipality go over its Limit? If so, how?
Yes. A municipality can go over its Property Tax Levy Limit by a majority vote of the legislative body that normally approves the budget. If the budget is approved by a referendum or at a town meeting, the vote must be by written ballot on a separate article that specifically identifies the intent to go over the Property Tax Levy Limit. If the budget is approved by a council, the limit can be increased or exceeded by a majority vote of the council. The decision of the council can be put to a referendum vote if a petition containing signatures of 10% of a municipality's registered voters is submitted to the town clerk within 30 days of the council vote. For further details see Maine Revised Statutes Title 30-A, Chapter 223, Section 5721-A, sub section 7. (http://janus.state.me.us/legis/statutes/30-a/title30-asec5721-a.html)
What is the difference between voting to “exceed” or “increase” the Limit?
A vote to exceed allows the municipality to surpass the limit in that year but requires that year's limit to be used as the base for the next year's limit calculation, as usual. A municipality generally exceeds the limit to pay for an unexpected circumstance beyond its control, such as a natural disaster, federal mandate, citizen initiative, or loss of state or federal funding. A vote to increase allows the municipality to surpass the limit in that year and resets the limit so that the amount that was actually levied becomes the new limit and is used as the base for the next year's limit calculation.
If the Municipal Property Tax Levy Limit was calculated incorrectly, how should it be adjusted?
If the Municipal Property Tax Levy Limit was calculated incorrectly, then the limit should be recalculated using correct information. The corrected limit should then be compared to the current municipal property tax levy. If the current levy is greater than the limit, then the municipality must vote to increase or exceed the limit, or to reduce appropriations. The article must be in the following form: "Do you favor raising the levy limit of the [name of municipality] for the purpose of [insert purpose]?"