Is it constitutional for the Passamaquoddy Water District's charter to make its property taxable by municipalities when other Maine water districts are exempt, and would repealing that taxability trigger Maine's state-mandate or municipal-reimbursement clauses?

Plain-English summary

Senator John Cleveland asked the AG about LD 661, which would amend the charter of the Passamaquoddy Water District. The current charter makes all the district's property subject to municipal property taxation, in contrast to many other Maine water districts whose property is exempt either by general statute (36 M.R.S.A. § 651) or by specific exemptions in their individual legislatively-enacted charters. Senator Cleveland's questions:

(1) Does the taxability provision violate the equal-protection clause (Me. Const. art. I, § 6-A) or the uniform-and-just-value tax provision (Me. Const. art. IX, § 8)?

(2) Would repealing the taxability provision count as a "state mandate" under Me. Const. art. IX, § 21?

(3) Would repealing it require state reimbursement to affected communities under Me. Const. art. IV, pt. 3, § 23?

The AG answered (1) with a nuanced yes-but-no: served municipalities may tax under the charter, non-served municipalities may not exceed § 651's general exemption rules. The AG answered (2) and (3) with no.

Constitutionality of municipal taxation by served municipalities. When a water district is taxed by a municipality that also receives water service from it, the cost flows through the rate base back to the same municipality's ratepayers. They pay through their water rates an amount roughly equivalent to what they would otherwise pay through municipal property tax if the property were exempt. Either way, the same people bear roughly the same financial burden. That economic equivalence supports both rationality (Art. I, § 6-A equal-protection analysis) and uniformity (Art. IX, § 8 uniform-and-just-value analysis). The AG drew an analogy to Portland v. Portland Water Co., 67 Me. 135 (1877), in which the Law Court upheld a city's authority to exempt a private water company in exchange for the company furnishing water free to the city.

Constitutionality of municipal taxation by non-served municipalities. Where a municipality hosts district property but doesn't get service from it, the economic equivalence breaks down. Taxing the property in that situation would let one set of ratepayers (from other municipalities) subsidize the host municipality's tax base. The AG saw that as potentially violating the uniformity rule of Art. IX, § 8 (drawing on Brewer Brick Co. v. Inhabitants of Brewer, 62 Me. 62 (1872)), and limited municipalities to the general-statute exemptions in 36 M.R.S.A. § 651.

Historical exemption framework. Before 1911, all property of public municipal corporations devoted to public use was exempt. P.L. 1903, ch. 46. The 1911 amendment in P.L. 1911, ch. 120 narrowed the exemption to within the corporate limits (plus reservoir-related equipment outside) but added the saving clause "nothing herein contained shall abridge any power of taxation possessed by any city or town by virtue of any special act." That saving clause is the legislative basis for water-district-by-water-district variation, and it accommodates the 130-or-so existing water districts each with their own legislatively-set tax treatment. The AG presumed that variation reflects rational legislative judgments about local circumstances.

Repeal would not be a "mandate." Me. Const. art. IX, § 21 is Maine's state-mandates clause. The AG's answer: repealing an existing statute is not a "mandate" within the meaning of that constitutional clause. Taking away a power is not requiring an activity.

Repeal would not trigger Article IV § 23 reimbursement. Me. Const. art. IV, pt. 3, § 23 obliges the State to reimburse municipalities for property tax losses caused by exemptions enacted after April 1, 1978. The Passamaquoddy Water District charter exemption (if reinstated by repealing the taxability provision) would restore a pre-1978 exemption framework, so the post-1978 trigger does not apply.

Currency note

This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Why does a water district make a difference between served and non-served municipalities?

The economic pass-through is the key. A served municipality's residents are also the ratepayers, so taxing the district shifts cost back to them as higher water rates rather than higher property taxes. A non-served municipality's residents pay no water rates to that district, so taxing the district shifts cost to ratepayers in other municipalities, breaking the equivalence and creating a subsidy.

Is the result different for private water companies?

The 1877 Portland v. Portland Water Co. case gives the framework for private companies: the legislature can let a municipality exempt a private water company in exchange for free water service. The fundamental analysis (cost equivalence to the same residents) is similar.

What does Me. Const. art. IV, pt. 3, § 23 do?

It requires the State to reimburse municipalities for property tax revenue losses caused by tax exemptions enacted after April 1, 1978. It is part of Maine's framework for protecting municipal tax bases from state-level tax-exemption decisions. The reference date matters: pre-1978 exemptions do not trigger reimbursement.

Why isn't a charter repeal a "state mandate" under § 21?

Because § 21 targets state actions that require a local unit of government to expand or modify its activities in a way that forces additional spending from local revenues. Repealing a tax provision is at most a permission change. It doesn't require the municipality to spend money or expand a program.

Could the Legislature pass LD 661?

The AG's answer doesn't address whether LD 661 is good policy, only whether its constitutional bases are sound. The constitutional analysis suggests LD 661 could either restore or alter the charter's tax treatment without triggering § 21 or § 23. The Legislature would need to consider the practical effects on water rates, the District's finances, and the affected municipalities.

Background and statutory framework

Equal protection. Me. Const. art. I, § 6-A. See Lambert v. Wentworth, 423 A.2d 527 (Me. 1980).

Uniform-and-just-value tax. Me. Const. art. IX, § 8 requires that "all taxes upon real and personal estate, assessed by authority of this State, shall be apportioned and assessed equally according to the just value thereof." See Shawmut Inn v. Inhabitants of Town of Kennebunkport, 428 A.2d 384 (Me. 1981).

Pre-1911 framework. P.L. 1903, ch. 46 broadly exempted property of public municipal corporations devoted to public uses. See Inhabitants of Boothbay v. Inhabitants of Boothbay Harbor, 148 Me. 31 (1952).

1911 amendment. P.L. 1911, ch. 120 narrowed the exemption to property within the corporate limits of the public municipal corporation, plus reservoir-related infrastructure outside, with a saving clause for special acts.

General exemption statute. 36 M.R.S.A. § 651 codifies the modern version of the public-municipal-corporation exemption, including the limited exemption for property outside corporate limits in subsections (D) and (E).

State mandate clause. Me. Const. art. IX, § 21.

Municipal reimbursement clause. Me. Const. art. IV, pt. 3, § 23 (post-1978 exemption reimbursement).

Analogous private-company case. Portland v. Portland Water Co., 67 Me. 135 (1877) (city may exempt private water company in exchange for free water service).

Non-served-municipality taxation limit. Brewer Brick Co. v. Inhabitants of Brewer, 62 Me. 62 (1872) (limits on exception to general exemption).

Citations

• Me. Const. art. I, § 6-A (equal protection)
• Me. Const. art. IX, § 8 (uniform and just value taxation)
• Me. Const. art. IX, § 21 (state mandates)
• Me. Const. art. IV, pt. 3, § 23 (post-1978 exemption reimbursement)
• 36 M.R.S.A. § 651 (general public-municipal-corporation exemption); 36 M.R.S.A. § 651(D), (E) (outside-corporate-limits provisions)
• P.L. 1903, ch. 46 (broad pre-1911 exemption)
• P.L. 1911, ch. 120 (1911 narrowing amendment with special-act saving clause)
• Lambert v. Wentworth, 423 A.2d 527 (Me. 1980)
• Shawmut Inn v. Inhabitants of Town of Kennebunkport, 428 A.2d 384 (Me. 1981)
• Brewer Brick Co. v. Inhabitants of Brewer, 62 Me. 62 (1872)
• Portland v. Portland Water Co., 67 Me. 135 (1877)
• Inhabitants of Boothbay v. Inhabitants of Boothbay Harbor, 148 Me. 31 (1952)

Source

• Landing page: https://www.maine.gov/legis/lawlib/lldl/agops/agops.htm
• Original PDF: https://lldc.mainelegislature.org/Open/AG/Opinions/1994/ag_19940307b.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

94-3

MICHAEL E. CARPENTER
ATTORNEY GENERAL

STATE OF MAINE
DEPARTMENT OF THE ATTORNEY GENERAL
STATE HOUSE STATION 6
AUGUSTA, MAINE 04333

March 7, 1994

Honorable John J. Cleveland
Maine State Senate
State House Station 3
Augusta, Maine 04333

Re: L.D. 661, "AN ACT To Amend The Charter Of The Passamaquoddy Water District"

Dear Senator Cleveland:

I am responding to your letter of February 14, 1994, in which you requested an opinion on issues raised by the above-titled L.D. I will address your inquiries in the order they are set forth in your letter.

Your first inquiry is whether the current provisions of the Passamaquoddy Water District Charter making all of the property of the water district subject to property taxation violate either Art. IX, § 8 or Art. I, § 6-A of the Constitution of Maine. It is the opinion of this Department that the property of the Passamaquoddy Water District may legally be taxed by municipalities which also receive water service from the district in accordance with the Charter provisions. If the taxing municipality is not also served by the water district, the municipality may tax district property only to the extent permitted by 36 M.R.S.A. § 651.

You have also inquired whether a repeal of the Passamaquoddy Water District Charter relating to taxability of district property would constitute a "mandate" under Art. 9, § 21 of the Maine Constitution or would require reimbursement to the affected communities under Art. IV, Pt. 3, § 23. It is the opinion of this Department that a repeal of the subject provision would neither be deemed a mandate nor would repeal obligate the State to reimburse affected municipalities for lost property tax revenues.

Article I, § 6-A, insofar as relevant, guarantees equal protection of the law to persons in Maine. See Lambert v. Wentworth, 423 A.2d 527 (Me. 1980). Article IX, § 8 of the Constitution provides, in substance, that all taxes on property must be apportioned and assessed equally according to the just (fair market) value of the property. See Shawmut Inn v. Inhabitants of Town of Kennebunkport, 428 A.2d 384 (Me. 1981). The particular question involved in your inquiry is whether the Passamaquoddy Water District, a public municipal corporation, may have its property subject to municipal taxation while other such chartered districts are exempted from property taxation in whole, or in part, by general statute, viz., 36 M.R.S.A. § 651, or by specific provisions contained within the legislatively enacted charters for individual water districts. Our conclusion and reasoning is set forth below.

Providing the Passamaquoddy Water District's property is located in municipalities which also purchase water service from Passamaquoddy Water District, the Passamaquoddy Water District can pass the cost of such property tax through its rate base to the taxing communities. The taxes paid by the water district will be borne by the residents of the taxing community through increased water rates. In effect, residents of the municipalities are paying through their water rates an amount roughly equivalent to increased local property tax costs that would be borne by them if the property of the water district were otherwise exempt from tax. Cf. Brewer Brick Co. v. Inhabitants of Brewer, 62 Me. 62 (1872). This situation is analogous to the situation involved in Portland v. Portland Water Co., 67 Me. 135 (1877), where the Law Court determined that it was within the constitutional authority of the Legislature to allow a city to exempt property of a private water company in consideration of an agreement by that company to furnish water free of cost to the City. Thus, the ratepayers of the water district were, in effect, treated no differently economically than those of any other district.

The history of the taxability of the property of public municipal corporations and, in particular, water districts, supports the above conclusion. Prior to 1911, all property of public municipal corporations devoted to public uses was exempt from tax. P.L. 1903, ch. 46; and see Inhabitants of Boothbay v. Inhabitants of Boothbay Harbor, 148 Me. 31 (1952). In 1911, the law was amended to provide a more specific and limited exemption for public municipal corporations as follows:

Section 6. The following property and polls are exempt from taxation:

I. The property of the United States and of this state and the property of any public municipal corporation of this state appropriated to public uses if located within the corporate limits and confines of such public municipal corporation, and also the pipes, fixtures, hydrants, conduits, gate-houses, pumping stations, reservoirs, and dams used only for reservoir purposes, of public municipal corporations engaged in supplying water power or light if located outside of the limits of such public municipal corporations, but nothing herein contained shall abridge any power of taxation possessed by any city or town by virtue of any special act. P.L. 1911, ch. 120. (Amendatory language underlined).

This amendment specifically provided that the statute was not intended to abridge any power of theirs conferred on a municipality by any special act. Id. Thus, the Legislature provided for different property tax treatment which was likely already occurring with respect to certain property of public water districts. That there was a need for such flexibility in the statute is reflected by the significant variation in taxability of property in the 130 or so existing water districts. See Memorandum, dated February 4, 1994, from John Clark to Joint Standing Committee on Utilities (copy attached). This office is unable to determine the reasons for varying tax treatments but assumes there is a rational basis for such differentiation.

Despite variations in circumstances and tax treatment of water district properties, it is fair to conclude that the Legislature's intention was that the users, i.e. municipal ratepayers, bear substantially the same financial burden for water service, whether as a direct cost or as an increase in local property tax whether a water district's property was exempt or taxable. To conclude otherwise, would result in a different treatment of water district ratepayers with no rational basis in violation of Art. 1, § 6-A of the Constitution of Maine.

Based on the foregoing, it is my conclusion that the property of the Passamaquoddy Water District may legally be taxed by the served municipalities in which the property is located. Where, however, a municipality in which public water district property is located is not also served by the water district, that municipality may not tax property of the water district to any greater degree than is permitted by existing provisions of general law. See 36 M.R.S.A. § 651(D) and (E). Under such circumstances, allowing taxation of property otherwise exempt under Title 36 could be deemed a violation of the provisions of Art. IX, § 8 of the Maine Constitution. See Brewer Brick Co. v. Brewer, 62 Me. 62 (1872).

In your second inquiry, you ask whether repeal of the tax provision in the Passamaquoddy Water District charter would constitute a state mandate under Art. 9, § 21 of the Maine Constitution. Our answer to this inquiry is that a repeal of an existing statute is not a mandate under the cited constitutional provision.

You also inquire whether a repeal of the tax provision in the charter would require the State to reimburse the municipalities presently taxing the property of the Passamaquoddy Water District. Our answer to this inquiry is that such a repeal would not trigger the reimbursement provision of Art. 4, pt. 3, § 23 of the Maine Constitution because any exemptions which might affect the municipalities preexist the April 1, 1978 date set forth in section 23.

I hope your inquiries have been adequately addressed. If you require clarification or have further questions, please feel free to contact me.

Yours very truly,

MICHAEL E. CARPENTER
Attorney General

MEC/vv