BANGOR, Maine — Gov. Paul LePage’s budget proposal to allow municipalities to levy property taxes on large nonprofits could generate more than $3 million in revenue annually for Bangor, according to an analysis by Bangor Councilor Ben Sprague.
This would surpass the city’s projected income from the state’s municipal revenue sharing program — which the governor proposes to eliminate — by nearly $1 million. But nonprofit leaders are cautioning the taxes would have significant social costs, leading to cuts in community services and increased expenses for consumers.
“What’s truly going on is an almost fiscal assault on the state level in the form of the governor’s proposed budget,” Dennis Marble, executive director of the Bangor Area Homeless Shelter, said.
The shelter provides overnight services for roughly 500 residents annually and daytime services for between 1,500 and 2,000, according to Marble.
He said the projected $1,260 per year the homeless shelter would pay the city in property taxes would not have a significant financial impact because the nonprofit already volunteers to pay the city $1,000 annually in lieu of taxes to recognize its reliance on some city services.
But, Marble said, the taxes could endanger partnerships the shelter and other nonprofits have formed with the city, in which nonprofits provide services that otherwise would be provided by the government.
“I mean, we deal with a lot of the things that save the city law enforcement from having to deal with it,” Marble said.
“You’re setting up a system in which a certain state level or gubernatorial level agenda is satisfied by making local parties not necessarily fight but struggle to work together,” he said.
On Facebook this week, Sprague posted a breakdown of the 54 nonprofit entities in Bangor he calculates would qualify for taxation under the governor’s proposed budget.
Asked about the post, Sprague said his intent was to bring “transparency and education” to the issue. Overall, he said he is not “not crazy about” the idea of taxing nonprofits and would rather see the state properly fund its municipal revenue sharing program.
“I know something has to be done to ease the tax burden on residents, but a lot of these entities provide services that otherwise would be provided by the government,” he said.
“People need to know what the government is talking about and understand it in order to make informed decisions,” he said.
To calculate the proposed taxes, Sprague obtained from the Bangor Assessing Department a list of assessed property values for all of the city’s nonprofits. He then eliminated the first $500,000 in value for each and applied half the city’s current property tax rate in keeping with the governor’s proposal. Bangor’s current tax rate is $21.80 per $1,000 of value.
The list shows Eastern Maine Medical Center would be hit hardest, with an estimated property tax burden of $973,238 annually.
In a statement, EMMC said it was still working to determine the potential financial impact of the governor’s budget proposal and would work with the Maine Hospital Association, other health care organizations and legislative representatives to address any concerns.
It also cautioned Mainers could see an increase in health care costs under the governor’s proposal.
“Since health care organizations continue to need to cover their costs, a tax that is purported to be imposed on a hospital is in fact a tax on patients,” it said.
The hospital said it invests resources to improve the health of Mainers and assist those who cannot afford the cost. In its last fiscal year, the hospital said its free care and bad debt costs rose to more than $68 million.
Facilities affiliated with Eastern Maine Healthcare Systems, parent company of EMMC, would face tax bills in several Maine cities under the governor’s budget proposal.
At St. Joseph Hospital, which would face a tax burden of $306,106 a year, Mary Prybylo, president and CEO of St. Joseph Healthcare, said they gave $1.5 million in goods, services and donations to benefit the community last year.
They also provided about $4 million in charity health care and had about $11 million in bad debt, she said, leaving the hospital with a narrow operating margin of less than 1 percent last year, after paying about $2 million in state taxes.
That’s short of the 3 to 4 percent operating margin the hospital strives for to reinvest in capital needs.
“Any added expense is just going to narrow our margin to a miniscule if not negative amount,” Prybylo said.
The Maine Hospital Association said it was “disappointed” to see a proposal that would tax nonprofits, including all of Maine’s 36 nonprofit hospitals.
Those hospitals provided a combined $125 million in charity care last year, according to the association. They subsidize public health insurance programs with more than $140 million annually, it said.
According to the association, aggregate operating margins at Maine hospitals in fiscal 2014 were just 0.5 percent, and there was no aggregate operating margin for the hospitals in fiscal 2013.
“There is simply no ability to absorb this tax increase. Hospitals will be forced to try and pass this ‘sick tax’ along to Maine patients,” the association said in a statement.
Similarly, Husson University, which Sprague estimated would face an annual property tax burden of $377,376, said the projected tax cost would result in increased tuition for students.
“It is … important to recognize that it is ultimately students who would bear the burden of increased tax costs,” the university said in a statement. “We advocate for higher education to make a difference for our state’s future. To do so, it needs to be affordable.”
And at the Maine Discovery Museum, Executive Director Niles Parker said the entity cannot easily afford the $10,483 in property taxes Sprague calculated.
“We’re so close to the bone right now that would probably mean a diminishment in hours that we’re open and the number of staff that we’re able to employ,” he said.
The museum has three full-time employees and 10 part-time employees.
“I appreciate the times we’re in, but I don’t have a lot of sympathy for this proposal. I think it’s very short sighted,” he said.
Niles said the taxes also could impact scholarships offered by the museum that enable low- and moderate-income youths to attend the museum’s popular summer camps.
“That usually adds up to about $5,000 a year. But now all of the sudden those all go away, and we have to find an additional $5,000 to pay the city,” he said.
LePage’s budget plan calls for an overhaul of individual, corporate and sales taxes and would make Maine the first state in the nation to require hospitals, colleges and other large nonprofits to pay municipal property taxes.
The plan also would eliminate municipal tax sharing, which currently sends about $62 million a year to cities and towns, in fiscal year 2017.
To make up for that revenue loss, municipalities would be required to tax large nonprofits at 50 percent of their assessed property value above $500,000. Government-owned nonprofits and churches would be exempt.
LePage’s administration has said exempting nonprofits from property taxes is unfair because those entities rely on local government services and the practice drives up property taxes for others.
Of the $2.56 billion of assessed real and personal property in Bangor, approximately 38 percent is exempt from taxation, nearly $967 million in assessed value, according to the Bangor Assessing Department.
LePage’s plan would reduce top individual and corporate income taxes, broaden the number of goods and services covered by the state’s sales taxes and offer tax credits to low-income residents. LePage said the plan would make the state more competitive and attractive to young families.
In the 2009-10 fiscal year, the state began reducing tax sharing payments to municipalities, cutting Bangor’s municipal tax sharing income 54 percent from $4.41 million in fiscal 2008-09 to a budgeted $2.03 million in fiscal 2014-15.
LePage’s budget proposal is expected to be the focus of the governor’s State of the State address Tuesday. Hearings on his budget should begin in February or March.
“I’m skeptical that even a majority of the Republicans in the Legislature will support this, but we’ll see,” Councilor Joe Baldacci said of the prospect of Bangor taxing nonprofits.
Follow Evan Belanger on Twitter at @evanbelanger.