AUGUSTA – Gov. Paul LePage’s proposed two-year budget may drive up property tax rates much more than the administration has let on, says a group that represents Maine cities and towns.
The LePage administration announced last week that a plan to suspend municipal revenue sharing would result in a loss of $200 million to cities and towns. However, the Maine Municipal Association has released an analysis projecting a $420 million tax shift from several of the governor’s initiatives, including the elimination of the business reimbursement tax program, a proposed General Assistance cap and town collections for registering tractor-trailer trucks.
Not only would the revenue sharing suspension cost about $83 million more than the administration has announced, said MMA legislative liaison Geoff Herman, but other measures in the budget would multiply the local impacts.
Herman said the association, which represents most of Maine’s 496 communities, is still calculating the property tax impact and was not yet prepared to release precise figures.
LePage, in a statement issued last week, said the proposals are designed to strengthen the state’s financial position. He said the state has to better manage its finances, and so do towns.
Herman said the strategy, and the governor’s argument, are flawed.
“So let me get this straight,” he said. “State government does its belt-tightening by appropriating nearly a half-billion dollars that is dedicated to local government? Is that how we define belt-tightening? It’s kind of ironic.”
Herman said the governor’s plan to eliminate the Business Equipment Tax Reimbursement program in favor of a newer program, the Business Equipment Tax Exemption, would cost towns — particularly those with large commercial bases — a combined $12 million.
The programs are designed to help the state attract businesses by reimbursing them for taxes they pay to municipalities on equipment, such as machinery and computers.
The first program, the Business Equipment Tax Reimbursement, was adopted in 1995. Under that program, towns are allowed to tax the full value of business equipment, but the state reimburses businesses for those equipment tax payments.
The Business Equipment Tax Exemption was adopted in 2008 as a replacement for the reimbursement program. It fully exempts qualifying businesses from the equipment tax. However, the state reimburses towns only 50 cents on the dollar to account for the lost tax revenue.
The governor wants to quickly move towns from the old program to the newer one, with the goal of lowering the costs of administering both programs. But Herman said the proposal cuts tax revenues in half and ignores “a carefully worked out arrangement not to have a major, overnight impact on local government.”
The governor has also proposed changes to General Assistance, money used to help needy families pay their bills, including a permanent $10.2 million cap. The cap, proposed in LePage’s supplemental budget for the fiscal year ending June 30, would be made permanent in his two-year proposal. It would allow municipalities to shut down their assistance programs once the state’s annual appropriation runs dry.
Another proposal would prohibit General Assistance if any member of a household has reached the 60-month limit for Temporary Assistance for Needy Families.
The administration has estimated the proposals would save $6.7 million over two years, but Herman said the costs would be shifted to service centers such as Portland, Bangor and Lewiston.
Herman flagged other proposals, including a plan to divert excise tax collections on tractor-trailer trucks from municipalities to the state. The LePage administration said the plan is designed to beef up the state’s Highway Fund, which pays for road and bridge projects.
Herman said the proposal would cost municipalities a combined $8 million over two years. The towns that are home to tractor-trailer fleets would be hit harder than others, he said.
Overall, Herman said, the budget unwinds policies that were designed “to take the regressivity out of the property tax.”
“Systems have been designed as a matter of tax policy to blunt or soften the property tax,” he said. “This budget takes us in a completely different direction.”
It’s unclear which of the governor’s proposals will receive support from state lawmakers.
LePage’s revenue sharing suspension is already receiving a cool reception from Republican and Democratic lawmakers alike.
Democratic leaders, who control the Legislature, have immediately dismissed the provision, which MMA estimated would shift $283 million in lost revenue to property taxpayers.
Augusta Sen. Roger Katz, the assistant Senate Republican leader, has said he’s not a “big fan” of suspending municipal aid. Katz, the former mayor of Augusta, said he was familiar with the struggle of stringing together a municipal budget.
However, Katz has said there is a need for municipalities to consolidate services to ease the property tax burden. He said towns traditionally resist consolidation proposals, but the state’s overall budget picture has heightened the need to share resources.
Senate President Justin Alfond and other Democratic leaders have been highly critical of the budget, calling it “the biggest tax increases that the state has seen in a very long time.”
Herman said the response from legislative leaders has been reassuring. However, he worried that “raiding” municipal resources was becoming a trend for state lawmakers. He noted that former Gov. John Baldacci and two previous legislatures had plucked nearly $40 million from the state’s revenue sharing fund to balance previous budgets.
Herman said it may be difficult to completely wipe out the governor’s proposals even if they prove unpopular.
“As soon as the governor puts proposals like this into a budget, there is the immediate requirement to buy them back,” Herman said. “It creates a whole new set of difficulties.
“It’s created a threat, there’s no doubt about it,” he said.
Steve Mistler can be contacted at 620-7016 or at: