Democrat lawmakers in Augusta have introduced a bill that would impose a three percent sales tax on hotel rentals in order to increase the amount of state funding available for public schools.

If approved, an additional three percent sales tax would levied on the cost of renting a room in a hotel or other lodging place beginning on January 1, 2026. Under current law, hotel rentals are already subject to a nine percent sales tax, also known as a lodging tax.

The supporters of the proposal intend for the additional funds to be “credited directly” to the Maine Department of Education to fund school construction, as well as K-12 public education more generally.

Nothing, however, would prevent future legislatures from re-purposing the funds raised by the tax, as state revenue streams cannot be permanently earmarked.

The new hotel tax would be collected in addition to the 9 percent sales tax already imposed on the rental of lodging in Maine, raising the total tax on a hotel rental to a total of 12 percent.

LD 225 — An Act to Reduce Property Taxes and Finance Public School Construction and Education Through a 3 Percent Sales Tax on Hotel and Lodging Place Rentals — was sponsored by Rep. Michael F. Brennan (D-Portland).

Cosponsoring this bill are Sen. Joe Rafferty (D-York), Rep. Daniel J. Ankeles (D-Brunswick), Rep. W. Edward Crockett (D-Portland), Rep. Janice S. Dodge (D-Belfast), Rep. Lori K. Gramlich (D-Old Orchard Beach), Rep. Marc G. Malon II (D-Biddeford), Rep. Anne-Marie Mastraccio (D-Sanford), Rep. Matt Moonen (D-Portland), and Rep. Kelly Noonan Murphy (D-Scarborough).

Click Here to Read the Full Text of LD 225

Public education in Maine is funded in part by local property taxes and in part by the state government. In 2004, Maine voters approved a ballot referendum requiring the state to pay 55 percent of the cost of local schools.

But that funding level was never met — and was a perennial source of political strife in Augusta — until Gov. Janet Mills’ (D) administration was able to use federal COVID-19 assistance to meet the goal as part of her 2022-2023 budget proposal.

The exact amount of funding received by each school administrative unit is determined by the Essential Programs and Services (EPS) model, which helps to calculate how much funding each district needs from the state in order to ensure that students have access to certain necessary educational services.

To cover the remaining costs of public education, school districts turn to local property tax revenue.

In addition to education, property taxes also allow municipalities to pay for services such as police and firefighters, as well as any other programs and projects that are not funded by the state.

Local schools are, however, the far largest component of property tax expenditures. According to the Maine Municipal Association, the average locality in Maine used around 68 percent of its property tax revenue for education-related expenses as of 2016.

Over the past year, voters throughout the state began more closely scrutinizing their local school budgets. Some municipalities even saw their budget proposals rejected two or three times by voters, forcing them to take additional cost cutting measures.

For example, Westbrook voters sent local lawmakers back to the drawing board last year for the first time in town history.

Legislators in Augusta have already introduced a number of other bills aimed at providing property tax relief to Maine homeowners, including a bipartisan bill that would nearly quadruple the homestead exemption over the next few years.

Currently, the homestead exemption allows Mainers to take $25,000 off the total tax-assessed value of their homes. Under the proposed legislation, this would increase by $10,000 annually beginning in 2026 until it reaches a total of $95,000 in 2033.

At this point, the homestead exemption would continue to increase annually in accordance with the cost of living.

A separate Republican-led proposal would provided targeted property tax relief to seniors, immediately increasing the homestead exemption to $75,000 for Mainers 65 and up.

If approved, this increased exemption would be applicable for the tax year beginning on April 1, 2025.

LD 225 has been referred to the Legislature’s Taxation Committee and will be the subject of a public hearing at some point in the weeks and months to come.

The new proposed hotel tax may encounter more obstacles than would otherwise be expected as a result of resistance to higher taxes.

Although Maine taxpayers have made unprecedented increases to the amount of funding given to Maine’s public schools, these higher levels of spending have not translated into better performance among students.

The 2024 Nation’s Report Card revealed that Maine students are continuing to struggle academically post-pandemic.

The National Assessment of Educational Progress (NAEP) — commonly known as the Nation’s Report Card — has been used to gauge students’ level of academic achievement since 1969.

NAEP describes itself as “the largest nationally representative, continuing evaluation of the condition of education in the United States.”

According to Edunomics, a project of Georgetown University’s McCourt School of Public Policy, Maine’s public education funding has increased 71 percent since 2013 — far outpacing inflation — while NAEP test scores have decline precipitously.

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In other words, despite Mainers spend more money on public schools, students continue to fall further behind their peers in other states.

Maine’s fourth graders are currently having an especially hard time in both reading and math, performing worse in comparison to both prior years’ scores and their counterparts nationwide.

Eighth graders in Maine also had a poor showing on the 2024 Nation’s Report Card, their scores remaining largely unchanged from last year and falling into the middle of the pack in comparison to similar students across the country.

Watch Maine Wire’s Alicia Farmer Interview Maine Policy Institute Research Fellow Jonah Davids on the NAEP Results:

Record spending –> Negative results.

The Mills administration's disastrous focus on "social-emotional learning" is failing Maine's kids. @AliciaMaeFarmer interviews @jonahdavids1 on what recent test scores reveal for Maine's floundering education system: pic.twitter.com/7kVWnsRvi1

— The Maine Wire (@TheMaineWire) January 30, 2025