Cities and towns all across Maine have spent the last few months wrangling financial numbers and approving municipal budgets for the fiscal year. Local officials have spent many long nights trying to decide where to cut spending and where to invest more, and weighing those decisions against the impact they’ll have on the property tax rate.
Property taxes — typically based on a certain dollar figure per $1,000 of a property’s assessed valuation — are how Maine cities and towns fund the vast majorities of their respective local budgets.
According to the real estate website MaineHomeConnection.com, property taxes generate $1.8 billion in local revenues across the state every year.
University of Wisconsin economics professor Andrew Reschovsky told the Huffington Post the average American town generates more than half of its annual revenue through local taxes and fees, and of that amount, more than 70 percent is typically made up of property tax revenue.
But while property taxes are very common throughout the entire U.S., there are some places where local officials have eliminated them entirely or never established them to begin with.
Here are five of those places and how they raise revenues to fund local services, like trash disposal or law enforcement. While it’s easy to romanticize the idea of living without annual property tax bills, and some of these municipalities have found success with alternatives, not all of the other revenue options come without controversy.
5. Campo, Colorado
This small Colorado town of just more than 100 residents has been in the news lately for its unusual reliance on traffic tickets in lieu of property tax revenue. According to a range of media outlets, including the local public broadcasting station and Daily Mail newspaper, Campo has raised 93 percent of its municipal revenue for the year through traffic tickets and court fees.
Campo is perhaps the most dramatic example in a range of Colorado towns raising a majority of their respective revenues from traffic tickets, spurring some outcry in the state. A significant highway cuts through Campo, and the town’s lone police officer reportedly camped out there and handed out more than 400 tickets over the year.
Of course, it helps that Campo is a very small town. But still, with a local budget of more than $300,000 relying almost exclusively on law enforcement for revenue, that puts a lot of pressure on the town cop.
4. Dewey Beach, Delaware
Another town, this time on the Delaware waterfront, avoids property taxes by placing the burden of local revenue generation largely onto local business owners. But while Campo is under fire for its heavy ticketing, Dewey Beach seems to be booming. The town’s population is approaching 400 people, but it’s almost doubled since 1990, enjoying its reputation as a destination resort town in the rapidly growing Cape Region.
The conservative Delaware website DelawareRight.com describes Dewey Beach’s local revenue strategy this way:
“Dewey Beach does not a have a conventional form of taxation. The town has no property tax, and so must collect revenue through fees and permits imposed on the homeowners and businesses. So if a home owner wants to cut down a tree they have to pay the town for a permit, and if a restaurant wants to push some tables out of the way and make a dance floor for one night, they have to pay the town for a permit.”
Although homeowners may be nagged by regular fees and permits as well, DelawareRight.com claims that it ends up being “the business owners [who] end up paying the lion’s share of the cost for running the town and providing the services that all citizens benefit from.”
3. Youngtown, Arizona
This riverfront town northwest of Phoenix was established more than 60 years ago as a haven for retirees, and as recently as the late 1990s actively fought to prevent young people from living there (the state attorney general reportedly overturned the town’s 1996 decision to kick out a 16-year-old resident, forcing the somewhat ironically named Youngtown to embrace age integration for the first time).
Youngtown now has a population of just more than 6,000 people, making it about the same size as the Maine towns of Lebanon or Oakland.
One of the Arizona town’s sales pitches to retirees is its lack of property taxes. According to the town website, it generates revenue through a variety of sources, including a 3-percent town sales tax, 2-percent hotel tax and a 2-percent rental tax.
But that cocktail of property tax alternatives hasn’t been a panacea.
The Huffington Post reported in 2012 that local leaders were having to dip deeply into their rainy day fund to cover a budget deficit of $183,000, as their incoming revenues weren’t enough to cover expanding services for their elderly population.
This could be seen as a cautionary tale for towns in a state like Maine, which notoriously has the country’s oldest population.
2. Stafford, Texas
This nearly 18,000-person city outside Houston is about the same size — population-wise — as Westbrook or Windham. According to the Houston Chronicle, Stafford stopped levying property taxes in 1995 and hasn’t looked back.
The admitted caveat here is that Stafford residents do pay what they call a “school tax,” which raises money specifically for the school department — the only municipal-level school department in Texas. In Maine, many of the smaller towns pay property taxes almost entirely to cover their local schools, with only minor municipal overhead to worry about otherwise.
So if you don’t count local taxes that fund schools, several Maine towns could probably brag about being effectively property tax-free, too.
That said, towns the size of Westbrook and Windham have substantial enough municipal budgets that just glossing over education spending wouldn’t be enough.
So how does Stafford do it? The Texas city, which is reportedly the largest of about a dozen municipalities in the state without property taxes, reportedly raises additional revenue through sales taxes, franchise taxes and permit fees.
In Texas, the statewide sales tax is 6.25 percent, and local communities are allowed to add on a maximum of another 2 percent.
The Chronicle reported that Stafford boasts a wide mix of employers and benefits from its proximity to major highways and larger cities, helping its population swell by 300 percent during the workdays and driving up retail sales, among other things.
The Houston newspaper reported:
“Relying on sales tax revenue alone, Stafford has managed to pay for city services, lower its debt, accumulate a reserve of about $10 million, construct a new convention center and build a police and fire complex in the past six years.
At the same time, new residents and businesses have been lured in by the city’s property tax policy.
Even today, while many cities across the country are slashing budgets and cutting services because of the recession, Stafford continues to grow. City officials are even optimistic about paying off the city’s $2 million bond debt by 2014.”
1. Port Alexander, Alaska
Port Alexander is a lovely island community with fewer than 100 residents and, thanks to its oceanic climate, doesn’t typically get as brutally cold in the winter as Maine, even though it’s farther north (Port Alexander has a daily high average of about 40 degrees from December through February).
But as scenic and interesting as Port Alexander is — it was once much larger, known as the salmon-fishing capital of the world and had its own currency — this entry should probably just read “Almost Anywhere, Alaska.”
That’s because Port Alexander is one of many Alaskan communities not to levy local property taxes.
According to the Alaska Department of Commerce, Community and Economic Development, only 24 of the 164 incorporated municipalities in the state have local property taxes.
Most of those municipalities — 107 of them, to be exact — use sales taxes of between 1 percent and 7 percent to help raise revenues. The state reports that local communities can also raise money through taxing raw fish, hotel stays, liquor, tobacco, gaming, natural resource extraction (like oil) and fuel transfer activity.
Alaska has no statewide sales tax, so all those revenues from retail sales go straight into local budgets.
Something to consider about the property tax alternatives listed above: Some of those options aren’t currently available in Maine. Although it’s been proposed on a few occasions, local option sales taxes remain against the law here, for example.
And as attractive as an elimination of property taxes may seem on its face, it’s hard to imagine a Maine community ticketing its way to an annual budget without some serious blowback.
Increased reliance on taxing arguably frivolous things like hotels, gaming and — to perhaps a lesser degree, liquor and other goods — may in the short term shift the tax burden from local residents to out-of-town tourists, but could also be unpredictable, as tourism waxes and wanes.