In a move to cut state taxes, Maine Gov. Paul LePage has provoked the ire of a number of his state’s towns and nonprofits.
Ending state revenue sharing with municipalities is an essential component of the governor’s proposal. The revenue sharing system currently in place helps keep property taxes down across the state, enabling towns to tap into state resources to pay for vital services. In order to make up revenue lost in his budget plan, LePage hopes to implement a regressive sales tax increase and to begin charging property taxes on nonprofits that possess $500,000 or more in land holdings.
LePage’s budget plan would reduce income tax of the wealthiest citizens – slashing the rate from 7.95 percent to 5.75 percent – and terminate the estate tax. Analysts predict that the proposal will take up a lion’s share of the state legislature’s attention this session, describing the plan as a cornerstone of the governor’s agenda.
According to the Maine Municipal Association, most towns and cities would suffer from the legislation, compelling local governments to hike taxes in order to pay for services including education and snowplowing. Communities with large nonprofit institutions – from scientific labs to private colleges – could theoretically benefit from the scheme, albeit at the expense of these organizations. Rural areas with low concentrations of nonprofits would likely feel a squeeze and witness property tax increases as well as service cuts.
Maine has 86,000 individuals working for charities and nonprofits state-wide. Of these workers, 37 percent are employed by hospitals, which consist of four out of ten of the state’s largest employers. Hospitals would pay up to $20 million under the tax proposal. A number of other nonprofit institutions – including colleges, museums, summer camps, veterans’ fraternal groups, food pantries, and shelters – would be adversely affected by the property tax expansion.
In South Portland, the American Legion Post and the Girl Scouts stand to lose out due to the high value of their properties. Another nonprofit – Auburn’s Good Shepherd Food Bank – announced that the tax would force it to cut its free meal distribution by 100,000 units. Shalom House, which provides mental health services, would face a $90,000 tax bill, drastically curtailing its services.
Private colleges and schools would face large tax increases. Berwick Academy – the oldest private school in the state – maintains property valued at $14 million, meaning that the governor’s plan would compel the school to pay a six-figure tax. Berwick Academy’s small endowment falls far short of the funds necessary for this expense. The school would have to slash financial aid, reduce staff, and raise tuition in order to cope.
The property tax would not apply to religious groups or government-owned institutions. The list of potential parties affected by the tax, however, is extensive, and could hit nonprofit cemeteries – which often possess highly valued land – community theaters, and land trusts. Additionally, nonprofits that receive bequeathed property could face steep taxes, diminishing the intended value of philanthropic gifts.
The plan appears to be part of a larger trend of states tapping into nonprofits to provide for revenue shortfalls or tax cuts. The nonprofit sector is worth billions of dollars, and may seem to be a prime target for taxation. Take the current New Hampshire legislation which aims to apply the state’s Business Enterprise Tax to nonprofit institutions. This strategy poses great risks, considering that nonprofits’ tax-exempt status is one of the chief reasons why they are capable of providing essential services otherwise neglected by the private sector. With scores of nonprofits facing radical tax hikes, the availability and efficacy of their services are under threat, as well as the livelihoods of nonprofit workers.