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Gov's Plan to Tax Maine Hospitals and Other Large Non-Profits Sparks Opposition

AUGUSTA, Maine - Maine's non-profit institutions are more than a little wary of the governor's new plan to require municipalities to tax large non-profits that have historically enjoyed tax-exempt status.

Opponents say it's an attempt to cushion the loss of more than $150 million in municipal revenue sharing funds that LePage zeroed out in the second half of the budget cycle. And they also say the policy will not provide the financial offset the communities need.

The idea of taxing non-profits is not new. A legislative task force explored those very possibilities earlier this year. And a bill that would have allowed municipalities to impose service charges for fire, police and other expenses was killed by lawmakers in March.

Now, Gov. Paul LePage is targeting non-profits as part of a huge tax overhaul in his proposed state budget. Geoff Herman, of the Maine Municipal Association, which represents local government, says the policy runs against the national norm.

"This is a different type of proposal," Herman says. "This would be an obligatory - the same in every town and not a local option issue - but just that the exempt status of these large high-value institutions would be converted from 100 percent exempt to 50 percent exempt essentially."

LePage's plan would apply to non-profit hospitals, private colleges and other institutions or agencies with real estate holdings in excess of $500,000. It's a way to soften the blow of a $150 million take-back for Maine cities and towns in the second year of the budget.

The governor's proposed budget flat funds the first. But Maine communities have been fighting cuts to municipal revenue sharing for years. Herman says under the current budget, municipalities are only receiving $62 million of what was supposed to be more than twice that amount. The money is generated through a percentage of the state sales tax collected in the municipalities and used to stabilize local property taxes.

Herman says LePage's plan falls short. "If revenue sharing was worth a dollar, the dollar is being taken away and 50 cents is being returned, and where it's being returned is certainly not in all municipalities," Herman says. "The vast majority of municipalities just don't have that level of exempt property, would not have any access to this new tax base."

That means that service centers like Portland, Bangor and Lewiston would claim the largest share of those non-profit tax funds from large institutions, such as regional hospitals. At the Maine Hospital Association, Jeff Austin says the medical facilities will make their position known to lawmakers.

"We understand what's going on," Austin says. "We think the towns deserve their revenue sharing and we shouldn't be thrown up as a sacrificial lamb to make up for that."

The big problem for hospitals, Austin says, is that there are almost no options for the institutions to generate the additional revenue.

"Ninety-nine percent of the revenue that comes in the door of a hospital goes right back out in paying nurses salaries and paying for pharmaceutical costs of providing care," he says. "And so there is not money there that can be used for other purposes. It would have to be generated."

Those are costs that Austin says could be passed on to consumers at a time when Maine hospitals are striving to hold those expenses down.

When the proposal is finally presented to members of the Legislature's Appropriations and Taxation committees, it is expected to draw record crowds of opponents. Rep. Adam Goode, the Taxation's Committee's House chair, is a Bangor Democrat. He says LePage's plan is misdirected.

"I don't think that a governor who hates revenue sharing who wants to fund a program that helps reduce property taxes at zero is smart to move to move towards a program that does not work as well as revenue sharing," Goode says. "Getting rid of one program is not a reason to fix it by changing the policy in another area."

Appropriations and Taxation committee members are scheduled to discuss the governor's budget this week.