Tax-exempt nonprofits a vexation for town officials

Land is due to be taken off the Deer Isle tax rolls next year with Island Heritage Trust’s purchase of 10 acres of shorefront on Lily Pond. PHOTO COURTESY OF ISLAND HERITAGE TRUST
Land is due to be taken off the Deer Isle tax rolls next year with Island Heritage Trust’s purchase of 10 acres of shorefront on Lily Pond. PHOTO COURTESY OF ISLAND HERITAGE TRUST

BLUE HILL — Preserving Maine’s pristine lands from development means a bigger tax bill for everyone else.

Once a nonprofit land trust takes ownership of a parcel, the land trust seeks to have that parcel classified as “open space,” at a far lower tax rate than that assessed of a private property.

The Blue Hill Heritage Trust, for example, pays $1,500 a year in taxes for 1,500 acres.

The tax money that had been generated from the protected lands is still needed to cover municipal services. The difference must come from some other taxpaying entity.

The nonprofit issue was part of a larger discussion about tax reform held at a Maine Municipal Association Legislative Policy Committee meeting Oct. 2.

“What we’re going to try to do is allow communities to bill nonprofits for services instead of a tax assessment,” said committee member and former state Rep. Jim Schatz.

The committee has encompassed the question within a larger discussion of tax reform, Schatz said.

Two members of the committee, Ellsworth City Manager Michelle Beal and Bucksport Town Manager Derek Goodine, would rather see the focus on overhauling Maine’s tax system instead of looking at nonprofits.

But, back to the nonprofit angle for a moment, Schatz uses the town of Blue Hill, where he is selectman, as an example.

“…If you take the example of Blue Hill Heritage Trust,” he said, “they have bought property and the good part of that is they have made it exempt, they’ve put it on the shelf, preserved it for use going forward, but they are shoving whatever taxes used to be paid on that over to the other taxpayers and that’s starting to be noticed by more and more people.”

The trust owns 1,500 acres of land in Blue Hill. The land is assessed at an open space tax rate for a bill of $1,500 a year. The trust also pays about $1,400 a year in property taxes for an office building.

Schatz said, “I can’t tell you how many times people come in, they’re kind of complaining and they’re kind of whining…” and asking if there’s a way to get tax money from those exempt lands.

“There aren’t many tools to do that.”

“We’re all having more and more entities preserving access,” Schatz said. “A lot of times that’s done in the guise of buying properties and moving it over to some tax-exempt status.”

Some communities seek payments in lieu of taxes from their resident nonprofits.

“The amount of money you get in lieu of taxes, which is usually voluntary, doesn’t pay for what it was designed to pay for,” Schatz said. “To have a standard would be much better to work with.”

“Right out of the gate, when someone comes in, we need to analyze what burden that property has, what services are they going to draw on and create a number for that,” Schatz said. That involves tightening the guidelines on tax-exempt property.”

Jim Dow is the executive director for Blue Hill Heritage Trust.

“The Blue Hill Heritage Trust does pay property taxes,” Dow said. “Our lands are not off the tax rolls. Although land trusts are tax-exempt under Maine law — a fact recently confirmed by Maine’s highest court — we choose to pay taxes as a matter of organizational policy, in recognition of services provided by the towns.

“Just as any landowner can do, we apply for open space classification, per state law, for the lands which are to be kept undeveloped because of their recreational, wildlife habitat or scenic value to our community, such as our land on Blue Hill Mountain, which is a major recreational resource in Blue Hill. We pay the full tax rate on our office property.”

“What is often missing from these conversations about taxing nonprofits is a full recognition of the public benefits they provide to our communities, benefits which in other places are provided by local government,” Dow said. “In Blue Hill, for example, which like many of our Downeast communities prefers minimal government, nonprofits provide the local high school, the hospital, the public library, the ambulance service and public assistance programs, and in the case of our land trust, outdoor recreational opportunities where people can hunt or walk or exercise.

“These are just a few of the services provided by small local nonprofits, services that make our community work and make it an attractive place to live. They make minimalist government possible. They rely on philanthropy rather than tax dollars. Meanwhile, they provide a large portion of the employment opportunities in our small rural towns.”

Land trusts are just one slice of the nonprofit pie.

There are a number of organizations that own property and don’t pay property taxes, particularly in service centers such as the city of Ellsworth.

Yet, not all members of the committee agree with examining nonprofits under a tax reform microscope.

Goodine, the Bucksport town manager, also serves on the committee but missed the meeting due to the Verso Corp.’s announcement that it was closing its Bucksport paper mill.

Goodine said in an email that each community should make its own decisions about nonprofits instead of having a statewide mandated law about charging fees.

“Some small towns may find it burdensome dealing with a new law that barely affects them,” Goodine said.

Beal said the nonprofits in Ellsworth provide a service that would be difficult for the city to provide its citizens.

Beal cited Hospice of Hancock County, the Loaves and Fishes Food Pantry and the Emmaus Center homeless shelter and Maine Coast Memorial Hospital.

“They provide a very needed service to us,” Beal said.

Both Beal and Goodine want instead to see an overhaul of Maine’s tax system.

“I would much rather see reform to the property tax than decide how we’re going to tax each nonprofit,” Beal said. “It needs to be looked as a whole. Something needs to happen.

“Property tax has the highest burden in the state right now for providing services. That’s wrong.”

“If the property tax is overburdening the taxpayers, there is no other recourse for the municipalities, as we are not allowed the ability to tax in any other way,” Beal said.

“Nonprofits, especially small nonprofits, are an easy target, but the current focus on them at the state level is misplaced,” Dow said. “The real issue is how we fund public education and the state’s failure to participate adequately in that funding.

“In Blue Hill, for example, 81 percent of each tax dollar goes to education. If the state properly assumed its responsibility for the education of our young people, the squeeze that local governments are feeling would be greatly relieved.”

Goodine said the problem also is an “archaic tax structure” that was based on an industrialized economy instead of the service-oriented economy Maine has today.

Goodine is calling for an equalization of the three major taxes — sales, income and property — so that each is 33 1/3 percent of the mix.

“Right now, what I want to see is the state pay back the municipalities for the money they raided, then fully funding these programs of municipal aid as they should be, and then fully funding the school funding formula at 55 percent of the total cost of education,” Goodine said. “This would instantly provide the property tax relief.

“No new spending until the state pays its bills.”

Goodine said the state should take steps to flatten “the boom and bust cycles with the current tax structure.”

Jennifer Osborn

Jennifer Osborn

Reporter and columnist at The Ellsworth American
News Reporter Jennifer Osborn covers news and features on the Blue Hill Peninsula and Deer Isle-Stonington. She welcomes tips and story ideas. She also writes the Gone Shopping column. Email Jennifer with your suggestions at [email protected] or call 667-2576.

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