Dozens of organizations and businesses pleaded for exemptions from tax increases in the tax reform bill that was approved last June.
Thanks to Gov. John Baldacci, only two, Realtors and the ski industry, were successful.
Realtors persuaded the governor to reverse a tax increase on the sale of luxury homes.
And the ski industry was slated to collect a sales tax on lift tickets — until the governor intervened.
A two-month investigation of the governor’s decision, including a review of campaign finance reports, shows that the Maine Association of Realtors and the ski areas have supported Baldacci politically and financially and have easy access to him to make their case.
Other groups, such as auto repair shops, had no strong connections in the State House and were not rescued from a new sales tax on their services.
Critics say the governor’s decision to go to bat for these special interests offers an example of the role money, influence and personal connections play in the creation of state policies that affect Maine residents.
“That’s the way the game works,” said Republican House Minority Leader Josh Tardy, R-Newport. “Groups that are represented by lobbyists do a lot better than Joe six-pack.”
The spokesman for the Center for Responsive Politics, a nonpartisan Washington-based group, said the story of the way the tax bill became law shows the “influence of people who have longstanding and tight relationships with politicians.”
“Obviously, the ski and real estate industries are big in Maine,” said David Levinthal. He doubted they would have succeeded in changing the bill “had they not had long-standing relationships with the governor” and if they also had not had the ability to hire lobbyists “to throw their weight around.”
The veto threat
Gov. Baldacci threatened to veto the tax reform measure unless the Legislature accepted his version of the bill, which excluded the ski and real estate taxes. Democratic leadership in the House and Senate yielded to the governor’s changes and pushed his bill through both chambers in a matter of hours in the final days of the legislative session.
Baldacci said any suggestion that his financial and political support from lobbyists and friends representing the Realtors and the ski industry played a part in his decision is “not accurate and the facts don’t bear it out.”
One of the groups that repeatedly asked to be exempted from the expansion of the sales tax was the state’s hundreds of independent auto repair shops. Under the bill, they will have to start charging customers $5 in sales tax for every $100 in service.
Bob Muecki, owner of Bangor Auto and Truck Center in Hermon, said, “What I see is a lot of tax breaks on what I consider leisure activities and a lot of areas being taxed that are the bread-and-butter for workers and year-round people, people who pay [Maine] income taxes.”
“My honest opinion,” said Muecki, “is that it’s just outrageous.”
Skiing, Beliveau and Cook
The break for ski operators allowed them to escape charging a 5 percent sales tax on lift tickets, which would have cost the typical skier about $3 or less per day of skiing.
The ski areas are represented by lobbyist Severin Beliveau, a longtime political and financial supporter of the Democratic governor.
Their case also was helped by a plea from another longtime Baldacci friend and supporter, Saddleback Maine’s general manager, Warren Cook.
Beliveau said the governor’s decision “was not a function of our relationship,” adding that Baldacci has been opposed to taxing outdoor recreation since he was in the state Legislature 25 years ago.
Cook said he spoke to the governor about exempting ski lift tickets and that when the Berry family bought Saddleback in 2003, “Bill Berry went to the governor and the governor pledged to him at the time that he wasn’t going to support a tax on ski tickets.”
When the proposal to tax lift tickets came up again last year, Cook said, “I just went in and said to the governor, we need your help in this area.”
Baldacci’s deputy chief of staff, David Farmer, said the governor said, “I don’t know if I’d characterize it as a promise. I told Warren I didn’t support it.”
Campaign donations
Cook, the former vice president of government relations at The Jackson Laboratory in Bar Harbor, gave $1,000, the maximum, to Baldacci’s first run for governor and helped lead his transition team in 2002. That year, Cook also gave the maximum to Baldacci’s GOP opponent Peter Cianchette.
Beliveau gave $1,000 to the last two Baldacci gubernatorial campaigns and a total of $4,500 to Baldacci congressional campaigns.
In the 2006 governor’s race, lawyers in Beliveau’s firm, Preti Flaherty, gave $25,000 to Baldacci’s campaign. Twenty attorneys in the firm, where Beliveau is listed as a founding partner who “directs the firm’s Legislative and regulatory practices in Augusta and Washington, D.C.,” gave the maximum of $1,000 each.
Baldacci’s total campaign contributions in 2006 were $1.3 million.
Baldacci’s Republican opponent in 2006 was Chandler Woodcock, whose campaign was publicly financed and who received only small contributions as seed money. None of those came from Beliveau or his law firm, according to state records.
In 2002, records show Cianchette received a total of $1,100 from three Preti Flaherty attorneys. In contrast, the same records list more than 20 lawyers from the firm giving Baldacci’s campaign $14,000.
The Ski Maine Association gave $1,500 to Baldacci in his two runs for governor and another $5,000 to a political action committee that helped win voter approval earlier this year for school consolidation, a signature program of the Baldacci administration. Ski Maine also contributed to Cianchette.
Farmer, from the governor’s staff, added that many organizations — such as gambling interests that the governor has not agreed with — contributed to the school consolidation PAC.
The Realtors lobby
The chief lobbyist for the Realtors, Linda Gifford, is also said to have the ear of the governor and persuaded him to buck leaders of his own party and reverse the transfer fee increase on homes selling for more than $500,000.
The Maine residential real estate industry is represented by the Maine Realtors Association, which opposed an increase in the real estate transfer tax that would have only affected homes selling for more than $500,000.
The governor’s carve-out of that provision saves the buyer and seller of a $1 million house, for example, $1,400 each.
The Realtors’ Political Action Committee has given the Baldacci campaign $1,500 in the past two gubernatorial elections and has contributed a total of $222,050 since 2002 to a variety of Maine candidates, sitting legislators and other PACs and causes, according to records at the state Commission on Governmental Ethics.
State Rep. John Piotti, D-Unity, an author of the original tax reform bill and majority leader in the House, objected to the governor’s changes, but in the end agreed to them rather than have the bill vetoed.
Piotti said, “He [Baldacci] knew people in that [real estate] industry and, in fact, listened to Linda Gifford, who has been one of his supporters. He was talking to her, I’m sure.”
Gifford said Baldacci has always objected to increasing the real estate transfer tax since his days in the state Senate. She said her lobby didn’t do anything different last year except reiterate its concerns.
In her “recap” of the tax battle to her board, Gifford, the Realtors’ chief lobbyist, wrote, “We met with the governor several times about our concerns. We lobbied against the bills extensively.” The Realtors association, she wrote, was “very pleased with the elimination of the proposed increase in the transfer fee, thank you Governor Baldacci …”
The governor’s office has confirmed that he met or spoke with Beliveau, Gifford and Cook about the bill, but the governor said that did not influence his decision, adding that he met with many interests about the bill.
The tax reform bill originally passed by the Legislature included the transfer fee and recreation taxes because they would help make up for lowering the income tax for all Mainers from 8.5 percent to 6.5 percent.
The final bill still lowers the income tax to 6.5 percent, but no longer for all Maine residents. Those with incomes of more than $250,000 will get a smaller tax break to help pay for the changes that Baldacci insisted on for the real estate and ski industries, plus some other recreational activities, such as golf.
He also needed the additional revenue to pay for a provision of his bill that will send checks of up to $150 to low-income Mainers who don’t make enough to pay income taxes.
Recession worried Baldacci
Baldacci, in an interview in his State House office, said he opposed the increase in the transfer tax, even if just on expensive homes, because he didn’t want to damage the real estate industry during the recession.
He believed the increase in the meals and lodging sales tax that was part of the bill should not be made worse at ski resorts by taxing lift tickets as well.
“It was the cumulative effect of it all,” he said.
State Rep. Thomas Watson of Bath, the Democratic co-chairman of the Taxation Committee, which wrote the original reform bill, said the governor’s decision to undo the increase in the real estate transfer fee “made no sense at all.”
He added, “It’s almost fully exportable — very few Mainers buy million-dollar homes. When Linda Gifford stopped coming to Taxation Committee hearings, I figured she’ll get what she wants — the fix was in. She has his [Baldacci’s] ear.”
The tax on the sale of residential real estate in Maine has been the same for 24 years — $4.40 for every $1,000 for which a home is sold. The buyer and seller each pay half.
The bill passed by the Legislature would have left that alone for the vast majority of homes sold in Maine. The increase to $10 per $1,000 would have applied only to residences of one to four units that sold for more than $500,000 and only to that portion of the sale above that amount.
For example, the transfer tax on a home sold now for $1 million would be $4,400. If the new tax had been approved, the amount would have been $7,200.
The Maine Revenue Service estimated that in 2010, of the 19,000 residences expected to be sold, 1,850 — or a little less than 10 percent — would be affected by the new tax.
The Realtors argued this would hurt an already ailing industry, and the governor agreed.
Baldacci explained his reasoning: “I said, what’s one of the major causes of this great recession? Wasn’t it the housing market? … and you want to get back into this? They said, ‘Well, it’s on the upper end,’ and I say, ‘What do you want to be, part of the reason for not getting out of this?’”
The bill
The Maine Revenue Service estimates 95 percent of Mainers will see their state income tax reduced under the bill submitted by the governor and passed by the Legislature. The “revenue neutral” bill makes up dollars lost to the state treasury from the lower income tax by increasing other taxes, such as the meals and lodging tax, and no longer exempting some products and services — such as auto repairs, movie tickets and dry cleaning — from the 5-percent sales tax.
While the new mix of taxes is projected to bring in the same amount annually to the state general fund, Maine Revenue Services estimates that a greater portion of the taxes will be paid by out-of-staters, resulting in Mainers paying $53 million less in taxes.
Although signed into law, the bill did not take effect because an anti-tax coalition called Still Fed Up With Taxes gathered enough signatures to have the law go to referendum this June, a move that puts implementation of the bill on hold.
One of the Republican leaders of the coalition, Sen. David Trahan, R-Waldoboro, said if the governor wanted to help working people, “then why did he leave in auto repairs, which is an essential, something Maine people pay,” but exempt taxes on skiing, golfing and the sale of luxury homes.
“The governor’s bill addressed those that screamed the loudest and left out those who didn’t have an organized lobby, like the auto repair people,” Trahan said.
Rushed through
Trahan and other Republicans also objected to the speed at which Baldacci’s 34-page bill was printed, debated and voted on.
“We had less than an hour and a half between when the bill was printed and when we voted on it. There was no public hearing,” Trahan said.
Rep. Watson, the Taxation Committee co-chairman, said that the previous version of the bill was well-debated earlier in the year.
“Republicans were under instructions to say ‘no’ anyway,” Watson said. “We rushed it through because we had the vote, so there was no point in having a debate.”
The Federal Reserve Bank of Boston recently published a study by former independent state Rep. Richard Woodbury, an economist, titled, “The Struggle for Tax Reform in Maine, 2003-2009.” Woodbury recognized that, unlike the failed attempt at tax reform in 2007, in 2009, the “process engaged the public at large, the press, interest groups, lobbyists, and the constituencies of likely political opposition.”
For the Democratic leaders in the Legislature, that culminated at the last minute into seeing their hard-fought compromise bill be compromised one more time — this time by the state’s chief executive.
Watson, the Democratic co-chairman of the Taxation Committee, said, “The way it was done was a little disheartening after all the work the committee put in on tax reform — hundreds of hours — to have it changed in such an arbitrary way in the very last days.”
But in a subsequent e-mail, Watson softened his comments: “The Governor has constitutional power to veto and thus a lot of leverage on any measure presented. And in the end we passed a tax reform package that benefits Maine resident taxpayers.”
Republican view less charitable
Rep. Tardy, the House minority leader, said Baldacci “had to make some change to show he just didn’t succumb … He had to save face, so he made a lame attempt to inject what he wanted.”
Only one Republican in either chamber voted for the governor’s version of the bill: Sen. Peter Mills, R-Cornville, a candidate for governor who has a reputation as a moderate and policy expert.
Like others, he was not surprised to see the governor side with a client represented by Beliveau.
“He’s extremely bright and very effective at making arguments,” Mills said of Beliveau. “There’s always some client willing to pay good money to have Severin appear … and he’s got good access to the governor.”
Beliveau has been a key player in Maine politics going back to the 1970s. His status as the unofficial top Democrat in the state was perhaps best demonstrated in 2002 when a reception for President Bill Clinton before a speech in Augusta was held at Beliveau’s stately home in Hallowell.
On the subject of the tax exemptions, Beliveau said there was “nothing unusual in this — there’s not a piece of legislation the governor doesn’t play a role in … you don’t have a story here.”
The governor’s take on it all: “That’s the way I felt, and there’s only one governor at a time … I had an opportunity to make my mark on things. I’m using my own judgment as to what makes sense and what doesn’t.”
John Christie’s e-mail is mainecenter@gmail.com.
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The Bangor Daily News has agreed to publish stories produced by the Maine Center for Public Interest Reporting, a 501-c3 nonprofit corporation associated with the New England Center for Investigative Journalism at Boston University. The center is headed by John Christie, former publisher of the Kennebec Journal and the Waterville Morning Sentinel.