AUGUSTA — The state Department of Education is opposing two bills that would provide tax relief to residents in Madison and Skowhegan, while officials from those communities say a change in state law is greatly needed in the wake of large reductions in the tax value at paper mills in the two towns.

A Department of Education representative voiced in a letter the only opposition to the proposed bills, LD 281 and LD 282, at a public hearing Wednesday before the legislative Committee on Taxation. About a dozen people, including state legislators, town managers and residents of Madison and Skowhegan, testified in favor of the bills, which would make exceptions to the state funding formulas that determine school subsidies and revenue sharing for communities that have significant drops in tax value in a single year.

Both Madison and Skowhegan have had revenue shortfalls this year after large reductions in the property tax valuation of the paper mills. In Madison, the value of Madison Paper Industries dropped from $229 million in 2013 to $80 million, while in Skowhegan, the value of the Sappi Fine Paper plant dropped from $567 million to $463 million.

Officials from Jay also testified in favor of the bills and an amendment that would include Jay among the communities asking for immediate recognition of local valuation. Jay had a 27 percent reduction in value at the Androscoggin Mill, owned by Verso Paper, this year as a result of a tax abatement.

“When a town suffers a major valuation loss, the effects are dramatic and they stay for quite a while,” said William Van Tuinen, who is a tax assessor in both Madison and Skowhegan. “It would be very helpful for the towns affected by that kind of valuation loss to have that change reflected sooner rather than later.”

Under state law, funding to schools is determined by a three-year average of property values. Towns with less property value often receive more state funding, while towns with higher property value receive less. In the case of Madison and Skowhegan, the towns will have to wait at least three years to maximize state education funding.

State valuations also often lag municipal valuations by about two years, which means that Madison and Skowhegan could also lose other state aid, like revenue sharing funds, over the next two years.

Other officials from Madison and Skowhegan echoed Van Tuinen’s plea that the state address the sudden changes in valuation, which he attributed in part to recent struggles faced by the paper mills, including competition from Port Hawkesbury Paper in Nova Scotia, high energy costs and a decline in the demand for paper.

“SAD 59 is a school district with roughly 70 percent free and reduced lunch, which equals poverty and transience, and a community that is going to find it very difficult to pick up the increase in the taxation to its residents that we see with the devaluation of the mill,” said Todd LeRoy, superintendent of Madison-based School Administrative District 59. Over the last several years, the school district has already had increases in costs to residents because of other communities withdrawing from the district, state funding reductions and increased costs of sending students to area charter schools, LeRoy said.

“Every year we’ve had to go back to our people and ask for more money. It just doesn’t seem fair,” he said.

The drop in value at Madison Paper represents about a 30 percent loss in property value in the town. “It’s a lot of money, and it means a great deal to our community. The people of Madison are worried, and they’re scared. They don’t know where this is going, and to wait it out means our taxes are going to get to a level that many people can’t afford,” LeRoy said.

In 2014, the tax rate in Madison jumped 11 percent, from $17.53 per $1,000 of assessed value to $19.50 per $1,000 of assessed value, but only after a special town meeting in which residents voted to take $800,000 out of the town savings account to put towards tax relief and authorized selectmen to seek a bank loan for some operating expenses over the next seven years.

No representatives of the Department of Education were present at Wednesday’s hearing, but Suzan Beaudoin, director of school finance and operations, said in two letters to the taxation panel that the department is opposed to the bills because they require redistribution of available state subsidies that would have an adverse impact on most school districts across the state.

One of the bills, LD 282, proposes that the state use only the most recent valuation to determine school subsidies in communities that have a drop in tax value of greater than two percent in a single year. The change would affect more than 80 school districts in 2015-2016 and would mean a major redistribution of state subsidies, Beaudoin said.

The other bill, LD 281, asks the state to make a one-time exception for Madison and Skowhegan in the state funding formula.

Both the Madison and Skowhegan school districts would get more money from the state with the change, but school taxes would also go up for most of the communities in RSU 54, Beaudoin said. That’s because the district would see a shift in the percentage of school taxes paid by Skowhegan, Beaudoin said. RSU 54 also includes Canaan, Cornville, Mercer, Norridgewock and Smithfield.

In response to the DOE opposition, LeRoy said the impact on other districts across the state should be minimal.

“It’s pennies when you spread that out across the state,” he said. “This would be a minor hit to the entire state, but it would be a much needed lifeline for the town of Madison.”

The committee will have a work session next week to further discuss the bills.

“There are precedents that have been set in which we’ve made exceptions like this before,” said Sen. Earle McCormick, R-West Gardiner, the Senate chair of the committee. “I don’t know where the committee is going to go with this though.”

“I can certainly understand why these towns feel the way they do and why they need a solution to this sudden drop in value,” said Rep. Matthew Moonan, D-Portland, another member of the committee. “We just need to find out more about how this legislation would affect other towns. I think if the impact is spread out across the state, it would probably be a small affect as compared to a large impact on these towns.”

Rachel Ohm — 612-2368

rohm@centralmaine.com

Twitter: @rachel_ohm