BANGOR, Maine — Last month, City Councilor Ben Sprague calculated Gov. Paul LePage’s plan to allow municipalities to tax large nonprofits would generate $3 million for Bangor, more than the $2.03 million the city gets under the state’s fast-waning municipal revenue sharing program.
Now, Sprague is proposing an alternative he says will eliminate the need to tax nonprofits and allow the governor to eliminate the besieged revenue sharing program entirely. But the plan, commonly known as a local option sales tax, would require cooperation from the Legislature.
Sprague said he plans to ask his fellow councilors during a City Council finance committee meeting this month to support and advocate for the Legislature to approve a plan allowing Bangor and other municipalities to keep at least a portion of the sales tax generated in their communities.
“If there was ever a moment when it was right, it would be now when [the Legislature] is bogged down in the revenue sharing debate and nonprofit taxation debate,” he said. “A local sales tax option could move us past both of those things.”
For Bangor, the Harvard University-educated financial adviser calculates that keeping local just 0.31 percent of the $1.6 billion in sales tax generated in Bangor would replace the approximately $5 million the city used to get in revenue sharing.
Keeping just 1 percent, he calculates, would generate approximately $16 million, allowing the city to cut property taxes by 28.8 percent. Under his plan, Bangor would add a percentage to be determined to the existing 5.5 percent state sales tax it would keep.
“It would allow us to have a much more broad tax base, and I think we would be able to offer property tax relief and continue to invest in ourselves for further economic growth,” he said.
In the 2009-10 fiscal year, the state began reducing tax-sharing payments to municipalities, cutting Bangor’s tax-shared income 54 percent from $4.41 million in fiscal 2008-09 to a budgeted $2.03 million in fiscal 2014-15. Under LePage’s current proposed budget, all revenue sharing would cease in 2017 with those funds reallocated to local governments for tax relief programs aimed directly at property owners.
The loss of revenue puts a strain on municipal budgets, and many municipalities across the state have blamed the cuts for increasing property taxes and reduced public services.
“The possibility of taxing nonprofits creates a false choice of revenue streams, pits municipalities against organizations that provide services that might otherwise have to be paid for by government, and seems unlikely to have much legislative traction anyway,” Sprague said.
The proposal marks a change of position for the councilor, who initially opposed the local option sales tax.
“I don’t like the idea of having an extra tax in Bangor, but with the continued challenges and the plan to ultimately eliminate revenue sharing, I know that we need to do something to diversify our tax base,” Sprague said.
While Sprague admits both property taxes and sales taxes are regressive — costing poorer residents a higher percentage of their incomes than wealthier Mainers — he notes that a local option sales tax would force outsiders to share in the city’s costs associated with being a retail and service center.
“People who come to shop at the mall, for example, are using infrastructure, they’re using public safety, they are not contributing to the cost because they don’t pay property taxes here,” he said.
The property taxes collected from entities such as the mall “come nowhere close to covering the true costs of being a retail and service center community,” he said.
Sprague has yet to present his plan to the City Council. He says he would prefer the state restore revenue sharing, but he believes that outcome is unlikely. His plan would likely face an uphill battle if it moves forward. The Legislature rejected a local option sales tax bill in 2013.
He also says a local option sales tax would give communities autonomy and remove state-level politics from the equation, noting that rural communities won’t benefit from taxing nonprofits because they don’t have large nonprofits to tax.
“What I would love to be focusing on are things like more efficient government, cooperation between multiple levels of government, rationalization, growing the overall economy,” he said. “Instead, we’re bogged down in these perpetual debates about revenue sharing and nonprofit taxation. Those are just a major distraction.”
Follow Evan Belanger on Twitter at @evanbelanger.