Gov. Paul LePage’s proposed fiscal year 2016-17 state budget puts many important tax policy issues squarely before the Legislature and, ultimately, the residents of Maine. There are several parts of his proposal that the Maine Municipal Association has recommended for years. Perhaps the time has finally come to accomplish comprehensive tax reform.
State and local governments operate largely on revenue generated by three major taxes: Property taxes account for 45 percent of that total, the income tax about 34 percent and the sales tax 21 percent. Good public policy suggests that the tax mix should be properly balanced, with no single tax relied on disproportionately, especially the regressive property tax. Middle- and lower-income homeowners and small business owners know quite well that Maine relies too heavily on the property tax.
We also believe that the blanket, 100 percent property-tax exemption that the Legislature grants to large, nonprofit institutions — such as private colleges and hospitals — is unfair. It shifts the burden of paying for basic local services (roads, public works, fire/police protection) to the remaining property owners who do not enjoy special exemptions. The governor’s proposal to apply a property tax to these tax-exempt corporations deserves further review. A major problem is that the vast majority of Maine’s 492 cities and towns would see no benefit from this proposal because there are no large nonprofits within their borders.
Municipal officials are most concerned about the governor’s proposal to eliminate the municipal revenue sharing program, established by law in 1972. Statewide, municipalities should receive $160 million in fiscal year 2016 for property-tax relief purposes. The proposed budget would fund only $62 million of that in 2016, zero in 2017 and thereafter.
Revenue sharing was enacted to reduce Maine’s property-tax burden and formally recognize that municipalities are key participants in nurturing Maine’s economy. Towns and cities also provide vital services on behalf of, and at the behest of, the state. Ending revenue sharing will push property taxes higher.
On that subject, the Maine Municipal Association recently published a report entitled, “State Municipal Partnership Programs: Past, Present and Future.” It’s posted at www.memun.org, and we hope that local officials, state policy makers and Maine residents read it. The report identifies a “partnership program” as a state law mandating municipalities to provide specific services for the general good of the state.
Twenty mandated programs are tracked from enactment to present day. Programs run the gamut from the oldest (elections, animal control, local public assistance) to the most recent (BETE business tax exemption, school consolidation, mandatory building codes). The report identifies several principal findings:
Historical Reliance. The reliance on municipal government to provide services for the general good of the state is deeply embedded in Maine history. This long-standing reliance validates the ability of municipal government to deliver public services efficiently and provide the greatest level of accountability to the public.
Elements of partnership. There are several key criteria, although the state’s record in meeting them during both good and bad economic times is shaky:
— Program-specific state financial support.
— Shared revenue systems.
— Providing tools in statute so services can be delivered as cost-effectively as possible.
— State-supplied technical assistance and administrative support.
— State agency collaboration.
Revenue sharing compact. Municipal revenue sharing is the gold standard by which the state-local relationship is measured. The program provides meaningful, financial recognition of the work that municipalities do for the state, and it rests on four foundation stones:
— Recognizing the role of municipal government in nurturing local economies, from which nearly all state revenue is derived.
— Mitigating tax shifts and increased tax rates created by property-tax exemptions enacted by the Legislature.
— Reducing the state’s chronic overreliance on the property tax to pay for governmental services, particularly in financially stressed communities and those experiencing high regional demand for services.
— Recognizing the breadth of the programs that towns and cities are mandated to provide for the state.
The Maine Municipal Association will collaborate constructively during the state budget deliberations. The governor’s proposal, while flawed, puts important public policy issues on the table. We hope the Legislature takes advantage of this opportunity to fix Maine’s tax code for the long-term.
Geoffrey Herman is director of state and federal relations for the Maine Municipal Association. The association’s report on state-municipal partnerships is available at www.memun.org.