AUGUSTA, Maine — Lawmakers gave initial approval this week to a bill that would change how the state distributes tax revenue to municipalities.

LD 1835, sponsored by Sen. Justin Alfond, D-Portland, would kick in only once revenue-sharing is fully funded and would affect only the Disproportionate Tax Burden Fund, commonly known as “revenue-sharing 2.”

Currently, all municipalities are supposed to receive 5 percent of state revenue from taxes and other fees to help pay for local services. Revenue-sharing 2 kicks in for cities and towns that have a property tax rate that exceeds 10 mills.

A mill is equal to $1 of tax per $1,000 of property value. In other words, a homeowner in a town with a mill rate of 10 would pay $2,000 in taxes on a $200,000 home.

Alfond said his bill would restore the revenue-sharing 2 portion of the tax code to its original intent by increasing the threshold from 10 mills to the statewide average mill rate, currently 11.76.

“Revenue-sharing 2 should be more than an artificial number but something that has statewide significance,” Alfond said Tuesday.

Currently, more than 300 of the nearly 500 cities and towns in Maine receive revenue-sharing 2 funds, which has in many ways diluted the purpose of those funds, he said.

The Senate passed the bill 19-15 on Tuesday, with four Republicans joining all Democrats in support. The House took up the bill on Wednesday and, after little debate, voted 82-63 to accept the majority “ought to pass” report.

LD 1835 still requires additional votes in both chambers.

Among the concerns is that the proposed change would decrease the number of communities that receive revenue-sharing 2 funds and give more assistance to communities with a higher property tax burden.

Sen. Doug Thomas, R-Ripley, was among those who opposed the measure.

“To fully fund revenue-sharing and then take the bulk of that money and give it to communities that can’t control their spending is a policy decision that’s going to wreak havoc with the whole state,” he said Tuesday. “We don’t need to create incentives for people in the state of Maine to spend more tax money.”

The one caveat of LD 1835 is that it would be applied only when municipal revenue-sharing is fully funded by the state, which means 5 percent of all state revenue. Alfond said that could take a few years. Currently, $94 million is budgeted for revenue-sharing in 2013, but if the program were fully funded, that would jump to $138 million.

Although some communities would lose money and some would gain money from the state under LD 1835, all communities would end up getting more money if revenue-sharing is fully funded, Alfond said.

The Maine Municipal Association has endorsed the plan and it passed 10-3 through the Legislature’s Taxation Committee last month.

Follow BDN reporter Eric Russell on Twitter @BDNPolitics.

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