Diane Romano shocked South Portland residents recently when she told the City Council that she might sell her plasma to cover an impending 10 to 30 percent property tax increase predicted by municipal officials.
Romano and her husband, Dan, live in the desirable Willard Beach area, which is at the center of statewide unrest over ongoing property revaluations and rising tax assessments amid a pandemic-driven homebuying boom.
From Biddeford to Westbrook to Millinocket, “crazy” home prices paid during the last year, often by people moving to Maine from other states, have put market-based tax assessments “out of whack” and undermined the way municipalities raise money for budgets that are being finalized now.
Home sales blew up last year near Willard Beach – a onetime working-class neighborhood at the edge of Casco Bay that has been hot for a decade – with some buyers paying $50,000 to $100,000 over the asking price without any contingencies.
Romano, who is an accounting clerk, worries that the annual tax bill on her 1920 bungalow, currently assessed at $288,800, could increase as much as 50 percent, or about $2,500, to about $7,600. Which is why she’s telling people she might sell her plasma. Her best friend does it twice a week, Romano said, earning $50 per visit, or as much as $400 per month as a second income.
“I’m seriously considering that option,” Romano said after the April council meeting. “It can’t be the long-term solution, but until we know how bad it’s going to be, that’s on the table.”
Across Maine, homeowners, municipal officials and others are seeing the impact of a pandemic-fueled real estate boom that’s putting pressure on even recently updated residential assessed values and promising to send some tax bills skyrocketing. Tensions are higher in cities and towns where significant business sectors have not seen a corresponding increase in commercial property values, threatening to shift a greater portion of taxes onto residential property owners.
Frustrated homeowners are asking assessors and other city officials to delay revaluations and take other steps that essentially would break laws grounded in the Maine Constitution. Recent efforts to put off the inevitable have failed so far, including a bill calling for a moratorium on property revaluations during a state of emergency, which Maine has been in for a year under continuing orders of Gov. Janet Mills.
A revaluation is a community-wide update of assessed property values that are tied to market values and are the basis for annual tax bills. In general, property owners whose new assessed values have increased more than the average will see their tax bills go up, while property owners whose values have increased less than the average will see their tax bills drop.
In communities such as South Portland and Portland, where commercial properties have gained value but haven’t kept up with the residential frenzy, ongoing citywide revaluations are expected to shift some of the tax burden onto homeowners, many of whom say they can’t take another punch among many landed by COVID-19.
Both cities put long-delayed revaluations on hold last year because of the pandemic. Neither has updated property values citywide for 15 years. Now, their overall property assessments have fallen below 70 percent of market value, a major legal trigger for revaluations.
Portland’s assessments are down to 66 percent of market value, and South Portland’s are at 68 percent, despite slight increases made in certain neighborhoods in 2017 and 2018. But even communities that went through recent revaluations have seen their assessment-to-market ratios tumble in the last year. In Westbrook, which went through a revaluation in 2019, overall assessments are now 83 percent of market value, said Jim Thomas, who is the assessor in Westbrook and South Portland.
The state constitution also says revaluations must be done at least once every 10 years – a law that isn’t generally enforced – and it requires property taxes to be apportioned and assessed equally according to just value, which the courts have determined is market value.
As a result, Portland and South Portland officials say they must complete their revaluations this year despite the continued bad timing. Otherwise, they risk sending out tax bills based on outdated property values that could be challenged successfully during the abatement process or wind up in court. Then they could be forced to return tax dollars, undermining revenue projections for budgets they’re building now for fiscal 2022.
“So many municipalities are going through this,” said Portland Assessor Chris Huff. “Almost every property (assessment in Portland) is going up. The residential increase is certainly going to be greater than the commercial increase. The question is, what is that shift going to be?”
Currently, residential property owners carry 56 percent of the tax responsibility in Portland and 54 percent in South Portland.
State law allows Maine Revenue Services to impose unspecified “administrative sanctions” on municipalities that fail to conduct timely revaluations, Huff said, but cities and towns generally update assessed values to ensure they will withstand scrutiny. The state also reduces reimbursements to municipalities for property tax abatements when their assessment-to-market ratios fall below 90 percent. Portland passed that funding loss on to residents in fiscal 2021, when its ratio was 77 percent, reducing the Homestead Exemption that residents received from $25,000 to $19,250, Huff said.
Exactly whose tax bills will go up following the revaluation is also unclear. In both cities, notices of new assessed property values will be mailed in the coming weeks, along with instructions for the appeals process when property owners may contest new values. Tax bills will be mailed this summer with new values and a lower tax rate, adjusted downward to account for an overall increase in property values. If a city’s valuation increases 25 percent, the tax rate will decrease 25 percent.
Assessors say the old precept about revaluations will hold true: About one-third of tax bills will go up, one-third will go down and one-third will stay the same. However, the first category likely will be mostly homeowners given the recent spike in residential market values.
In South Portland, for instance, even in less tony areas, 55 percent of homes sold for more than the listing price, according to Redfin.com. A home in the Willard Beach area that sold for $400,000 in 2018 went for $585,000 two years later – a 46 percent increase – while a home in the Cash Corner neighborhood, where Broadway crosses Route 1, sold for $275,000 in 2019 and again in 2020 for $407,100 – a 48 percent increase. Neither house had been significantly improved, Thomas said.
Which is why Scott Morelli, South Portland’s city manager, sent a letter to property owners in late March and posted a notice on the city’s website warning of the impending shift and potential impact on residential tax bills.
“While commercial property sales have also been competitive, they have been outpaced by the residential market,” the notice says. “Residential property owners will bear more of the property tax burden. Once this revaluation is finalized later this spring, it will not be uncommon for residential property owners to see tax bill increases of 10 percent, 20 percent, 30 percent or more even if the city budget were to remain flat.”
And South Portland’s proposed budget for fiscal 2022 is nearly flat, set to increase 1 percent to $96 million for municipal, school and county services combined. The amount of taxes to be raised is up 1.4 percent, or nearly $1 million, to $69.2 million. And city officials are still looking for ways to trim costs, boost other revenue sources and ease the tax responsibility for all property owners.
One thing that can’t be discounted is Maine’s scorching residential market over the last 12 months, although some have tried.
Single-family home sales increased more than 9 percent in 2020, and the median home price increased nearly 14 percent, to $256,000, according to the Maine Association of Realtors. Home sales were especially hot in coastal communities, but even inland counties saw substantial increases that have continued into 2021, driven in part by an influx of buyers moving here from more populated parts of the Northeast and beyond.
Sen. Jim Dill, D-Old Town, sponsored the revaluation moratorium bill, which effectively died in the Legislature’s Taxation Committee last month. Dill represents a stretch of towns north of Bangor, from Veazie to Millinocket in Penobscot County. Houses there might cost less overall, but the median home price still increased nearly 10 percent last year, from $154,600 to $170,000.
“I was hearing from constituents that their taxes haven’t gone up in 10 to 15 years and now they’re going up 30 percent,” Dill said. Assessed values doubled on some houses that hadn’t been substantially expanded or improved during that period, in one case increasing from about $40,000 to $80,000, he said.
“This is going to keep happening because so many people are fleeing to Maine,” Dill said. “I gave it my best shot, but I don’t have any other ideas on how to solve this problem.”
About one-third of Maine home sales last year went to out-of-state buyers, up from one-quarter before the pandemic, according to the Realtors association.
The Maine Municipal Association opposed Dill’s moratorium bill, largely on legal grounds, after its 70-member Legislative Policy Committee voted overwhelmingly against it. South Portland’s Morelli was one of few who voted in favor of it, reflecting the City Council’s sentiment. Kate Dufour, the association’s director of state and federal relations, testified before the Taxation Committee.
“Local officials believe this change could do more harm than good and unnecessarily subject communities to penalties associated with the breach of a contract for revaluation services,” Dufour explained. After the hearing she added, “The more you put something off, the more difficult it becomes to do.”
Portland City Manager Jon Jennings and Mayor Kate Snyder, both members of the MMA legislative committee, also opposed the legislation.
“Portland made the decision last year to not implement our revaluation process due to the pandemic,” Jennings said. “These decisions should be left to the individual communities to make instead of a mandate from the state.”
Unlike South Portland, Portland officials haven’t raised the alarm about the revaluation and a pending residential tax shift, even when Jennings pitched a $212 million municipal budget proposal last month.
In her written budget message, Snyder said Portland’s fiscal 2022 spending proposal was “built within the context of the first-in-15-years revaluation that – good news! – will adjust and update Portland’s property values to reflect real values – but that will, for about a third of our property owners, mean an increased tax bill.”
Snyder later explained what she meant by good news.
“We’re getting ourselves in line,” she said. “We know our values are rising. For many homeowners, this is going to be an extremely stressful situation.” Followed by a difficult appeals process that could lead to abatements and court challenges.
Snyder said she’d like to avoid similar consternation in the future by having revaluations every five years, especially since technology makes it easier to update property values as they change, though the politics related to a shifting tax base won’t evaporate. She said she intends to submit a resolution seeking a commitment from the City Council to have more more frequent revaluations.
“I would like to keep up with values as much as we can,” Snyder said.
Biddeford is in the midst of a two-year revaluation that is showing increased residential assessed values, especially multifamily homes. Its last revaluation was done in 2014, according to Maine Revenue Services. Now, overall assessed values that were reported at 98 percent of market value in 2019 have fallen into the 70s and could be below 70 percent of market value next year, said Mayor Alan Casavant.
Residential property assessments are being updated this spring, Casavant said, and likely will be again next year because prices are increasing so fast. And commercial prices likely will be adjusted downward through that period as limited sales data become available, he said.
Casavant warned residents of impending tax bill impacts in a budget message last month, explaining that the goal is to ensure homeowners pay “their fair share” of property taxes and that exemptions are granted at full value.
“Revaluations are a state remedy to create fairness, so that everyone contributes based upon the actual value of their property,” Casavant wrote. “(And) because the differences between sales of property in Biddeford and assessed value are so out of whack, if a revaluation is not done, individuals who receive Homestead or Veterans exemptions on their homes would not be able to receive 100 percent funding. There are incentives to making sure the city’s assessed values match the sales prices in the marketplace.”
Casavant said Biddeford is considering hiring experts to help reassess the commercial sector in the absence of widespread sales.
Portland paid Texas-based Tyler Technologies $1.3 million to conduct its revaluation over the last few years. South Portland is doing its revaluation in house, led by City Assessor Jim Thomas. He says no one home sale determines market value and he can eliminate extreme outliers.
“Some of them are just crazy,” Thomas said. “I’ve never seen anything like this before. I’m interested in the sales in the middle.”
Thomas and other municipal officials also express concern about the impact of delaying a revaluation on the commercial property owners, who make up a significant part of the tax base in some cities and towns.
In South Portland, the Maine Mall, the city’s largest taxpayer, and surrounding big-box stores were already struggling against rising internet sales before the pandemic made online shopping a daily activity for many people, he said. Area restaurants and hotels have felt similar blows.
About 40 businesses in South Portland shut down last year and sought property tax abatements, Thomas said. And the Portland Pipe Line Corp., formerly the city’s fifth-largest taxpayer, sought an abatement in 2017 because its 23 storage tanks and pipeline to Canadian refineries have been largely shut down. Since then, its assessed value has been reduced from $44.7 million to about $30 million, Thomas said.
Failing to rectify inequitable property assessments could increase pressure on commercial enterprises and the loss of more businesses would accelerate the tax shift to homeowners, Thomas and other officials say.
Residential property owners aren’t so worried about business owners.
During a City Council meeting in April, South Portland residents pleaded with Thomas and councilors to avoid updating property values based on a real estate bubble. Why not exclude 2020 home sales if they’re such an anomaly? Or base the assessed value on the appraised value instead of the selling price? Maybe gradually phase in assessment increases over time?
Colleen Kinsella questioned why homeowners should subsidize a flagging commercial tax base, especially in a system measured by market drivers and rooted in capitalism. Kinsella is an artist and college administrator who lives in the waterfront Ferry Village neighborhood with her husband and teenage daughter.
“I would hope we can prioritize people over property values,” Kinsella told the council. “This is not going to end. This is only going to get worse.”
Kinsella said the system has broken down “because so many people have lost their jobs, and if they haven’t lost their jobs, they can’t afford a huge increase in property taxes.” And it’s a system that disproportionally hurts people of color and low-wage workers, many of whom have already been forced to leave South Portland or cannot afford to move here, she said.
“People keep saying, ‘This is the way we always do it,’ but if ever there was a time to stop saying that and find another way, this is it,” Kinsella said.
Dan Romano, Diane Romano’s husband, also urged the council to stave off the revaluation, saying that he and his neighbors are on the verge of a revolt. He said his adult children cannot afford to buy homes in the city where they grew up because of increasing gentrification he blamed on out-of-state people fleeing the pandemic.
“Find a way. Stand up and say, ‘We’re not going to do this,’” said Romano, a self-employed radon and water-quality inspector. “This is going to create hardship. People born and raised in South Portland don’t have a prayer of living in South Portland.”
South Portland councilors heard and shared residents’ concerns and complaints, then moved toward mitigating the financial impact of the revaluation by possibly reducing the budget, promoting hardship abatements and expanding the Senior Property Tax Relief program to serve residents age 62 and up. It’s currently for homeowners age 68 and older.
While it wasn’t exactly the action sought by residents, Thomas offered some perspective gained over many years as a municipal assessor.
“I’ve never heard anyone say it was a good year for a revaluation,” he said.