As certain state budget changes begin to take effect, one in particular will hit low-income households hard. The Maine Residents Property Tax and Rent Refund Program, otherwise called the “circuit breaker,” was repealed Aug. 1 and replaced by a “property tax fairness credit.”
What 90,000 Mainers are learning is that there’s now a gap in property tax relief because of a change in filing schedules. That means they won’t get a partial refund for the 2012 property tax year.
In addition, the benefit they will receive through the new credit once they file their income tax returns in January could be dramatically less than the benefit they received from the circuit breaker — if they are now eligible at all.
The purpose of the circuit breaker program, which provided nearly 90,000 refunds in the 2011 application period, is to help keep people in their homes and alleviate the disproportionate burden that high property taxes have on those with low incomes. Under the circuit breaker, the maximum benefit was $1,600. Under the new tax credit, the maximum benefit will be $300, or $400 for those 70 and older.
Virginia Graham, 67, of Bangor, is one of many who called the governor’s office or Maine Revenue Services over the last few weeks, worried. She had received a letter explaining the program’s repeal by the Legislature.
When she read the notice, she said her first concern was that she’d lose $100 each year for three years, as she currently receives a $400 annual refund. Then she realized the larger problem: She won’t receive any relief from property taxes assessed in 2012.
Circuit breaker applications had to be submitted by May 31, for 2012, and were no longer valid when the program ended Aug. 1. The tax credit will instead apply to the 2013 tax year.
“It just seemed so cruel to take something away retroactively. I never heard of a tax increase in years before where you could go back and take money. For me, that had the effect of increasing my property taxes for the previous year by $400,” she said.
Graham receives Social Security retirement benefits and works a part-time job to make ends meet. Even then, her income hovers just above the federal poverty level. The property tax increase alone represents nearly 3 percent of her income.
One of the most troublesome things, though, is that it came by surprise, she said. If there had been time to budget for the loss, she would have. Instead, because she had counted on the refund, she felt safe paying for a pulmonary rehabilitation program not covered by her insurer, Medicare. She has chronic obstructive pulmonary disease, and the rehab has helped her tremendously, she said. She’s lost weight and can breathe easier.
The “real callousness of it,” she said, is that she would have waited to do her rehab if she had known she wouldn’t have the money.
“It makes it look like I was financially irresponsible to do something that was best for my health,” she said. She now owes about $380 for the medical care.
She will pay her bills, but it will take a lot longer, and she will likely rack up interest. “I’m going to have to hope the city is understanding and will make some kind of minimum payments,” she said.
Mike Allen, associate commissioner of tax policy for Maine Revenue Services, said the only advice the department can give right now is to tell people to ask their towns for help if they’re going to have trouble paying their property taxes.
“There’s nothing at this stage that we can do to help solve that problem until they file for the new tax credit in January,” he said.
The state savings realized by eliminating the circuit breaker program, offset by funding the tax credit, will amount to roughly $23 million in the fiscal year that runs July 1, 2013 to June 30, 2014, he said.
Nearly 90,000 people apply for the circuit breaker each year, even though as many as 200,000 were eligible. The state estimates about 125,000 people will be eligible for the tax credit and that most will receive it because people will file for it on their tax returns rather than through a separate application — as was the case with the circuit breaker.
To qualify, people must pay property taxes on a home that total more than 10 percent of their Maine adjusted gross income — or pay rent worth more than 40 percent of their adjusted gross income.
The qualifications are more stringent than those under the circuit breaker program. They are not as severe, however, as those put forward by Gov. Paul LePage in his original biennial budget. Under that proposal, the program would have basically been eliminated, except for seniors.
As for Graham, she said she spoke publicly because she wants people to be aware of the change.
“It’s going to be devastating for more than me,” she said.