Myth or Fact: “I paid higher taxes because the City made a $4 million billing error.”
Before we go into more detail, we want to emphasize right up top – because there’s been a lot of confusion about this – that this is a myth. No one paid or will pay any more in taxes as a result of the billing error the City made in 2023.
Here’s the deal: The City billed taxpayers $2.9 million less than we should have when we sent Fiscal Year 2024 (FY24) property tax bills in the summer of 2023. This happened because the Finance department made an error when supplying information for the state MVR form that sets the tax rate (which determines how much each taxpayer pays to support the budget each year.) The tax rate we used to generate FY24 tax bills was too low, and therefore the bills we sent taxpayers were lower than they should have been. The incorrect tax rate also affected the amount of other revenues the City receives, such as state reimbursement for homestead exemptions. A total revenue loss of about $4 million resulted.
- The FACT is that the City made up for this revenue loss by utilizing surplus revenues, applying grant and reserve funds to eligible costs, and reducing expenses.
- It is a MYTH that property owners paid more in taxes to make up for this revenue loss. (The independent auditor who examined the City’s FY24 finances, when asked at a recent City Council meeting if South Portland taxpayers paid more as a result of the underbilling that occurred, confirmed that the answer is no. Watch at 37:45 here.)
Think of it This Way…
Your dentist charges $100 for a cleaning. The next year, because costs like materials and labor have increased, she raises her cleaning fee to $115. You go in for your cleaning, and she mistakenly sends you a bill for $105. Partway through the year she discovers her mistake, but she doesn’t send you an extra bill for the $10 difference. When you go in for your cleaning this year, she bills you $115. She never collects the $10 she didn’t bill you the year before. This is similar to how the City handled the billing error.
Not a Budgeting Issue
To be clear, the $4 million revenue loss resulted from a tax billing error (albeit a significant one), not a budgeting mistake or mishandling. The City did not overspend its budget or budget too little. The City Council approved a FY24 budget with a 5.1% tax rate increase after a series of public meetings last spring. There were no issues here. But as described above, the bills we sent taxpayers were erroneously based on a lower tax rate. The problem did not immediately stand out because it is not uncommon for the final tax rate to be lower than projected during the budgeting process. This is because the Assessing office finishes its valuation work after Council approves the budget, and this typically results in a lower tax rate than projected.
How the City Resolved the Problem
When we discovered the error in January 2024, we had two options. One was to send property owners an additional bill for the amount that was not billed. The other option was to take other measures to make up the lost revenue. As described above, we chose the second option to avoid surprising taxpayers with an additional bill.
The City never collected the unbilled amount from taxpayers. We did not send an additional bill in FY24, and we did not add the uncollected amount to the FY25 tax levy (amount to be raised in taxes). In FY25, the amount approved to be raised in taxes was only the amount needed to support the FY25 budget that the City Council approved.
Assessed Property Value & Your Tax Bill
It is true that many taxpayers did see increases on their FY25 tax bill, but this was primarily due to increases in property owners’ assessed values, plus a tax rate increase of 6%. Valuation increases, which affected single-family homeowners most, occurred all across Maine. This is because the state constitution dictates that assessed property values be based on market prices, which have risen dramatically in recent years.
Importantly, the City does not collect more in taxes when property values increase. Each year, the City collects only the amount required to support the budget that the City Council approves. If one person pays more in taxes because their property value increases, another taxpayer pays less. The City collects the same amount either way. Read more FAQs about property valuation at: www.southportland.gov/taxbillFAQ
In Conclusion
It’s not hard to see why some might have thought that their higher tax bill was a result of the billing error that the City made with so many factors at play simultaneously, including valuation increases. We hope this post clarifies that no taxpayer in the City of South Portland paid anything extra as a result of the City sending incorrect FY24 tax bills.
Finally and importantly, we acknowledge that this billing error was significant, and we again apologize—for the error and the confusion it caused. We have since put procedures in place to ensure this error doesn’t reoccur. We also apologize if information we’ve shared previously on this topic was not as clear or comprehensive as it needed to be.
South Portland: A Leader in Fiscal Management
The City of South Portland is committed to maintaining its standing as a leader in municipal fiscal management. For example, the City maintains the highest market credit rating from both Moody’s and S&P Global rating agencies–a rating held by only two other communities in the state. These ratings are based on a variety of factors related to financial management. As the S&P Global rating report on the City’s fiscal management highlights, the City’s “robust financial management and practices help bolster its positive operations and stable budgetary environment.”
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More Myths vs. Facts
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