AUBURN – The city may have no choice about raising home property values this year, according to a state official.

The city is vulnerable to businesses that balk at shouldering too heavy a tax burden, according to David Ledew, director of Property Tax Division of the Maine Department of Revenue.

“It’s a fairness issue,” he said. “When one sector of the community is valued differently than another, it means one is paying more than its share.”

That could lead to formal challenges by Auburn commercial property owners, he said.

“And if businesses do decide to challenge the city on it, it could end in a class action lawsuit situation, on behalf of all taxpayers,” he said.

Assessed values now place Auburn businesses and commercial properties close to their full value on the open market. Residential values lag well behind, at between 60 and 65 percent of their market value.

Since property taxes are figured by multiplying the citywide tax rate by the assessed value, commercial property owners wind up paying more.

“State law requires equity, or equitable distribution of the tax burden,” Ledew said. The city can make values equitable by increasing home values, or reducing business values.

“But since the city’s main source of revenue is property taxes, property taxes are where this will be felt,” he said.

The 2006 valuation was the first time the city had updated its residential property values since 1989. After a stagnant decade, Auburn’s residential real estate market began growing in 2002. By the time the property revaluation was finished, the city’s assessed value – used to determine property taxes and state aid – was less than 70 percent of the market value.

Commercial property values were revalued each year, however. That meant that commercial properties were paying a higher share of property taxes.

The 2006 revaluation would have fixed that situation, increasing citywide assessed values from about $1.3 billion to $1.8 billion and fixing the tax burden equally on residential taxpayers and commercial taxpayers.

But a taxpayer revolt in the fall of 2005 stalled the city’s revaluation. In some cases, residential tax bills tripled. Councilors responded by phasing the revaluation in, increasing residential values to about 80 percent of fair market price.

Ledew said the City Council cannot do that this year and protect itself from lawsuits.

“There is no question now that inequities between business and residential properties exist,” he said. “Really, something has to be done to restore that sense of equity.”

State law won’t force the city to raise residential property values, but it won’t protect it either.

“There is nothing in the state statutes that says a city is out of compliance,” he said. “That’s something that is decided by the courts.”