The Smart Money: How will the change to the Circuit Breaker program affect you?

Posted Wednesday, August 21, 2013 in Analysis

The Smart Money: How will the change to the Circuit Breaker program affect you?

by Gina Hamilton

The Circuit Breaker program, which was designed to rebate some rent and property tax for low-income Mainers, was repealed as part of the enacted state budget for claims beginning on August 1, 2013.  In 2012, about 89,000 Mainers received property tax and rent relief through the Circuit Breaker program, and the average rebate was $479, according to Maine Revenue Services data.

That's not the full story, however. Depending on where you live, and the property taxes in your community, the average rebate could have been much higher or lower.  For example, Brunswick's average rebate was $517, which was about average for the Mid-coast.  Some towns averaged higher than that, for instance, Scarborough's average was $667, while York Beach was $801.  Other towns averaged lower; Caribou's average was only $300, while Rumford's average was $335.

Under Gov. Paul LePage's proposed budget for FY 2013 and 2014, the Circuit Breaker program would have been eliminated for most people.  Its budget would have been slashed by $73.4 million, and only people above the ages of 65, or veterans, would have been eligible for the Circuit Breaker program and the Homestead Exemption, which exempts the first $10,000 of property's assessed value for the purpose of taxation.

The Legislature, however, did include some property tax relief, but the amount of tax relief is far lower than the property tax relief offered by the Circuit Breaker program.  The Legislature left the Homestead Exemption in place, and replaced the Circuit Breaker with the Property Tax Fairness Program, which offers a tax credit of up to $300 for people up to the age of 70, and $400 for people 70 and over. The Property Tax Fairness Credit represents a savings of between $20-25 million over the Circuit Breaker program.

Letters arrived to inform Maine taxpayers of the change from the Circuit Breaker program to the Property Tax Fairness credit in the middle of July. You are eligible for the new credit if:

1) You were a Maine resident during any part of the tax year;

2) You owned or rented a home in Maine during any part of the tax year and lived in that home during the year;

3) Your Maine adjusted gross income was not more than $40,000; and

4) You paid property tax on your home in Maine during the tax year that was more than 10 percent of your Maine adjusted gross income or you paid rent to live in your home in Maine during the tax year that was more than 40 percent of your Maine adjusted gross income.

The tax credit is refundable; you won't lose out if you don't owe any income taxes, which will aid seniors who don't have to declare Social Security income on the credit form, but in terms of funding, it's clearly not a replacement for the Circuit Breaker program.  The top amount people could have received under the Circuit Breaker program was $1,600, compared to the top amount for the Property Tax Fairness credit of $400.  According to Michael Allen of Maine Revenue Services, the average credit would be $273, compared to the average Circuit Breaker rebate of $479.  The average Property Tax Fairness credit is only about 57 percent of the average Circuit Breaker rebate.

Maine's Circuit Breaker program was never highly utilized.  Many more people were thought to be eligible than actually applied, in part because the process was separate from the tax process, and partly because one didn't do the calculation oneself.  Information was sent to the state, and a few months later, a check arrived for an amount that seemed inexplicable, or a letter arrived explaining why the applicant was ineligible.

Maine Revenue Services expects to increase the number of people who get a refund, mostly because they will be filing with their regular taxes.  Statewide, last year, 89,000 people applied for rebates. Maine Revenue expects 124,000 people to file for Property Tax Fairness credits.

Still, for people who relied on the annual Circuit Breaker check, this will be a difficult pill to swallow.  Hardest hit will be those on fixed incomes in towns with high property tax rates.  The Haydens, who live in Bath, are a case in point.  Because they are retired, they would have been able to qualify for the maximum $1,600 to offset their property taxes in 2012, if the Circuit Breaker had been available to them.  But it was repealed.

"We're resigned to the new plan where we'll receive $400 in 2014," said Debby Hayden. 

Another issue is that the Circuit Breaker tax relief and the Property Tax Fairness Credit don't match up very well.  The latest Circuit Breaker tax relief was for 2011; the first Property Tax Fairness relief will be for 2013, so The Haydens and other Mainers are missing a whole year of tax relief.  "I think it's unfair," Hayden said.  "We will probably end up drawing extra funds from an IRA, potentially exposing ourselves to additional taxes.  I feel people did not get sufficient warning of this expensive change to their financial planning."

The changes take place against a backdrop of municipal revenue sharing losses in many towns, that will require new valuation of properties or increase in the mill rate, or a reduction in services that disproportionally affects seniors and the poor.  For those who were relying on the property tax relief, the timing couldn't be worse. 

However, the Speaker of the House, Mark Eves, D-Berwick, has stated that he wants to expand the tax credit in January.  While it will be too late to affect the 2013 tax year, and few details are known about the level of funding, Eves said days ago in a written statement that his proposed bill is a response to growing concerns about the new tax rebate program.

"Democrats were committed to preserving property tax credits for Maine families and this bill will help ensure the funds are there to do it going forward," Eves said. The bill won't be considered until January, when the Legislature convenes for its emergency session.

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