AUGUSTA — As Maine lawmakers continued Wednesday to dig into Gov. Paul LePage’s recent budget proposal, which includes sweeping changes to the state’s tax policy, Auburn Mayor Jonathan LaBonte said taxpayers would gain more than they would lose.

Among other changes, LePage’s proposal would eliminate about $62 million in state revenue-sharing with cities and towns in 2017.

It attempts to make up for that lost funding for municipalities by allowing them to apply a partial property tax to large nonprofits, including hospitals, private schools and colleges and other charities that have property worth more than $500,000.

The plan exempts “houses of worship” but would include private parochial schools and other nonprofit schools.

LaBonte, director of LePage’s Office of Policy Management, said Wednesday during a briefing with reporters that the proposal’s harmful effect on municipal finances is overblown.

He said that in 2008, revenue-sharing accounted for 5 percent of municipal budgets statewide, and that had decreased to 3.5 percent by 2012.

“So revenue-sharing is not a large share of those municipal budgets and certainly not a large share of what’s going toward those expenditures,” LaBonte said.

When revenue-sharing was first put in place, its intent was to provide property-tax relief. Because the funding was directed to municipal governments and did not go directly to property owners, they never benefited, LaBonte said.

Instead, property taxes continued to climb along with municipal spending, he said.

“It’s become clear revenue-sharing is not providing target tax relief, because we are seeing continued increased expenditures and really limited reform in terms of how local governments are providing services,” LaBonte said.

Under LePage’s proposal, the state’s homestead property tax exemption would be available only to households with a family member who is 65 or older but would be expanded to exempt the first $20,000 of a home’s assessed value, compared to $10,000 now.  

That proposal would save the state about $12 million a year, according to Richard Rosen, commissioner of the Department of Administration and Financial Affairs, LePage’s top budget officer.

LePage’s plan also expands the state’s Property Tax Fairness Credit, which provides tax relief to low- and middle-income households.

LaBonte said the intent is to provide property-tax relief directly to the taxpayer instead of the municipality. 

He said taxing nonprofits is an effort at fairness, saying many of the largest nonprofit entities, including private colleges and hospitals, depend on locally provided public services.

But lawmakers on the Legislature’s budget-writing Appropriations and Taxation committees had questions for Rosen on the plan to tax nonprofits during a hearing later in the day.

State Rep. Diane Russell, D-Portland, a member of the Legislature’s Taxation Committee, noted that her city would have plenty of sources for the new tax, given the large number of nonprofits in Maine’s largest city.

But Russell said she worried how smaller towns, including her hometown of Bryant Pond in Oxford County would fare under the proposal.

“I’m not sure there is extra taxable opportunity for a town like that,” Russell said. “I would love to know what happens to towns like that, that don’t have the scenario like Portland does — where we could overnight tax Maine Medical Center — which I’m sure they will be very excited to hear.”

Rosen said LePage’s staff was “still working to get a sense of how far and wide tax-exempt private property is.”

Other lawmakers, including state Rep. John Martin, D-Eagle Lake, an Appropriations Committee member, noted other apparent flaws for his region in the plan.

Martin said the city of Caribou in far northern Maine owns the hospital there, which would not be taxable under the LePage plan. However, the city of Presque Isle does not own the hospital there and would be able to levy property taxes on that nonprofit.

Rosen confirmed that Martin’s observation was correct. 

About 150 of Maine’s 492 municipalities have tax-exempt nonprofits, according to information from the Maine Municipal Association.

Rosen suggested other parts of the budget proposal, including the expansion of the homestead tax exemption and Property Tax Fairness Credit programs, would likely offset any increases residents in those towns might face in their property taxes.

LaBonte said people who may be questioning the plan should examine the federal tax returns for the nonprofits in question, noting many make substantial profits.

“Profit is not a bad word and the intent of a nonprofit isn’t to not make money but it is to make money so you can provide more services and expand the quality of those services,” LaBonte said.

“So the state saying, ‘We are not going to tax your profits because you are doing something that is in the public good,’ is very different from having public works having to plow the road, having a firetruck needing to show up when there’s a fire, having an ambulance show up when there’s an accident or having law enforcement having to show up when there is a crime.”

He said some of the larger so-called “service-center communities” such as Lewiston and Auburn have long asked for a better way to “balance this relationship.”

sthistle@sunjournal.com