Proposal to eliminate nonprofit property tax exclusion in Maine

Maine's Governor is proposing to eliminate annual revenue sharing with local governments, suggesting that local governments could make up the loss in revenue by charging property taxes on nonprofits--schools, universities, hospitals, land trusts--holding more than $500,000 in property.

Typically, nonprofits are exempt from property taxes, in the expectation that they are providing other services to localities, thereby reducing the overall burden on local government.

The Maine Medical Center in Portland is a nonprofit hospital.

This is in response to his desire to reduce income tax rates and to eliminate the estate tax.  Some of the revenues would be made up by higher sales taxes.  The rest would come from eliminating state aid to local governments and slashing social and human services.

- "Tax reform plan rattles Maine towns, nonprofits," Portland Press-Herald
- "Plan to tax nonprofits could be costly to Maine's land-conservation trusts," Portland Press-Herald
-"LePage’s budget aims to make big changes in the state’s tax code," Portland Press-Herald

From the second article:

LePage’s massive tax overhaul plan is intended to reduce Maine’s income tax rate through a series of changes in the tax code. Part of the plan eliminates state aid to municipalities and attempts to replace those revenues by opening the door to municipal property taxes on nonprofit organizations. The budget language makes specific mention of exempting churches and houses of worship from the tax, but no other nonprofit types are highlighted in documents provided by the administration or in the actual legislation.

Tax the river?  Land preserved by the Brunswick-Topsham Land Trust.

Nonprofits aren't replete with extra cash.  The problem with the proposal is that most nonprofits don't generate significant budget windfalls on an annual basis--universities tend to be an exception, but that is because some have very large endowments--so it's unlikely that most nonprofits have available funding to start paying property taxes.

Payments in lieu of property taxes.  Property taxes provide the bulk of local revenues and can be supplemented with payments from the state and federal governments for certain types of programs.

On the other hand, the major cost borne by local property taxes is K-12 education, and these nonprofit properties don't generate much in the way of demand for local schooling.

For decades, cities with large clusters of nonprofits, such as universities or health care facilities, have complained about how much of their land ends up being non-taxable.

That's why the method called PILOT, payment in lieu of taxes, was developed, which allows for nonprofits to provide payments to localities, without having to accede to or authorize the taxation of property owned by nonprofits.

Taxing college students.  A few years back, Providence and Pittsburgh put forth proposals for a capitation tax on college students, as each city has many colleges and universities, and they aren't paying property taxes ("Pittsburgh Sets Vote on Adding Tax on Tuition," New York Times).

(Note that "eds and meds" are said to be the primary economic drivers for center cities and the prominence of central business districts declines and cities are no longer central to the manufacturing economy.)

Bowdoin College map, Brunswick, Maine. Under the proposal, government institutions and churches would be exempt from property taxes.  

Therefore, private colleges and universities would be responsible for property taxes, but not public colleges and universities.

And interestingly, the University City Business Improvement District in Philadelphia is paid for, not by an assessment on property, but by voluntary payments by the major nonprofits based there (the University of Pennsylvania, Penn Hospitals, Amtrak, and now maybe Drexel University, I'm not sure about them).

Will a decrease in state income taxes be absorbed by local property tax increases?  In Maine, rather than an increase of revenues from PILOT type programs, what's more likely to happen is that if state income taxes decrease, sales taxes increase, and the state cuts aid to localities and social welfare, localities will be forced to increase overall property tax rates, while continuing to maintain property tax breaks for nonprofits.

It will be interesting to watch how this plays out.