AUGUSTA – An analysis by University of Maine economists released Tuesday said the budgets of Maine municipalities would have been underfunded by $687.7 million if the 1 percent tax cap proposal to be voted on by statewide referendum had been in place last year.

Proponents of the tax cap have maintained that much of the analysis of potential effects to date has failed to take into account higher state funding for local education that voters ratified in June and also gives short shrift to budget savings options for cities and towns.

The authors of the new study acknowledged that the municipal response to passage of the November referendum could not be foreseen. But they suggested that consequences could include new taxes and reductions in what residents get for their tax dollar.

“People need to know what they’re voting on in November,” Todd Gabe of the university’s Department of Resource Economics and Policy said in a statement. “This is the most detailed town-by-town analysis that’s been done on the tax cap proposal as it is written.

“State and local governments could respond to it in many different ways, but based on the experience in other states, it could mean cuts in services and creation of new sources of income.”

The analysis was done by Gabe, Jonathan Rubin and Tom Allen of the Department of Resource Economics and Policy and Catherine Reilly of the Margaret Chase Smith Center for Public Policy and received financial support from the Maine State Planning Office, the Maine Agricultural and Forest Experiment Station and the Smith Center, where Rubin is interim director.

The authors said that as part of their research they had reviewed the impact of property tax caps in Massachusetts and California.

“The overall lesson learned from other states is that property tax caps can have impacts beyond the straightforward reduction of one type of tax,” the new study said.

“Changing local tax structures can shift the tax burden away from certain property owners, taxpayers, and businesses and onto others; can shift control of local revenues and expenditures from one level of government to another; can force communities to raise other fees; and can affect land use and property values.”

The full report was to be available online at www.umaine.edu/mcsc/TaxCap.pdf.

The November tax cap proposal would limit property taxes to $10 per $1,000 of assessed value, based on values in 1996-97.

A Maine Supreme Judicial Court majority has said in an advisory opinion that at least part of the proposal – its provisions for establishing the value of property – would be unlawful.

Rubin said in a statement the tax cap proposal in Maine would have “unintended consequences that go beyond lowering taxes. It will be a shift in authority from local government to state and other centralized units of government.”

The new study found that the property tax rate for homeowners would decreased in 391 towns if the pending tax cap plan were in effect in 2003, but would have increased in 81 towns.

If the tax cap had been in effect last year, “statewide, total property tax revenues, which amounted to $1.6 billion in 2003, would have dropped by $687.7 million or 43 percent,” the study said.

The authors also said that if new legislation to boost state aid to local schools, approved by voters in June, had been in effect last year, “the shared deficit could have dropped from $687.7 million to $535.2 million.”

According to the study, state income taxes would have had to increase 64 percent – or the sales tax rate would have had to increase from 5 percent to more than 9 percent – if the property tax reduction had been replaced by state income or sales taxes.

AP-ES-09-21-04 1553EDT

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